Debt Ceiling

What Keeps America Up At Night

Pervasive, unchecked spying on millions of Americans and NSA agents eavesdropping on exes? A war with Syria? Fed tapering? A US that has been at its debt ceiling for months? A looming spending fight? Markets halting for hours due to "glitches"? Even Donald Trump? Naaaaah. According to Google Trends, this is what keeps America "up" at night.

Pivotfarm's picture

US Bankrupt!

After the banks, after the city of Detroit it will be the USA that will be going bankrupt and filing for Chapter 11 bankruptcy. If only that were possible! But unfortunately it won’t be.

What's Driving Treasury Yields?

The 10Y Treasury yield has jumped nearly 130bp from its low point in early May. Given the tight ranges and low volatility of yields during the most of QE era, this kind of move in just over 3 months seemed stunning to some investors. Consequently, the question that has come up often recently is: what has been driving Treasury yields? As UBS' Boris Rjavinski notes, several years ago a rate strategist would give you a straightforward and predictable answer: inflationary expectations, economic growth projections, and current and future monetary policy. But now, as Rjavinksi notes, central banks and politics in the driver seat. Volatility will remain elevated as we await key messages from the Fed in September, and U.S. political calendar will start to heat up as we approach the “drop-dead” dates to fund the government and extent the dent ceiling.

Sell-Side To Fed "Don't Leave Us Now"

In spite of the prime-dealers seeming agreement that SepTaper is most likely; judging by the plethora of talking-heads and research pieces hitting in the last few days, the idea that a Taper was a good thing (Tepper) and in fact indicates 'health' appears to be on the back-burner as almost every sell-side shop is out with a discussion of just how potentially bad things are macro-economically and that a taper should be off the table. Below is BofAML's Ethan Harris' seven reasons to delay the taper following today's "punch in the stomach for the economic recovery story" (and our 4 reasons why they can't or won't).

Frontrunning: August 23

  • Lew warns Congress to strike debt ceiling deal (FT)
  • Central-Bank Moves Blur the View (WSJ)
  • Brazil, Indonesia launch measures to shore up their currencies (FT)
  • More mainstream media reminded about Fukushima - Radioactive ground water under Fukushima nears sea (AP)
  • Fukushima inspectors 'careless', Japan agency says, as nuclear crisis grows (Reuters)
  • New York Banker Arrested on Rape Charges in East Hampton (NYT)
  • This time they mean business, for real: CFTC Moves to Rein In High-Speed Traders (WSJ)
  • Britain operates secret monitoring station in Middle East (Reuters)
  • Moody’s considers downgrading top US banks (FT)
  • China's Bo calls wife mad after she testifies against him (Reuters)
  • JPMorgan Sub-New Normal Growth Seen Vexing Next Fed Chief (BBG)
  • SEC calls for cooling-off period for more staff (Reuters)

Fannie, Freddie Masking Billions In Losses, Watchdog Finds

As is well-known by now, one of the main reasons why the Fed's hands are tied when it comes to the future of QE, is the dramatic drop in the US budget deficit which cuts down on the amount of monetizable gross issuance (read Treasurys) and for which a big reason is that the GSEs have shifted from net uses of government cash to net sources. So in what may be the best news for Bernanke, and/or his successor, we learn that according to a report written by the Federal Housing Finance Agency (FHFA) inspector general and reviewed by Reuters, "Fannie Mae and Freddie Mac are masking billions of dollars losses because of the level of delinquent home loans they carry."

Multiple Expansion Is Not Sustainable; Guggenheim Warns "Take Profits"

While remaining unapologetically bullish US equities long-term, Guggenheim's Scott Minerd warns that historically, markets that have rallied as aggressively as U.S. equities since November 2012 (an increase of 25 percent), pause or correct to digest their advances. Also, earnings among U.S. companies have flattened and could turn negative within two to three quarters, meaning further upside can only come from multiple expansion. Of the 19 percent rise in stocks year-to-date, 16 percent has already come from multiple expansion. Finally, it appears GDP growth could be entering a soft patch as we work through a number of short-term issues such as the headwinds in housing, reduced growth in China, the full impact of the sequester, and the budget and debt ceiling debates that will take place in Washington in the third quarter – all of which will put downward pressure on stock prices. The near-term outlook for equities makes now a good time to consider the old Wall Street adage, "Nobody ever lost money by taking a profit."

Ugly, Tailing 30 Year Auction Prices With Lowest Bid-To-Cover Since August 2011 US Rating Downgrade

On the surface today's last of the week sale of $16 billion in 30 Year paper was not very different from last month's: at a high yield of 3.652%, it was virtually unchanged from July's 3.66% pricing yield. However, when one looks at the When Issued which was trading notably inside at 3.645%, it becomes clear that this was the first 30Y auction to tail in a while. The real dirt, however, is revealed when looking at the Bid To Cover. Confirming the trend we discussed during yesterday's 10 Year auction of plunging BTCs, today was no difference, and there was just 2.11 dollars in bids for every dollar offered. This was well below the 2.26 BTC from July, far below the 2.56 TTM average, and would have been the lowest going back all the way to February 2009 except for the 2.05 BTC seen during the August 11, 2011 30 Year auction when as a result of the debt ceiling fiasco and the S&P downgrade of the US, there was sheer chaos when it came to bonds which ironically saw a paradoxical collapse in yields even as end demand also plunged. Overall this was a very weak auction, but that's precisely what the Fed wants: after all, soon the US may will fund itself by selling equity directly into the biggest Fed bubble ever created, and no longer bother with something as trivial as debt.

July Records Biggest Inflows... Into Cash?

With the Federal Reserve's bond-buying, liquidity-injecting, market-inflating, volatility-suppressing, confidence-inspiring, economic-supporting, media-headline-generating, program currently in full swing; one would assume that the daily pushes to new market highs are driven by massive inflows of cash into the equity markets.   Well, that assumption is only partially correct.

Treasury Raises $32 Billion In 3 Year Cash For 0.631% Yield; Indirects Highest Since August 2011

Another month, another launch of monthly bond issuance by the US Treasury which today sold its first salvo of $32 billion in 3 Year debt at a yield of 0.631%. This yield was better than the When Issued 0.638% indicating demand for the short-end of the curve is crept back after two consecutive auctions in which yields were consistently higher. However, the previously noted decline in Bid to Covers is persisting and as can be seen on the chart below appears to have peaked in the summer of 2012 and is all downhill from there. This auction's BTC of 3.214 was lower than July's 3.350 and well below the TTM average of 3.484. The internals were more impressive, however, with Directs allotted 14% of the auction and Dealers taking down 44.7% (with 3 Years no longer special in repo there was no Primary Dealer scramble to procure collateral). This meant Indirects ended up with 41.4% of the auction: this was the highest allocation to "foreigners" since the debt ceiling crisis or August 2011.

Jan Hatzius' First 2013 Mea Culpa: "Glass Half Full"

Back in late 2012, Goldman's Jan Hatzius did precisely what he did at the end of 2010: predicted that after many years of delays, the US economy would finally soar higher on the back of the reignition of the virtuous cycle driven by now endless Fed micromanagement of virtually every aspect of the economy. We mocked him in 2010 (6 months later he pulled his call following a series of embarrassing mea culpas), and did the same in 2012. So here we are, 8 months later, and this much-delayed recovery has been "delayed" again - just as we thought. Of course, once bitten by the fringe blogosphere, Jan is not willing to pull his recovery call for the second time in a row despite deteriorating GDP and employment data, and instead (like everyone else) if placing his faith with the Fed, despite five consecutive years of disappointment from St. Ben. Maybe this time it will be different... although it won't. In the meantime, from a glass fully full (which is where it was supposed to be by this time in the year), the Goldmanite has now reduced his economic assessment to half that.

Why Washington’s Happy Talk Will Not Save The U.S. Economy

Wall Street bankers, Washington politicians, economists and the media trumpet a substantial rebound in the U.S. economy, in the second half of 2013 and beyond, as a result of the Federal Reserve’s continued and open ended use of $85 billion dollars a month in quantitative easing. Learn why this is wishful thinking.  Rather than do want is necessary to solve the ongoing 2008 credit crisis, those in power stoop to public relations tricks and propaganda.