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Credit Supply Meets Unknown Demand
We have long discussed the colossal maturities pending among the state-sponsored FDIC-backed TLGP bonds due over the next few months but adding the financials exposure to other investment grade corporate bonds shows some incredible supply is pending. Bloomberg noted the fourth quarter alone has over $200bn coming due - based on a search of their database.
More specifically, Bloomberg's Robert Elson points out the next few quarters breaking down as follows:
October - $47b
November - $42b
December - $109b
1st quarter 2012 - $203b
2nd quarter 2012 - $255b
In an effort to be a little more specific, we drastically reduced the breadth of the search to USD-denominated, investment-grade bullet bonds only and excluded FNM, FRE, and FHLB issues for a little more clarity on what is very clean debt that will need to be rolled. To year-end this much more concentrated search still turns up over $60bn in new supply dominated by large denomination financials (the TLGP debt that we have been warning about) who are unlikely to see great demand anytime soon for their debt.
At first glance this smaller number seems possible but the key understanding is that the refinancings will be at dramatically more expensive rates of interest than existing levels (for all the TLGP debt - it will be multiuples of) and concessions are already starting to pick up for even relatively decent quality names.
An example of a middle-of-the-road credit yesterday was Textron which issued a multi-tranche deal - we note that the 5Y issue came almost $2 cheap (~50bps) to the fair-value implied by the CDS market - a considerable concession in what is supposedly a high credit availability environment. This causes secondaries, that are trading relatively thinly, to reprice towards the primaries as basis traders arb and managers switch.
Add to this strain of supply, the fact that we are seeing a turn in the credit cycle - as evidenced by the rising downgrades versus upgrades that we discussed last week and we worry that there will be little to stop spreads being pulled wider by this technical - whether underlying fundamentals are better or worse.
UPDATE: The weighted average cost of debt - YIELD (not spread) - on outstanding TLGP debt is 47bps - what will happen to interest expense when these financials (trading 200-300bps over, so 4-5% yield) roll?
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So spitball it for me.
Old debt at 2%. Rolled over to 3%? 4%? 5%?
I belive every 100bp change equals a reduction in Vo of 7%
Roll them up the duration down the yield and we are off to the races! Get 'er done
Z
Remember remember 2011 december. We'll see. So far many rabbits have been pulled...
Zerohedge: sometimes it's NOT just thought pieces from newsletter sellers.
The $hit is coming on down.
PS: ZH must have their servers in Iceland or something. Soldier on!!!
I've begun to suspect Tyler has his servers hidden in the new GS building. The Ponzi would never think to look where they have buried all their own rot.
It's all just Monopoly money folks. We know that they will eventually print again and again and again simply because insanity cannot and will not restrain itself. Either we restrain it ourselves or we move to the side and let it blow itself out.
And we all know that trying the same thing over and over again and expecting a different result is the definition of insanity. So let the insanity continue!
Agreed,
I am 100% certain that until we get screaming inflation, the politicos and CBers will feel comfortable about printing.
Watching the wheels go round and round......until the wheels fall off.
http://www.stoxos.gr/2011/09/3_15.html
There has been a call to arms by the Greek National Guard in case Turkey decides to attack because of the Aegean oil.
Remember 2 weeks ago when Turkey messed up with Israel?
Remember 1 week ago when Greece signed stuff with Israel?
Remember Greek bonds at 130ish% revenue?
Remeber history books and how often economically fucked up nations went to war?
Time to LONG BRENT guys.
.. anyway, the last time the turks attacked Greece they were under dictatorship and lost half of Cyprus. Now after 37 years they have dictatorship again. Guess what..
As if the US dollar supply isn't diluted enough....
http://www.google.com/hostednews/ap/article/ALeqM5iIE3UI7eZy5qNpGtQDHC6SPCkkSA?docId=d36537aac378419bb52a35a5ea817ac3
Another shovel full of dirt tossed out of the grave.
Store it on the s drive along with solyndra.
http://www.youtube.com/watch?v=INakuPccmbY
I find this whole charade to be exhausting. Greece is bankrupt, then suddenly not. States are insolvent, suddenly not. Companies slashing outlook, markets up. All I know is this: business conditions since October of 2010 have been abyssmal, and this will be a worse year than 2008. I'm spending far less, and will continue to cut back until work picks up.
Don't know who will be refinancing this debt - it certainly ain't me.
D Ratigan on with Ritholtz - just pisses me off.
As long as flesh and blood people are either too scared to trade or simply do not have any money left to trade, the computers have free reign to send the market higher 1-2% a day at a time from here on out.
Look at this past week. We get something resembling a market until Europe closes, (there are actually humans trading in Europe), then once Europe closes the markets have moved in almost a perfectly straight line with small point swings up and down the line as the bots buy and sell to maximize trading revenue.
The computers are programmed to drive the market up a little at a time so as not to arouse suspicion. Problem is that when there is no volume the algo trading is out in the open and the pure manipulation is there for all to see. Today the 1200 S&P sell commands were taken off so the market could trade higher. We can pretend a whole bunch of short sellers freaked out at that level, but it is much more plausible that the computers were programmed to issue profit taking sell orders at the 1200 level.
The computers must be turned off. The distortion of the market is complete and there is no sense to it at all. I wonder how many computer models needed to be changed to write out buy orders for Netflix. Probably why the stock started the trading day moving higher until around 10am when the wheels fell off.
So either rates rise or Bernanke prints and buys the bonds with Obama's package. No wonder Obama is so desperate.
Hi guys I am new to this forum
I have learned quite a bit from TD and what is currently going on within the crazy 3-4 weeks. NYtimes and WashPO were my previous source of information, but I had a feeling that something was lacking in regards with the financial reporting of those newspapers. I subsequently searched and found Zero Hedge by accident (very accidental)
Would someone point me in the right direction onto where I can further educate myself? The hard switch from Monetarism to Austrian School is quite hard, and to tell you the truth very very disorienting.
My points of inquiry would include the following: Debt vs interest vs growth (strong Keynes vs Hayak I think?), Role of Monetarism (Gold standard vs Fiat), History lessons in regards to current monetary affairs
Frankly, I need a teacher. I am a Pharmacist by trade, so i truly don't understand the market. So far I already moved by 401K to 3.5% yield MMF, and bought my first PM order this past week. I am currently very confused as to the market movement (moving higher on bad news, PM going down the tubes in 7 days, etc etc). Nothing makes sense, and in my world if shit doesn't smell right, don't do it until you know what you are getting into is the answer.
I smell market manipulation, but I cannot define it. Think of my plea as your average joe starting to smell the coffee, unfortunately I dont' know where to go or what to do, and its kinda dark. I also feel some impendingness of somethingness, but I don't know what. My loved ones think I am crazy, I just don't know if I am or if everyone else is. As they say about schizos: sometimes its not them, it could be us.
Welcome.
In answer to you, there is one rule to invest by anymore. If it advances or sustains the status quo, buy it.
http://mises.org/ - Plenty of reading here
Manipulation is RAMPANT
Welcome to the rabbit hole.
Welcome: you might start here:
http://www.youtube.com/watch?v=4PQrz8F0dBI
http://contraryinvestor.com/mo.htm
http://www.truth-out.org/how-turn-continent-subprime-cdo/1314479925
http://globalresearch.ca/index.php?context=va&aid=25991
Let me know how you're doing. No matter what, do not believe the recommendations of the "financial services industry". These people are paid to find new ways to take your money from you.
We're part way through a classic bear market. The standard advice is to stay in cash, gold, and bonds.
I'd be wary of bonds, too, but there might be a few safe corporate bonds out there. What ever you do, stay the hell away from muni's. I'm with Meredith Whitney on the muni's. Time bomb.
Don't sweat your PM purchase, the more you learn the happier you'll be about it.
As far as education goes, I usually tell people to check out Chris Martenson's crash course:
http://www.chrismartenson.com/crashcourse
I think Chris does a very good job of easing people into understanding how fucked we are.
Welcome. I'm pretty new to ZH myself, but I read it every day now. Some of the stuff is way over my head, but the TD articles (and many of the people that comment on the articles) seem extremely well-schooled.
Here are some of the places that I learned the deeper and darker secrets about our "system" of money:
A history of the federal reserve through some Austrian economic eyes - http://www.youtube.com/watch?v=iYZM58dulPE
A very simple explanation of our 'currency' through the eyes of a man that emphasizes preparedness - http://www.youtube.com/user/survivalpodcasting#p/u/10/-HtqCsFpXw4
And finally, our monetary system (and economy) within the context of understanding the value of Precious Metals - http://www.youtube.com/watch?v=E5VNAEmmBQM
My apologies in advance to any ZH'ers that take umbrage with these resources and think that they are crappy recommendations.
I don't know the answer to who will meet demand. I've been wondering this for some time....yet day after day after day, and all rolls on with auctions going strong: Yet, I know with 100% certainty there is not enough money in the world to keep funding all this shit. And therefore, at some point, it will become a big, no, very big fucking problem.
a 1% shift in European old family money to Dollar Denominated Bonds, FDIC guaranteed and paying some kind of interest, will cover the whole thing. It's not a large amount. Zero Hedge tends to dramatise problems. Exactly this kind of shift is plausible between now and then; there's plenty of capital to re-fi these things.