The mixed demand for near cash-equivalent paper continues, with today's $33 billion 2 Year Note selling at a yield of 0.348%, stopping through the 3.55% When Issued by a solid 7 bps. That was the good news. The not so good news was that once again, the Bid to Cover was modest at best, down from 3.21 to 3.09, well below the 3.47 TTM average, and one of the lowest in the past four years. As we have noted repeatedly in the past, the Bids to Cover for virtually all auctions have been declining in recent months, and today was no exception. Additionally, while the Direct take down was stable at 21.8%, or just short of the 23.3% TTM average, it was the Indirects that continue to buy the near absolutely minimum, taking down another 25.4% in September, on top of the TTM average, and far below historical volumes. The balance, or 52.5% was once again allotted to Primary Dealers. Overall, nothing to write home about, especially since the bonds will be promptly converted into HQ collateral, and the cash infusion will allow those who bought the bonds to go ahead and reinvest the proceeds in other far riskier assets, even as the velocity of collateral picks up a tad at least until the bond is also monetized by the Fed.
With yields down for 11 of the last 13 days, 10Y Treasuries are trading at their lowest interest rate since August 13th. The 5Y yield has collapsed 45bps since September 6th when the 10Y briefly broke above the 3.00% Maginot Line. This is the largest absolute decline in interest rates in a 13-day period since the summer of 2011 and the US downgrade... it seems Ray Dalio might be on to something...
Update: Reuters confirms that the new island was in fact not a hoax: "The earthquake was so powerful that it caused the seabed to rise and create a small, mountain-like island about 600 meters (yards) off Pakistan's Gwadar coastline in the Arabian Sea."
As reported earlier, Pakistan and India were both shaken by a strong 7.8 magnitude earthquake with numerous aftershocks. While the damage and the casualties from the quake are not fully known yet although according to Raza news agency the latest death toll is at 45, one quite stunning development has emerged, quite literally, out of the sea. As Pakistani's The News reports, an entire island emerged off the country's Gwadar coast in the aftermath of the quake. "According to DIG Gwadar Moazzam Jah, the island's altitude is 20 to 40 feet and width around 100 feet. Talking to Geo news, the DIG said that the island emerged at a distance of 350 feet in the sea from the Gwadar coast."
Risk assets remain under pressure, BofAML's MacNeill Curry warns and with equities vulnerable to a deeper correction, a close below 1700 (on the S&P 500) would confirm a near-term top and a correction to 1653 (the 10-month trendline support). This morning's action is very much focused on the 1,700 level with this latest rebound not being seen in Treasury yields which continue to push lower (driven by VIX on POMO excitement). As Curry adds, Treasury yields should continue their downside correction with 2.668% as interim support but sees 2.46% as possible.
Whether this also means that the fund is bearish on overall growth, bullish on deflation, and very bullish that in the Taper is not only off the table but there is potential for even more easing by the Fed, is unknown. What is known is that once the piggyback crew jumps on the Bridgewater bandwagon, which is now saying rates will drop (ostensibly leading to the end of the Great Rotation and perhaps the start of the Great Unrotation out of stocks and into bonds), expect to see some substantial price realignment between the two main assets classes: stocks and bonds.
Markets, risk assets in particular, do not like political dis-unity. The FOMC seem dis-unified; delivery differing messages. Comments by Dudley and Fisher were not just marginally different, but rather stark contrasts. Trust in the Fed and in its’ communication strategy have been tarnished. Markets are now confused as to when, why, and how the Fed will be able to change course. When the taper is in full-swing that equities and bonds will drift to lower prices. However, the immediate trade may require paring risk, and rebalancing portfolios, i.e. stocks down, bonds drifting higher in price (risk off).
Following UMich confidence's biggest miss on record, the Conference Board misses expectations printing at its lowest since May 2013 as the last data was revsied higher. This is the largest MoM drop since March. Crucially, the headline index was saved by a surge in the "present situation" as expectations for the future plunged. As a reminder, Consumer Confidence has an awkward 4 year 4 month pattern of dysphoria to euphoria (though at progressively lower levels) and today's data merely confirms that the cycle of exuberance may have been broken.
This should be fun. With Rouhani in the house, Nobel-Peace-Prize-winner President Obama will address the oh-so-supportive-of-his-wars United Nations this morning. As AP reports, seeking to build on "diplomatic opportunities" is expected to signal his openness to discussions with Iran (even a wink in his direction would work since there has been no face-to-face contact in 30 years). Also high on Obama's agenda at the U.N. was rallying Security Council support for a resolution that would establish consequences for Syrian President Bashar Assad's regime if it failed to adhere to a U.S-Russian plan to turn over its chemical weapons. And we wonder if he'll mention them nasty Republicans wanting to shut his government down?
If anyone had reservations about the monthly Case-Shiller report, or at least the logic in the methodology used by the S&P data collectors, we present Exhibit A, which should solidify any such doubts. Below we show Detroit "home prices", which according to the just announced July NSA data, soared even higher, to level of 90.8, which just happens to be a 17% increase Y/Y, and the highest print since August 2008. Bankruptcy? Pfft - who cares when the government is funding Blackstone REO-to-Rent made-to-flip purchases.
There was something for everyone in the just released July Case-Shiller house price index. On one hand, on a year over year basis, the NSA Composite 20 city index rose 12.39% in July, up from 12.07% in June, and in line with expectations of a 12.40% increase. This was the highest annual price increase since the start of the great financial crisis. On the other hand, the same Composite-20 Index increased by just 0.62% in July on a SA M/M basis, missing expectations of a 0.80% increase, and down from the 0.88% increase in June. This was the third consecutive miss on a M/M basis, and while the Case-Shiller index continues to still rise, the momentum as can be seen in the chart below, is starting to fade, with the monthly increase posting at the lowest rate since September of 2012 when the rise was 0.52%.
Whether or not AAPL's reported sales are accurate or merely the latest manifestation of channel stuffing is irrelevant: what matters to the sellside is that upside momentum, at least for a few days, seems to be back in the biggest tech stock and the immediate result is quite predictable - the sellside resumes piling in and selling their axed exposure to clients. In other words, they are coming out with increased price targets on the stock, most notable this morning from Goldman which just hiked its AAPL target from $530 to $560.
In a move that clearly seeks to distance the second largest Swiss bank from potentially "risky" or just not that profitable (read "rich or super rich") accounts, Credit Suisse announced today that it plans to close some clients' accounts as it focuses on high-value customers in some countries and pulls out of others altogether. The development is somewhat ironic: while banks around the world scramble to obtain ultra cheap funding, of which deposits are currently the cheapest alternative, Credit Suisse is saying to people, thanks but no thanks, we don't want your money. Then again, perhaps this is an admirable stance by the bank. It certainly is preferable to CS eagerly accepting every last Swiss Franc only to pull a Cyprus in a few months (indicatively speaking) and "bailing in" said money. It does however pose the question: has CS found an alternative method of funding its assets now that it is actively deleveraging, and if so what, and who is the source?
A few minutes ago headlines hit that as a result of a strong earthquake, buildings shook in Delhi, India. Moments later, the USGS confirmed that a major 7.8 magnitude earthquake with an epicenter 9 miles below the Awaran/Balochistan region in Pakistan had struck, some 43 miles NNE of Awaran, and close to the India border. It is unclear yet if the two quakes were the same although it seems likely. Reuters had this preliminary report: "An strong earthquake struck remote western Pakistan on Tuesday and was felt in the Indian capital of New Delhi where buildings shook. The United States Geological Survey said that a 7.8 magnitude quake struck 145 miles southeast of Dalbandin, in Pakistan's western province of Balochistan."