Flight to Safety
Something happened this week that has never happened before. While outflows from equity ETFs soared, the $3.6 billion redemptions from high yield bond ETF HYG this last few days is the largest ever - almost twice as big as the previous largest outflows (seen in May last year). As Bloomberg reports, the withdrawals from equity and credit funds highlighted the lack of faith in the rally that helped stocks briefly erase their annual losses last month. Equity traders have remained on the sidelines, with volume down in recent weeks as investors sought safer assets such as gold.
Moments ago the US Treasury priced its 4 Week Bill auction, which was unique in that at just $35 billion, was not only $10 billion lower than a month ago, but was the lowest since October 15. This may or may not explain why after last week's curious auction yield of 0.20%, or 5 bps below the effective Fed Funds floor, today's auction showed an even more dramatic scramble for short term liquidity, when the government sold 4 Week Bills at a rate of 0.185%, or 6.5 bps below the rate charged by the Fed!
While conventional wisdom suggests that US government bond yields have nowhere to go but up, we believe the economic fundamentals will continue to weigh on interest rates for the foreseeable future.
The BIS’ Claudio Borio was vindicated in January - and it was a long time coming.
“Keeping the previous language would be very disappointing and would be viewed as either complacent or reflecting policy paralysis. [They need to] man up and tell member countries that monetary policy should be accompanied by fiscal expansion.”
There are times you try to connect the dots. There are others where those connections warrant adorning your trusted tin-foiled cap of choice; for you just can’t get there unless you do. This I believe is one of those times. And if correct? What at first might appear apocryphal, may in fact, be down right apocalyptic. And besides, what good is a tin-foil capped conspiracy theory anyhow if it doesn’t have the potential for doom, correct? The implications for everything we now take for granted such as: money, enterprise, global commerce, and a whole lot more may be far closer to a “Minsky moment” than any of us dared to imagine.
After yesterday's strong 10Y auction few were expecting ugliness in today's final for this week 30Y issuance: after all with markets crashing, the flight to safety and duration surely would mean strong demand for the long-end of the curve. Only that wasn't the case.
Gold has surged over 3% today on increased safe haven demand as stocks and in particular bank stocks see sharp falls again.
Instead of allocating capital to expensive tail risk bets on direct asset class collapse (in equities, credit, and commodities), it appears, just as we detailed previously, the 'smartest money in the room' is "betting" indirectly on a stock market crash through eurodollar options.
Who said it? - "If it were positive to take interest rates into negative territory I would be voting for that."
Between Japan and Europe, over 20% of the world’s GDP is being managed by a Central Bank with NIRP.
At 1245ET, someone decided that the shorts had done enough damage and investors suddenly rushed "flight to safety"-like for the GPROs, TWTRs, FITs, and Biotechs of the world. This unleashed a massive short-squeeze among the "most shorted" stocks...
- Islamic State launches militant assault on Indonesia's capital (Reuters)
- Three winners emerge in $1.6 billion Powerball jackpot (Reuters)
- European Stocks Tumble, Credit Markets Weaken on Growth Concern (BBG)
- Stocks and commodity currencies floored by new oil plunge (Reuters)
- China Bear Market Looms as PBOC Fails to Stop Flight to Safety (BBG)
- Anxious phone calls, tense moments before Iran's Supreme Leader okayed U.S. sailors' release (Reuters)
Happy New Year: Global Stocks Crash After China Is Halted Limit Down In Worst Start To Year In HistorySubmitted by Tyler Durden on 01/04/2016 07:46 -0400
It all started off relatively well: oil and US equity futures were buoyant on hopes Iran and Saudi Arabia would break out in a bloody conflict any minute boosting the net worth of shareholders of the military industrial complex, and then, out of nowhere, like a depressed China in a bull shop, the "mainland" crashed the party and it all well south very, very quickly...