Across the Curve
While the biggest news of the night had nothing to do with either oil or China, all that mattered to US equity futures trading also was oil and China, and since WTI managed to rebound modestly from their biggest 2-day drop in years, rising back over $30, and with China falling only 0.4% overnight after the National Team made a rare, for 2016, appearance and pushed stocks to close at the day's high, US E-minis were able to rebound from overnight lows in the mid-1880s, and levitate above 1900. Whether they sustain this level remains to be seen.
Whether front-running or fear-based (or both), the actions of BoJ's Kuroda last week have driven global bond yields into freefall with JPM's global index at 9-month lows and BofA's at 12-month lows. Overnight saw short-end JGBs push below the BoJ's -10bps threshold and 10Y rates push towards NIRP to record lows. German bonds extending their epic voyage into fantasy and hit new record lows across the curve with 5Y at -32bps.
Following Kuroda's panic policy measures from Friday, JGB yields continue to collapse across the curve (though notably 30Y is selling off - is someone actually concerned about long-term survival risk?). 2Y Yields have collapsed all the way to BoJ's -10bps rate, 5Y is plunging - now close to -9bps, and 10Y has dropped 20bps to just over 6bps... with BofA warning a negative 10Y rate looms. However, Japan is not having all the excitement as China's margin debt (driver of all animal spirits) dropped again today - making this the longest losing streak in history as China's stock market investors continue to leave the levered building screaming fire.
Kuroda's decision to go full NIRP-tard is benefitting investors worldwide... in bonds. JGB yields hit record lows, 5Y Bunds are trading below the -30bps ECB deposit rate, and US Treasury yields are collapsing across the curve with 10Y below August's Black Monday lows back to 9 months lows...
RANsquawk Preview: FOMC Rate Decision 270116 where focus will be on the Fed's language and any commentary on how many rate hikes we can expect this yearSubmitted by RANSquawk Video on 01/26/2016 13:32 -0500
- After the first rate hike in almost a decade, attention turns to the statement and whether the FOMC remain optimistic on their rate hike forecast.
- An overwhelming majority expect the Fed to keep the Fed Fund Rate on hold at 0.25-0.50%, with FFR futures not pricing in the next hike until the September meeting.
Yesterday's 10 Year auction was, despite the concurrent pricing of the world's biggest bond deal in the face of AB InBev's $45 billion issue, a blockbuster, with demand off the charts in every possible way. However, today's just concluded sale of $13 billion in 30 Year paper left quite bit to be desired.
While the fear and loathing of gold by the "smart money" and central banks has been extensively documented in recent years, another asset class is emerging as the "most hated" within the speculator community: treasurys, or rather, duration.
Futures Resume Slide After Oil Tumbles Below $35, Natgas At 13 Year Low; EM, Junk Bond Turmoil AcceleratesSubmitted by Tyler Durden on 12/14/2015 06:51 -0500
With just 72 hours to go until Yellen decides to soak up to $800 billion in liquidity, suddenly we have China and the Emerging Market fracturing, commodities plunging, and junk bonds everywhere desperate to avoid being the next to liquidate.
For once, the overnight session was not dominated by weak Chinese economic data (which probably explains why the Shanghai Composite dropped for the second day in a row, declining 1.4%, and ending an impressive run since the beginning of November) and instead Europe took the spotlight with its own poor data in the form of Q3 GDP which printed below expectations at 0.3% Q/Q, down also from the 0.4% increase in Q2, with several key economies rolling over including Germany, Italy, and Spain while Europe's poster child of "successful austerity" saw Q3 GDP stagnate, far worse than the 0.5% growth consensus expected.
The internals were mixed with the Bid to Cover sliding from 2.460 to 2.409, which however was above the 12 TTM average of 2.356. Offsetting the slightly weaker BtC print was the jump in Indirects, which rose from 56.4% to 60.3% the second highest on record, as foreign central bankers have again decided that the safety of US paper offsets the duration risk of holding it in a rate hike environment.
Following yesterday's abysmal 3 Year auction, many rates investors were on edge ahead of today's 10 Year auction in the aftermath of the weakness across the curve seen since the "stellar" jobs report which had dragged yields higher across the curve. It turned out fears were premature, and moments ago the $24 billion reopening of 10 Years priced at a yield of 2.304%, which while highest since June, priced 0.8bps through the When Issued showing surprising demand for paper.
The carnage in Treasuries continues as this morning's chatter from 'sources' about moar NIRP in Europe has seemingly sparked a sudden exodus from US bonds (even with stocks lower). Across the curve yields are up 4-5bps very suddenly - all testing (if not already broken) 2015 highs. Perhaps most critically for now is the 5Y yield which is surging towards 1.80% - a crucial level of resistance over the past few years.