In An Unexpected Outcome, Trump Tax Reform Blew Up The Treasury Market

Over the past week we have shown on several occasions that there once again appears to be a sharp, sudden dollar-funding liquidity strain in global markets, manifesting itself in a dramatic widening in FX basis swaps, which – in this particular case – has flowed through in the forward discount for USDJPY spiking from around 0.04 yen to around 0.23 yen overnight. As Bloomberg speculated, this discount for buying yen at future dates widened sharply as non-U. S. banks, which typically buy dollars now with sell-back contracts at a future date, scrambled to procure greenbacks for the year-end.
However, as Deutsche Bank’s Masao Muraki explains, this particular dollar funding shortage is more than just the traditional year-end window dressing or some secret bank funding panic.
Instead, the DB strategist observes that the USD funding costs for Japanese insurers and banks to invest in US Treasuries – which have surged reaching a post-financial-crisis high of 2.35% on 15 Dec – are determined by three things, namely (1) the difference in US and Japanese risk-free rates (OIS), (2) the difference in US and Japanese interbank risk premiums (Libor-OIS), and (3) basis swaps, which illustrate the imbalance in currency-hedged US and Japanese investments.

This post was published at Zero Hedge on Dec 27, 2017.

Demand Tumbles For 5Y Treasuries As Tailing Auction Leads To Highest Yield Since 2011

After yesterday’s ugly, tailing 2-Year auction, it is probably not a big surprise that today’s sale of $34 billion in 5Y Treasurys was just as ugly.
The auction printed at a high yield of 2.245% – the highest since March 2011 – and well above last month’s 2.066% largely thank to the recent Fed rate hike. More troubling is that the auction tailed the When Issued 2.228% by a whopping 1.7bps, the biggest tail going back at least 2 years.

This post was published at Zero Hedge on Dec 27, 2017.

Global Stocks Rise, Copper Soars In Thin Holiday Volumes

European stocks are steady in post-Christmas trading if struggling for traction after a mixed session in Asia, amid trading thinned by a holiday-shortened week and ongoing worries about the tech sector; however a strong rally in commodities – including copper and oil – buoyed expectations for a strong 2018 and helped offset concerns over the technology sector triggered by reports of soft iPhone X demand.
U. S. equity futures nudged higher while the dollar weakened against most G-10 peers as investors await the release of U. S. consumer-confidence data, with much of the spotlight falling on commodity currencies. The OZ dollar holds onto gains as copper surges to a three-year high; oil retreats after reaching the highest close in more than two years following a pipeline explosion in Libya on Tuesday. Treasuries and core European core bond yields are a touch lower.
The Stoxx Europe 600 Index edged lower, with tech stocks hit for the third day amid rumors of weak iPhone demand and leading the decline as chipmakers slumped after analysts lowered iPhone X shipment projections, sending the Nasdaq Composite Index lower overnight. While mining and oil stocks strengthened due to a surge in copper prices to a 3.5 year high (see below), the European STOXX 600 index slipped 0.1% as European tech stocks tumbled on reports that demand for Apple’s iPhone X may be weaker than expected. The equity benchmark index is poised for an annual gain of 8.1%, the best advance in four years. Elsewhere, Volvo rose as China’s Geely bought Cevian’s stake in the truckmaker, making it Volvo AB’s largest stakeholder. IWG surged the most since 2009 after confirming it has received a a non-binding takeover offer from a consortium backed by Brookfield Asset Management and Onex.

This post was published at Zero Hedge on Dec 27, 2017.

Demand Slides For 2Y Treasuries As Yield Surges To Highest Since Sept 2008

The last time the yield on a 2-Year TSY auction was as high as it was today – 1.922% to be specific, tailing the When Issued 1.899% by 0.3bps – was just a few days after Lehman Brothers failed, with one difference: back then it was sliding, while now the rate on 2Y paper is surging, up from just 1.21% at the start of the year, and up from 1.765% just last month thanks to the latest Fed rate hike.

This post was published at Zero Hedge on Dec 26, 2017.

2017: A Review Of The Fed, Treasuries, Mortgages and Housing (Volatility and Velocity)

This is a syndicated repost courtesy of Snake Hole Lounge. To view original, click here. Reposted with permission.
2017 has been an interesting year. Donald Trump was elected President and seated in January 2017. The Federal Reserve kept rates near zero with a massive balance sheet for almost all of Obama’s 8 years as President, then started to raise rates and unwind their massive balance sheet AFTER Trump was elected. Note the decline in M2 Money growth after Trump’s election.

This post was published at Wall Street Examiner by Anthony B Sanders ‘ December 23, 2017.

There’s Never Been A Worse Time For A European Investor To Buy US Treasuries

Since the common currency’s inception in 1999, the EUR-hedged yield ‘offered’ to European investors from investing in US Treasuries has never been worse…
As Bloomberg notes, for European investors using swaps to protect against currency swings, the benchmark 10-year U. S. yield fell Friday on a euro-hedged basis to around -60bps.

This post was published at Zero Hedge on Dec 18, 2017.

“A Violent Downside Break”: Why One Trader Thinks The Christmas “Pain Trade” Will Be Especially Painful

Before you shut down that terminal for the year, hoping that the year is – mercifully – finally over, you may want to consider that according to former Lehman trader and current Bloomberg macro commentator Mark Cudmore, the Christmas pain trade is about to be unveiled, and it will be especially painful for all those short Treasurys. As Cudmore warns, with ten-years stuck in a 2.3%-2.43% range for the past seven weeks, “the arguments are adding up for a violent downside break during the weeks ahead.”
Here are his arguments why, as laid out in Cudmore’s latest Macro View :
A Treasuries Rally May Be the Christmas Pain Trade Post-Fed price-action suggests Treasury bulls may stampede while traders are in holiday mode.
Ten-year yields have been stuck in a 2.3%-2.43% range for the past seven weeks. The arguments are adding up for a violent downside break during the weeks ahead.

This post was published at Zero Hedge on Dec 15, 2017.

US Futures Hit New All Time High Following Asian Shares Higher; European Stocks, Dollar Mixed

U. S. equity index futures pointed to early gains and fresh record highs, following Asian markets higher, as European shares were mixed and oil was little changed, although it is unclear if anyone noticed with bitcoin stealing the spotlight, after futures of the cryptocurrency began trading on Cboe Global Markets.
In early trading, European stocks struggled for traction, failing to capitalize on gains for their Asian counterparts after another record close in the U. S. on Friday. On Friday, the S&P 500 index gained 0.6% to a new record after the U. S. added more jobs than forecast in November and the unemployment rate held at an almost 17-year low. In Asia, the Nikkei 225 reclaimed a 26-year high as stocks in Tokyo closed higher although amid tepid volumes. Equities also gained in Hong Kong and China. Most European bonds rose and the euro climbed. Sterling slipped as some of the promises made to clinch a breakthrough Brexit deal last week started to fray.
‘Strong jobs U. S. data is giving investors reason to buy equities,’ said Jonathan Ravelas, chief market strategist at BDO Unibank Inc. ‘The better-than-expected jobs number supports the outlook that there is a synchronized global economic upturn led by the U. S.”
The dollar drifted and Treasuries steadied as investor focus turned from US jobs to this week’s central bank meetings. Europe’s Stoxx 600 Index pared early gains as losses for telecom and utilities shares offset gains for miners and banks. Tech stocks were again pressured, with Dialog Semiconductor -4.1%, AMS -1.9%, and Temenos -1.7% all sliding. Volume on the Stoxx 600 was about 17% lower than 30-day average at this time of day, with trading especially thin in Germany and France.
The dollar dipped 0.1 percent to 93.801 against a basket of major currencies, pulling away from a two-week high hit on Friday.

This post was published at Zero Hedge on Dec 11, 2017.

Asian Market Rout Goes Global On Tech, Tax And Government Shutdown Tremors

A selloff which started in Asia, driven by renewed liquidation of Chinese and Hong Kong tech stocks and accelerated by weaker metal prices which pushed the Shanghai Composite below a key support and to 4 month lows…

… which sent the Nikkei to its worst day since March and the second worst day of the year, while the overall Asia Pac equity index slumped for the 8th day – the longest streak for two years, spread to Europe adn the rest of the world, pushing the MSCI world index lower by 0.3% as investors continued to lock in year-end gains among the best performing assets amid a broad risk-off mood. In FX, the dollar stabilized as emerging-market currency weakness meets yen gains while Treasuries and euro-area bonds gain as focus now turns to efforts to avert a U. S. government shutdown on Saturday. Euro and sterling trade heavy in average volumes while the loonie consolidates before BOC decision.

This post was published at Zero Hedge on Dec 6, 2017.

Rig For Stormy Weather

What storm? The Dow Jones Industrial Average (DOW) reached another all-time high. Interest rates in the U. S. are yielding multi-decade lows, some say multi-century lows. Trillions of dollars in global sovereign debt have negative yield and European junk bonds yield less than 10 year U. S. treasuries. ‘Official’ unemployment is low. Borrowing is inexpensive. Things are good, so they say!
I Doubt It!
Do you believe the above is a fair and accurate representation of our economic world? If so, how do you explain the following?
Global debt exceeds $200 trillion and is rising rapidly. This massive debt will NOT be paid back in currencies with 2017 purchasing power. Debt MUST be rolled over in continually DEVALUING dollars, euros, yen and pounds. The financial system rolls over maturing debt, adds more, and pretends repayment will not be problematic. Those who hope this will remain true ignore the lessons of history, including sky-high interest rates in the late 1970s, the Asian and Long Term Capital crises in the late 1990s, many defaults and hyperinflations in the last century and the credit-crunch-recession-market-crash of 2008.

This post was published at Deviant Investor on Dec 4, 2017.

UK’s Top Fund Manager: “So Many Lights Flashing Red, I’m Losing Count”

Neil Woodford is the founder of Woodford Investment Management, with $20 billion under management, and was appointed a Commander of the Order of the British Empire (CBE) for services to the economy in the Queen’s 2013 Birthday Honours List. However, he’s not very happy in his latest outlook for equity markets, nor is he happy with the recent performance of his funds, although he’s been in this situation before – ahead of the tech crash in 2000 and the sub-prime crisis in 2008. According to the Financial Times.
Neil Woodford, the UK’s most high-profile fund manager, has said he believes stock markets around the world are in a ‘bubble’ which when it bursts could prove ‘even bigger and more dangerous’ than some of the worst market crashes in history. The founder of Woodford Investment Management, which manages 15bn of assets, warned investors to be wary of ‘extreme and unsustainable valuations’ in an interview with the Financial Times, likening the level of risk to the dotcom bubble of the early 2000s. ‘Ten years on from the global financial crisis, we are witnessing the product of the biggest monetary policy experiment in history,’ he said. ‘Investors have forgotten about risk and this is playing out in inflated asset prices and inflated valuations. ‘Whether it’s bitcoin going through $10,000, European junk bonds yielding less than US Treasuries, historic low levels of volatility or triple-leveraged exchange traded funds attracting gigantic inflows – there are so many lights flashing red that I am losing count.’ Woodford likes to be contrarian: few people believed that Brexit was a buying opportunity, for example. Given his value investing style, it’s not surprising that’s he’s avoiding high-profile momentum driven names and boosting holdings in old economy ‘bricks and mortar’ companies, literally. The FT continues.

This post was published at Zero Hedge on Dec 1, 2017.

29/11/17: Four Omens of an Incoming Markets Blowout

Forget Bitcoin (for a second) and look at the real markets.
Per Goldman Sachs research, current markets valuation for bonds and stocks are out of touch with historical bubbles reality: As it says on the tin,
‘A portfolio of 60 percent S&P 500 Index stocks and 40 percent 10-year U. S. Treasuries generated a 7.1 percent inflation-adjusted return since 1985, Goldman calculated — compared with 4.8 percent over the last century. The tech-bubble implosion and global financial crisis were the two taints to the record.’
Check point 1.
Now, Check point 2: The markets are already in a complacency stage: ‘The exceptionally low volatility found in the stock market — with the VIX index near the record low it reached in September — could continue. History has featured periods when low volatility lasted more than three years. The current one began in mid-2016.’

This post was published at True Economics on Nov 29, 2017.

The Flattening Yield Curve Is Not a Threat to US Equities

Summary: On its own, a flattening yield curve is not an imminent threat to US equities. Under similar circumstances over the past 40 years, the S&P has continued to rise and a recession has been a year or more in the future. Investors should expect the yield curve to flatten further in the months ahead.
Investors are concerned about the flattening yield curve. Enlarge any image by clicking on it.
The yield curve measures the gap between long and short-term treasuries. The curve “flattens” when either short-term rates rise faster than long-term rates, or when long-term rates fall faster than short-term rates. The standard interpretation is that a flattening curve means that the bond market is pessimistic about future growth (low long rates) while the Federal Reserve is overly worried about inflation (rising short rates). The bond market’s view is typically more relevant.
Our monthly macro updates (here) start with the latest yield curve, with the note that the yield curve has ‘inverted’ a year ahead of every recession in the past 40 years (arrows). With the yield curve still 60 basis points away from inversion, the current expansion will probably last well into 2018, at a minimum. In short, the risk of an imminent recession is low.

This post was published at FinancialSense on 11/27/2017.

Biggest Bubble Ever? 2017 Recapped In 15 Bullet Points

Yesterday we presented readers with one of the most pessimistic, if not outright apocalyptic, 2018 year previews, courtesy of BofA’s chief investment, Michael Hartnett who warned that in addition to the bursting of the bond bubble in the first half of the year, the stock market could see a 1987-like flash crash, potentially followed by a sharp spike in (violent) social conflict. However, in addition to his forecast, Hartnett also had one of the more informative, and descriptive, reviews of the year that was, or as he put it: 2017 was the perfect encapsulation of an 8-year QE-led bull market.
Here are his 15 bullet points that show why in 2017 we may have seen the biggest bubble ever (and why we can’t wait to see what 2018 reveals).
Da Vinci’s ‘Salvator Mundi’ sold for staggering record $450mn Bitcoin soared 677% from $952 to $7890 BoJ and ECB were bull catalysts, buying $2.0tn of financial assets Number of global interest rate cuts since Lehman hit: 702 Global debt rose to a record $226tn, record 324% of global GDP US corporates issued record $1.75tn of bonds Yield of European HY bonds fell below yield of US Treasuries Argentina (8 debt defaults in past 200 years) issued 100-year bond Global stock market cap jumped1 $15.5tn to $85.6tn, record 113% of GDP S&P500 volatility sank to 50-year low; US Treasury volatility to 30-year low Market cap of FAANG+BAT grew $1.5tn, more than entire German market cap 7855 ETFs accounted for 70% of global daily equity volume The first AI/robot-managed ETF was launched (it’s underperforming) Big performance winners: ACWI, EM equities, China, Tech, European HY, euro Big performance losers: US$, Russia, Telecoms, UST 2-year, Turkish lira

This post was published at Zero Hedge on Nov 22, 2017.

Bill Blain: “Stock Markets Don’t Matter; The Great Crash Of 2018 Will Start In The Bond Market”

Blain’s Morning Porridge, Submitted by Bill Blain of Mint Partners
The Great Crash of 2018? Look to the bond markets to trigger Mayhem!
I had the impression the markets had pretty much battened down for rest of 2017 – keen to protect this year’s gains. Wrong again. It seems there is another up-step. After the People’s Bank of China dropped $47 bln of money into its financial system (where bond yields have risen dramatically amid growing signs of wobble), the game’s afoot once more. The result is global stocks bound upwards. Again. It suggest Central Banks have little to worry about in 2018 – if markets get fraxious, just bung a load of money at them.
Personally, I’m not convinced how the tau of monetary market distortion is a good thing? Markets have become like Pavlov’s dog: ring the easy money bell, and markets salivate to the upside.
Of course, stock markets don’t matter.
The truth is in bond markets. And that’s where I’m looking for the dam to break. The great crash of 2018 is going to start in the deeper, darker depths of the Credit Market.
I’ve already expressed my doubts about the long-term stability of certain sectors – like how covenants have been compromised in high-yield even as spreads have compressed to record tights over Treasuries, about busted European regions trying to pass themselves off as Sovereign States (no I don’t mean the Catalans, I mean Italy!), and how the bond market became increasingly less discerning on risk in its insatiable hunt for yield. Chuck all of these in a mixing bowl and the result is a massive Kerrang as the gears of finance explode!

This post was published at Zero Hedge on Nov 17, 2017.

Goldman Reveals Its Top Trade Recommendations For 2018

It’s that time of the year again when with just a few weeks left in the year, Goldman unveils its top trade recommendations for the year ahead. And while Goldman’s Top trades for 2016 was an abysmal disaster, with the bank getting stopped out with a loss on virtually all trade recos within weeks after the infamous China crash in early 2016, its 2017 “top trade” recos did far better. Which brings us to Thursday morning, when Goldman just unveiled the first seven of its recommended Top Trades for 2018 which “represent some of the highest conviction market expressions of our economic outlook.”
Without further ado, here are the initial 7 trades (on which Goldman :
Top Trade #1: Position for more Fed hikes and a rebuild of term premium by shorting 10-year US Treasuries. Top Trade #2: Go long EUR/JPY for continued rotation around a flat Dollar. Top Trade #3: Go long the EM growth cycle via the MSCI EM stock market index. Top Trade #4: Go long inflation risk premium in the Euro area via EUR 5-year 5-year forward inflation. Top Trade #5: Position for ‘early vs. late’ cycle in EM vs the US by going long the EMBI Global Index against short the US High Yield iBoxx Index. Top Trade #6: Own diversifed Asian growth, and the hedge interest rate risk via FX relative value (Long INR, IDR, KRW vs. short SGD and JPY). Top Trade #7: Go long the global growth and non-oil commodity beta through long BRL, CLP, PEN vs. short USD.

This post was published at Zero Hedge on Nov 16, 2017.

Broke And Desperate, Part 1: Chicago Pawns A Crown Jewel

A new bond issue from Chicago is rated AAA. That’s great because it means the city’s finances are on the mend, right?
Nope, just the opposite. Here’s the story:
Bondholders fret as alchemy turns Chicago’s junk to gold
(Bloomberg) – Chicago’s public pension debt is $36 billion and growing, it’s facing $550 million in budget deficits over the next three years and this summer the state had to bail out a school system that was flirting with insolvency.
Yet next month, the nation’s third-largest city – whose bonds were downgraded to junk by Moody’s Investors Service two years ago – will start selling as much as $3 billion of debt that another rating company considers as safe as U. S. Treasuries.
That’s because Chicago is selling off its right to receive sales-tax revenue from Illinois to a separate public corporation, which will issue new bonds backed by those funds, a structure called securitization. Because bondholders will be insulated from the city’s finances and have a legal claim to the sales-tax money, Fitch Ratings deems the bonds AAA.

This post was published at DollarCollapse on NOVEMBER 13, 2017.