Bond

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"Profound Shift In Liquidity Risk" May Imperil Market Function, New Report Says





"There's a liquidity conundrum in fixed income markets facing policy makers and investors: how it’s resolved will have long term investment implications across banks, asset managers and infrastructure players," a new report from Morgan Stanley and Oliver Wyman notes. The joint effort is an attempt to dig deep into the all important issue of credit market liquidity (or lack thereof) and determine the short term and long term implications.

 
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"Belief That European QE Will Work Is Far-Fetched," Bill White Warns This Will "End Very Badly"





"I'm not sure [European QE] is going to do anything - certainly, nothing that's good. The fundamental problem here, as I see it anyway, is that the European banking system is still broken... I think, increasingly, bankers are discomforted more than anything else (it's not just the ex central bankers but increasingly the people that are still holding the levers)... they are starting to ask whether they have somehow been backed into a place where they don't really want to be.... Unfortunately, [it] is getting bigger and bigger. There is a possibility at least that this whole exercise could end very badly."

 
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Shorts Burned By Latest Unexpectedly Strong 2-Year Treasury Auction





For all the talk about rate hikes, the bond market seems to be completely oblivious to any threats of an imminent start of tightening by the Fed, and in the just concluded 2 Year auction, the Treasury moments ago sold $26 billion in 2 Year paper at a high yield of 0.598%, pricing through the When Issued of 0.601% and tight of last month's 0.603%. While the yield dipped following the recent relapse of the US economy into a growth rate just above contraction, the Bid to Cover rose from 3.45% to 3.46%, perhaps driven by a jump in Direct take down, which allotted Direct dealers 18.3% of the final paper, Indirects holding 45.7% and Dealers left with just 36% of the auction, the lowest Direct takedown since October 2012.

 
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Short-Term Gains & Long-Term Disaster





It’s time for the Japanese to get seriously scared now. Like many other countries, Japan – and its political class – creates a false image of enduring prosperity by letting its central bank increasingly buy up ever more of its sovereign bonds. It’s a total sleight of hand, there is nothing left that’s real. There’s no there there. This is of course the same as what happens in Europe. And it’s precisely because central banks buy up all these bonds, that their yields scrape the gutter. It’s a blueprint for killing off the last bit of actual functionality in an economy.

 
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Frontrunning: March 24





  • Germanwings Airbus crashes in France, 148 feared dead (Reuters)
  • Greece promises list of reforms by Monday to unlock cash (Reuters)
  • Merkel Points Tsipras Toward Deal With Greece’s Creditors (BBG)
  • Banks Shift Bond Portfolios -Move to ‘held to maturity’ category aims to guard against rising rates, shield capital  (WSJ)
  • Beijing to Shut All Major Coal Power Plants to Cut Pollution (BBG)
  • As Silence Falls on Chicago Trading Pits, a Working-Class Portal Also Closes (NYT)
  • Oil below $56 as Saudi output near record, China activity slows (Reuters)
 
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Futures At Overnight Highs On China PMI Miss, Europe PMI Beat





It is a centrally-planned "market" and everyone is merely a bystander. Last night, following a dramatic China PMI miss, which as previously reported tumbled to the worst print since early 2014 and is flashing a "hard-landing" warning, the Shanghai Composite first dipped then spiked because all a "hard-landing" means is even more liquidity by the PBOC (which as we suggested a month ago will be the last entrant into the QE party before everyone falls apart). Then, this morning, a surprise beat by the German (and Eurozone) PMI was likewise interpreted by the algos as a catalyst to buy, and at this moment both European stock and US equity futures are their session highs. So, to summarize, for anyone confused: both good and bad data is a green light to buy stocks. In fact, all one needs is a flashing red headline to launch the momentum igniting algos into a buying spasm.

 
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Fortescue Explains Why Failed Refinancing Didn't Really Fail





Fortescue's refinancing effort, which many investors believe was hampered by collapsing commodity prices, wasn't actually a failure the company's CEO says. Besides, it was all Janet Yellen's fault.

 
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Paul Krugman Is Wrong About The UK And Borrowing





Krugman wants his US readers to believe that all proper economists now agree that cutting deficits was a bad mistake, and it’s only self-interested finance types and ideologically-motivated politicians and think-tankers that take a different view. But that’s nonsense. Just think about it: “Everyone agrees that austerity was a mistake”… apart from every government in Europe except the Greeks, and the economists and many of the civil servants that advise them. Krugman and his fan-club do not constitute all serious opinion, much as they might like to regard themselves that way. It’s all very nice sitting in a US university office preaching to the Europeans (or, indeed, preaching in the New York Times)

 
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What The Sell-Side Thinks Will Happen To The Dollar Next





"The Fed is a reluctant Dollar bull," explains Goldman Sachs, noting that Yellen inadvertently revealed the FOMC's expectation that coming policy changes will boost the greenback. Broadly speaking the rest of the sell-side has herded along into the strong US Dollar camp with only Unicredit (rate shift may slow recent very strong USD momentum) and Morgan Stanley (suggesting USD corrective activity) backing away from full dollar bull though most suggest adding to dollar longs on any dip as the most crowded trade in the world gets crowded-er. Then Stan Fischer added... "DOLLAR WON'T KEEP RISING FOREVER."

 
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Following "Worst Election In 25 Years" Court Finds Rajoy's Ruling Party May Have Had Secret Accounts





It has not been a good week for Spain's embattled Prime Minister Mariano Rajoy. Following what Bloomberg calls "its worst election result in 25 years," in Andalusia (the nation's most populous region); the corruption scandals re-rear their ugly head:

*SPAIN RULING PEOPLE'S PARTY MAY HAVE HAD SECRET ACCOUNTS; COURT SEES POSSIBLE TAX FRAUD BY COUNTRY'S RULING PARTY

Spanish bond risk widened 4-5bps on the day as both events confirm the rise of anti-EU parties Podemos and Ciudadanos.

 
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Illiquid Corporate Bond Market Will End In "Very Unpleasant Fashion"





The hunt for yield is driving investors into riskier debt at just the wrong time. With liquidity in the corporate bond market drying up thanks to new regulations, the rush to the exit is likely to be "very unpleasant," one analyst says.

 
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Frontrunning: March 23





  • Saudis keep on pumping, oil prices keep on slumping (Reuters)
  • Tenet Healthcare Nearing Deal to Buy United Surgical Partners (WSJ)
  • Dizzying Pre-IPO Tech Values Spurred by Rush of Hedge-Fund Money (BBG)
  • Russia threatens to aim nuclear missiles at Denmark ships if it joins NATO shield (Reuters)
  • Torrent of Cash Exits Eurozone (WSJ)
  • Draghi Cheerleads for Euro-Area Economy as Greek Risk Looms (BBG)
  • Fortescue Mines for More Financing Options (WSJ)
  • Topix Charts Evoke Calm Before ’13 Rout as Momentum Gains (BBG)
 
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Buying Euphoria Fizzles Ahead Of Make Or Break Tsipras-Merkel Talks





As previously observed (skeptically), a main reason for the surge in the DAX, and thus the S&P, on Friday was premature hope that the Greek talks earlier were a long-overdue precursor to a Greek resolution, and as we further noted yesterday, subsequent bickering and lack of any clarity as we go into today's critical "final ultimatum" meeting between Merkel and Tsipras, is also why the Dax was lower by 1.1% at last check, even if the EURUSD continues to trade like an illiquid, B-grade currency pair whose only HFT purpose is to slam all stops within 100 pips of whatever the current price may be.

 
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