October 16th, 2013
Very short-dated Treasury-Bills have dropped in yield this morning but you can't just get rid of that risk by kicking the can and it would appear that the February Treasury-Bills are already repricing higher in yield in preparation for the next fight...
Two-and-a-half years later and Congressman Ted Deutch is spinning his GOP "Wheel of Misfortune" once again...
Done deal? Let them explain...
REID SAYS HE'S GOING TO WAIT FOR MCCONNELL TO TALK ON BUDGET
REID SAYS MCCONNELL COMING TO FLOOR SOON
SENATE SAID TO HAVE DEAL ENDING SHUTDOWN, RAISING DEBT CEILING
Senate Majority Leader Harry Reid and Senate Minority Leader Mitch McConnell will soon announce an agreement to reopen the government and avert default on U.S. debt, Politico reports, according to several sources familiar with the talks. Here is what that "stunning reversal for the speaker" deal looks like. In short: the can has been kicked for three months, to early February.
Following the battery of optimistic news from this morning that the debt deal is all but done, yields on short-term debt, soaring until about 9am, have tumbled as fears of an immediate default have been taken off the table. And moments ago today's most important auction, that indicating whether the "Money Market Vigilantes" have gone home, the auction of $20 billion 4-Week Bills took place. As a reminder, it was last week that yields on the same issue soared to a high of 0.35% - the most "distressed" yield since October 2009. Today, the fireworks were far more muted, however with a high rate of 0.24%, this was still a very elevated closing level, and still the second highest in years. So the question becomes: is this higher yield just a function of the lack of a definitive deal on the table, or has the broken Congress now assured that going forward so called "money equivalent" Treasury paper will have a step-wise higher clearing haircut, and if so, just how substantial is the structural damage to money markets, especially if all Congress does is kick the can forward by a few months?
With Boehner having given up resistance, in the process throwing his speaker position in jeopardy, and a bipartisan deal virtually assured, the only remaining wildcard is whether any Republican Senator will filibuster, or in any other procedural way, delay a 11th hour deal. Naturally, the most likely candidate here is Ted Cruz of record filibuster fame. And indeed, when asked earlier, if he will "obstruct" any deal in a process that may delay the final debt-ceiling resolution until the weekend, Cruz had no comment. Bloomberg quotes Cruz as saying "I am heading to this meeting," as he entered meeting of Senate Republicans. That said, even a full frontal assault by Cruz would at best delay the deal should it have the support of the two chambers. So while the popcorn is almost over, the drama may still have a few hours left in it.
Well that un-esclated quickly... (for now) despite this:
*BOEHNER SPOKESMAN STEEL SAYS NO DECISION MADE ON SENATE BILL
While the debt ceiling fracas has done nothing to stymie the demand for high-beta equity lottery tickets, it has decimated the demand for the most leveraged trade an American tends to make... home purchases. While real data is few and far between, we thought that the cracking of yet another foundational pillar of the US economic "recovery" was worthwhile noting although it is squeezed to the back pages as the mainstream media focuses on rumor after rumor to juice equities ever higher. With the hedgies having turned from marginal buyer to marginal seller, it seems the demand for mortgages for home purchases has collapsed to its lowest level in 2013 - even as rates have dropped notably from the year's highs.
As we count down to doomsday or not (and equity investors pile their last cash on the sidelines into stocks), we thought some reflection on an interesting analysis of the last debt ceiling debacle was worthwhile. In a few brief minutes, William Spaniel shows the payoffs and decision trees that led to the decision to compromise on what was close to the Gang-of-Six middle ground when the stuff hit the fan last time. Crucially, while the process is similar this time, it appears to us that the lack of middle-ground this time shifts the optimal path increasingly to a 14th Amendment possibility. Nevertheless, his process may provoke some thoughts on just how this "game" is played even as Boehner exclaims "this ain't no game."
What is there to say here that hasn't been said at least 20 times before (beyond which we have lost count of how many times the trading "recommendations" by Goldman's FX guru Tom Stolper have generated guaranteed returns to everyone who did the opposite)? From October 3: "What would the world be without Tom Stolper FX recos? Very confusing, with no sure money to be made, and without anyone to fade, that's what. Which is why we are happy to bring the Goldman muppet slayer's latest FX "recommendation" In short: "We recommend going short $/JPY at current levels of about 97.30 for a tactical target of 94.00, with a stop on a close above 98.80." In even shorter: Goldman is now buying USDJPY from its clients." While the trade was clear - do the opposite of what was recommended - we had a question: "The only question we have: will the length of time before Stolper is once again Stolpered out be measured in days, or hours?" The answer: two weeks.
- No decision yet, House Republican aide tells Bloomberg’s Phil Mattingly, speaking on condition of anonymity
- Rep. Kevin Brady, R-Texas, tells Bloomberg Television, he doesn’t know if House will vote first on any Senate agreement on govt shutdown, debt ceiling.
Obligatory Bazooko circus clip below
The USD is bid; Treasury Bonds are being abandoned; the 10/24/13 Bill remains lost though; but stocks are entering escape velocity. S&P 500 has screamed 15 points higher (no surprise given Nanex noted that S&P 500 futures had the lowest liquidity of the year for this time of day prior to the rumor) and the Russell 2000 has broken back to new all-time highs (why not). Of course JPY-crosses are largely responsible for the knee-jerk move and we wait to see if this becomes a sell the news moment (or for Boehner's denial)... Commodities are not moving much for now.
Per Sen sources, Boehner has agreed to take up the Senate's plan and allow it to pass with Dem votes.
— Robert Costa (@robertcostaNRO) October 16, 2013
Equity investors can't buy enough this morning. The latest rumor - that the House Republicans are willing to consider voting first on an emerging Senate proposal - provided some fillip to an opening selloff. As Politico reports, this move could expedite bipartisan legislation developed by Senate Majority Leader Harry Reid and Minority Leader Mitch McConnell. If the House passes the bill first and sends it to the upper chamber, it would eliminate some burdensome procedural hurdles in the Senate and require just one procedural roll call with a 60-vote threshold needed to advance the bill toward final passage in the Senate. Of course, the big question here is "If" the House passes the bill...
While stuff like soaring Bill yields, the threat of Money Market funds breaking the buck, and the gradual phase out of near-term money equivalent collateral thanks to the complete dysfunction in Congress which has managed to breach the repo market into "good" and "bad" Bills, may be too arcane to the various JPY-correlating, ES-ramping algos, those who care about real signals, now that the US flirtation with the X-Date is hours ago may be interested to know that according to ICAP, as reported by Stone McCarthy, overnight General Collateral, the key rate in the determination of collateral pricing for trillions worth of assets, just exploded once again and in following the surge in Bill cash rates, hit 0.32%, the highest since December 7. Indicatively, at 0.32%, GC is now well above both overnight LIBOR (10.69 bps) and the Fed Funds rate (10 bps).