- Obama Fights Back Against S&P Move (FT)
- China Speeds Yuan Push (WSJ)
- BOE Voted 6-3 to Hold Rate as Majority Noted ‘Downside.’ (Bloomberg)
- Apple to ship new iPhone in September (Reuters)
- Singapore Aims To Be Renminbi Hub (FT)
- GM Defying China Slowdown May Reclaim Sales Lead from Toyota (Bloomberg)... or not
- Cameron Dismisses Idea of Brown at IMF (FT)
- Banks Lag S&P as Slower Loan Growth Outweighs Higher Dividends (Bloomberg)
- Syria Government Approves Lifting State of Emergency (Reuters)
- USA: That ratings agency downgrade meeting (BBC)
Faced with a large capital funding need in advance of a substantial bond redemption next week, Spain had no choice but to hike rates on today's auction of €3.37 billion in 10 and 13 Year bonds. Spain auctioned off €2.49 billion in April 2021 bonds at a yield 5.472% vs. Prev. 5.162% (5.5% interest) at a 2.1 bid/cover Prev. 1.81. it also sold €0.885 billion in 2024 bonds yielding a whopping 5.667% vs. 4.26% previously. The jump in yield caused the bid/cover to rise to 2.3 vs. 1.84 before. From Reuters: "Ten-year Spanish yields eased to 5.46 percent after the sale, having risen to around 5.55 percent since late last week -- just 20 basis points shy of the euro lifetime high. The surge in yields had sparked concern that Spain was being dragged back into the crosshairs of investors looking for the next candidate for an international bailout. The auction was seen as a test of whether Madrid was still seen as insulated from Portugal, Greece and Ireland, which have sought help. ""Spain's debt servicing costs have ratcheted higher and, while not yet providing any cause for alarm in terms of their outright levels, arguably have little in the way of headroom before such concerns might begin to take effect," said Rabobank strategist Richard McGuire. Traders said the 5.6 percent level in 10-year Spanish bonds was key, although yields have failed to break above that level on a sustained basis to date. "If that goes it could turn very nasty," one trader said." Elsewhere both Portuguese and Greek 10 Years hits fresh lifetime highs (low prices), printing 9.5% and 14.68%, even as an oblivious euro surged to a fresh 18 month high.
One would think that with the bail-out of Portugal, even more downgrades of Irish government bonds and Greece a Dead Man Walking, the euro would get hammered with this tsunami of gloom & doom news from the European markets. But, on the contrary, the euro is going strong… very strong!
If the world is coming to an end, why is the VIX making new multi-year lows?
The reason that the 2008 debacle happened was very simple. The derivatives market, the largest, most leveraged market in the world. Today, the notional value of the derivatives sitting on US banks’s balance sheets is in the ballpark of $234 TRILLION. That's 16 times US GDP and more than four times WORLD GDP. Of this $234 trillion, 95% is controlled by just four banks. And they are... the TBTFs.
Things are certainly speeding up, and it is my conclusion that we are not more than a year away from the next major financial and economic disruption. Alas, predictions are tricky, especially about the future (credit: Yogi Berra), but here's why I am convinced that the next big break is drawing near. In order for the financial system to operate, it needs continual debt expansion and servicing. Both are important. If either is missing, then catastrophe can strike at any time. And by 'catastrophe' I mean big institutions and countries transiting from a state of insolvency into outright bankruptcy.
- Bernanke May Sustain Stimulus to Avoid ‘Cold Turkey’ End to Aid (Bloomberg) - a plan that will be woefully insufficient as discussed extensively before
- Asia voices confidence in U.S. debt after S&P jolt (Reuters)
- Americans Shun Cheapest Homes in 40 Years as Owning Loses Appeal (Bloomberg)
- Funds accuse banks of Libor manipulation (FT)
- Deutsche Bank’s $4 Billion Las Vegas Bet (NYT)
- Obama Embarks on Tour to Sell Debt Plan, Not Dwell on S&P (Bloomberg)
- Greek bond fears intensify debt debate (FT)
- With much at stake, Asia voices confidence in US debt after S&P jolt (Reuters)
- Deutsche Bank Algo Cribs HFT Strategies (Traders Magazine)
As Greece Sells 3 Month Debt At Record 4.1% Yield, CreditSights Explains The Negative Downstream Effects Of A Greek RestructuringSubmitted by Tyler Durden on 04/19/2011 06:29 -0500
Even as Greek debt hits new and improved daily record highs each and every day, with the Bund spread for 10 years hitting a ridiculous 1,140, the country continues to pretend it has capital markets access. Although in theory it still does. Even with a Greek restructuring now virtually assured, although as the CreditSights note below notes this would be a political suicide event, the country still managed to sell €1.625 billion of 3 month Bills at the stunning rate of 4.10. Reuters reports: "Greece sold more than 1.6 billion of three-month debt on Tuesday, raising funds to roll over 800 million euros ($1.14 billion) of maturing government paper later in the month, with yields rising above 4 percent. It was priced to yield 4.10 percent, up 25 basis points from an auction in February and around the rate of about 4.2 percent Greece pays on its EU/IMF bailout loans." Yet even with the "attractive" yield the Bid To Cover plunged from 5.08 to 3.45, as the only bidders were banks themselves propped up by the ECB and China: according to PDMA foreign investors accounted for 36% of the issue.
Yields on Greek government bonds are soaring, with the 2-year yielding over 20% and the 10-year firmly on its way to 15 percent! Who will be paying up for all this mess?
Only a very few names managed gains in both equity and credit today (an interesting bunch - MAR, TOL, HOT, DHI, PEP, and SVU) as homebuilders were interestingly near the tope on the list of better performers in credit (which we suspect was related to the underperformance of the CMBX and ABX tranche markets as well as the higher beta exposure in some of the credit indices). Every sector was in agreement between credit and equity with a deteriorating move today as we note financials, leisure, and media were the worst beta-adjusted in credit relative to stocks on the day. Capital Goods, Utilities, and Consumer Noncyclicals performed the relative worst in stocks versus credit. The up-in-quality theme in credit is increasingly leaking into vol as we saw much less impact higher in vols in better-rated credits than in lower-rated credits. This was also the picture in credit though we did see the very highest rated names underperforming (financials?). This picture was somewhat different in equity-land where BB-rated and below names saw their stocks drop far less than A- rated and above names - once again we think this is to do with both financials dominating performance as well as the typical ratings/momentum correlation unwind.
Friedberg Mercantile Group Q1 Commentary: Views On Asset Allocation And Gold In A Stagflationary EnvironmentSubmitted by Tyler Durden on 04/18/2011 16:44 -0500
Importantly, this inflationary episode, which threatens to last as long as the U.S. does not raise nominal interest rates above present rates of inflation (or, more to the point, real rates above the growth rate of the economy), has serious recessionary consequences, especially when wage and salary costs lag prices. In other words, what is being touted as a constructive element, the fact that labour costs are not showing signs of inflation, is reason to believe that the economy will soon be hit by another wave of retrenchments, as consumers are hit by shrinking real paycheques. Recessionary pressures in the U.S., adumbrated by downward revisions to second-quarter GDP forecasts in recent weeks, are being reinforced by economic weakness in the U.K., which is already undergoing a more severe bout of inflation, and the Eurozone (with the exception of Germany), which is in the grips of extremely high unemployment and negative growth per capita and stifled by excessive debt, rising taxes, and, believe it or not, low money supply growth. Consider, too, that most of the emerging markets are engaged in belated and not always conventional forms of monetary tightening in a desperate but ultimately futile hope of reducing inflationary pressures without disrupting real economic growth, and the resulting mix, you might guess, can only spell global economic trouble.
Never have so many, said so much, that's so wrong. It seems like a combination of deficits and rating agency action have sparked a myriad of comments, many of which are just plain wrong....First, on the deficit. NEITHER party is reducing the existing cumulative deficit nor amount of debt outstanding. They are NOT creating surpluses anytime in the next few years (decades)! They are cutting the projected deficit...Secondly, after getting wrong what the deficit reduction really is, they get wrong the likelihood. Talks about 2030 being balanced. Excuse me???? In November the talking heads thought we might see tax cuts expire. They didn't see new spending. In December, we got both! Why do we assume things will be better 15 years from now when we can't predict a few months out very well? Probably, the obvious reason. IBGYBG. I'll Be Gone, You'll Be Gone. Stocks have rallied from 900's to 1,300 as the smart money bet on unwavering and unlimited government support. Tepper was spot on. He called it for what is was. Now, smart money may be realizing that game is over... The pundits can continue to be wrong about their budget commentary, can scream til they are blue in the face that the rating agencies don't get it, but we have moved one more step towards that slippery slope where government support for stock prices is getting more difficult to implement.
Things like this don't all happen at once, today just happens to be a day that the S&P happens to mention that we are standing dangerously close to the ledge. Brazil was much smaller than Greece when they defaulted in 1983 and they took the US economy down with them...
So it starts. Where will it end?
Putting its money where its mouth is, Dagong has a long-standing, negative outlook on US debt that doesn’t pull any punches. From its November 2010 report: “In essence the depreciation of the U.S. dollar adopted by the U.S. government indicates that its solvency is on the brink of collapse, therefore it wants to cut its debt through the act of devaluation with the national will; such a move has severely harmed the interests of creditors.” Following suit, S&P stunned financial markets this morning by revising its US outlook to ‘negative’, citing politicians’ inability to address medium-term and long-term challenges. In total contrast, US News and World Report published an article a few days ago entitled Why you should buy U.S. Treasuries,” which amounts to the worst advice I’ve seen in years.