Three Year Result

October 6th, 2015 1:11 pm

Via CRT Capital:

** A solid takedown with a through-stop of 0.3 bp and non-dealer bidding at 58.8% vs. 61% norm ***
* 3-year auction stops at 0.895% vs. a 0.898% 1-pm bid WI.
* Dealers were awarded 41.1% vs. 39% average of the last four 3-year auctions.
* Indirects get 47.7% vs. 51% norm.
* Directs take 11.1% vs. 10% average.
* Bid/Cover was 3.14 vs. 3.27 average of last four.
* Dealer Hit-Ratio: Dealers take 17.4% of what they bid for vs. 16% norm.
* Indirect Hit-Ratio: Customers take 96% of what they bid for vs. 90% norm.
* Treasuries were trading slightly higher into the auction, building in no meaningful outright concession for 3s. Since the results, Treasuries have held the price action.
* Volumes in the sector ahead of the auction were below average for a 3-year auction day in cash-terms at 67% of norms and with a below average 15% marketshare vs. 16% norms. Overall, Treasuries have had a below-average volume day at 72% of the 10-day moving average. 5s were the most active issue taking a 31% marketshare while 10s were second at 28%.  2s managed 12% while 7s got just 8%.

GSE Reform: Not

October 6th, 2015 12:55 pm

Via Bloomberg:

Corker: Congress Will Ignore GSE Overhaul Over Next 16 Months
2015-10-06 16:46:51.752 GMT

By Kim Chipman
(Bloomberg) — Sen. Bob Corker, R-Tenn., predicts Congress
won’t take on any issue that requires “intellectual heft” and
“tough decision-making,” including revamp of Fannie Mae and
Freddie Mac.

* Some Republican lawmakers who “raised Cain” about GSEs
during financial crisis are now more muted on issue of a
mortgage finance revamp because it’s easier than doing hard
work, Corker, a member of Senate Banking Cmte, says at
Bipartisan Policy Center discussion on “housing finance
reform” in Washington
* Democratic Sen. Mark Warner of Va., who spoke alongside
Corker, says one reason he thinks Senate housing legislation
failed to advance last yr was lack of appreciation of
“strong feelings” in House that govt must get out of any
backstop role
* NOTE: Corker, along with Warner, introduced legislation, S.
1217, in 2013 that would have wound down Fannie Mae and
Freddie Mac; measure stalled, eventually expired as
Democrats including Sen. Elizabeth Warren of Mass. said it
didn’t do enough to ensure affordable loans for all

Overnight Data Preview

October 6th, 2015 12:13 pm

Via Robert Sinche at Amherst Pierpont Securities:

CHINA: Official FX Reserves peaked in June 2014 and, on a mark-to-market basis for the decline in currency values versus the USD, have fallen by -$435bn through August. The BBerg consensus expects about decline of about $50bn in September, limiting any growth in China demand for foreign assets.

HONG KONG: HK Official FX Reserves did not peak until May 2015 and have fallen a modest -$10.5bn over the following 3 months.

JAPAN: Japan will also report September reserves; although Japan reserves peaked in January 2012 they have fallen a modest $62.5bn in the last 3 ½ years, with much of that likely M-T-M declines. The BOJ is likely to leave their policy settings unchanged, although they may announce changes in November.

RUSSIA: The BBerg consensus believes that Russian Official Reserves may have inched up slightly in September to $367.3bn as EUR/USD inched down only slightly.

GREECE: There is scheduled to be a Vote of Confidence in the newly elected Tsipras government.

GERMANY: The BBerg consensus expects that Industrial Production rose another 0.2% MOM in August after a 0.7% gain in July, but weak Factory Orders data suggests downside risks to the consensus estimate.

SPAIN: The BBerg consensus expects a -0.4% MOM setback in Industrial Production in August after a 0.6% MOM gain in July, although even that drop would leave YOY IP up 4.7%.

UK: The BBerg consensus expects August IP to have rebounded 0.3% MOM after a -0.4% drop in July, bringing the YOY increase to a modest 1.2% as production growth lags demand growth.

Three Year Note Auction Preview

October 6th, 2015 11:20 am

Via CRT Capital:

We are optimistic about this afternoon’s $24 bn 3-year auction and see the risk of a stop-through in light of the recent takedowns of new 3s and the broader rethink of Fed liftoff expectations in the wake of the disappointing NFP report.  On the other hand, the absence of any pre-auction concession is troubling and might warrant a greater accommodation ahead of 1 pm.  Nonetheless, the takedowns of this benchmark have recently gone very well, stopping-through or on-the-screws at each of the last 12 auctions – a dynamic we don’t see any reason to bet against this afternoon. Volumes are modest this morning with 3s at just 67% of the auction-day norms and with a below-average marketshare at 15% vs. 16% norm.  Foreign demand will be a wildcard at this week’s auctions given the recent risk-on/risk-off moves and for context overseas awards average 18% of the 3-year auction.

* 3-year auctions have recently met solid receptions, stopping-through (or on-the-screws) at all 12 of the most recent auctions for an average of 0.4 bp through.
* Investment Fund buying has decreased recently, taking 40% or $9.7 bn during the last four auctions vs. 42% or $10.0 bn at the prior four.

* Foreign bidding has gained recently, averaging 18% at the last four auctions vs. 16% at the prior four. Foreign investors initially bought just $2.8 bn (9%) of the maturing 3-year; bottom of the range.

* Maturities are light for this week’s trio of auctions at $32 bn, leaving net new issuance at $26bn – tied with Sept as the highest since October.  This offers a modest offset to expectations for otherwise strong rollover interest.

* Technicals are bearish and stochastics have crossed from overbought levels.  For initial support we see the 0.912% 9-day moving-average, followed by the top of the range from NFP-day at 0.935%.  There is also a modest volume-bulge near 0.972%. Initial resistance is the Bollinger-band bottom at 0.831% before the NFP-day low yield mark at 0.782% with little beyond there.

Today’s Corporate Calendar

October 6th, 2015 10:38 am

Via Bloomberg:

IG CREDIT: List of New Issues Expected to Price in U.S. Today
2015-10-06 14:01:00.0 GMT

By Allan Lopez
(Bloomberg) — List of new issues expected to price today:

* Rolls-Royce $benchmark A3/A
* 5Y, 10Y; 144A/Reg S
* Denoms: $200k x $1k
* IPT: 5Y +137.5, 10Y +187.5 (both area)
* Books: BofAML, C, GS, JPM
* Norilsk Nickel $benchmark Ba1/BBB-
* 7Y loan participation notes; 144A/Reg S
* Denoms: $200k x $1k
* IPT: 7% area
* Books: Barclays, C, ING, SGCIB, UniCredit
* Bancomext $benchmark A3/BBB+
* 10Y; 144A/Reg S without reg rights
* Denoms: $200k x $1k
* IPT: +250 area
* Books: BofAML, HSBC
* RBC $benchmark Aaa/AAA (Moody’s/Fitch)
* 5Y covered bonds
* IPT: MS +75 area
* Books: C, HSBC, RBC, TD
* EIB $4b Aaa/AAA
* 5Y Global
* Launch MS +25; IPT MS +25 area
* Books: BofAML, C, GS
* NWB $500m Aaa/AA+
* 2Y FRN; 144A/Reg S
* Denoms: $200k x $1k
* Final spread 3mL +12; IPT 3mL +12 area
* Books: C, TD

Trade Deficit

October 6th, 2015 9:14 am

Via Stephen Stanley at Amherst Pierpont Securities:

As discussed a week ago, when the advance trade figures were released, August was a perfect storm in terms of a wider trade gap.  Exports fell and imports surged.  There are pieces of this move that reflect fundamental/persistent factors, but much of it is noise and will likely be reversed.  In any case, the August trade gap ended up coming in somewhat smaller than the advance numbers had suggested, but the gap still widened by $6½ billion on the month to -$48.3 billion, the worst reading since March (when the West Coast port snags were unwound).  I had already made the adjustment in terms of my Q3 GDP estimate, so I do not need to make a further revision to my Q3 tracking estimate.  I should note, however, that I have lowered my GDP estimate significantly over the last week or so, mainly reflecting a bigger trade deficit and slower inventory accumulation (primarily on the back of Friday’s factory inventories figure).  The Q3 headline GDP results are shaping up to be deceptive.  In my current forecast, inventories represent a drag of over a full percentage point while net exports subtract another six tenths of a percentage point.  In fact, I currently have only a 1½% rise for Q3 real GDP, even though final domestic demand in real terms looks poised to exceed 3% growth for the fifth time on the last six quarters.

Turning back to the August trade figures, goods exports sank by 3.2% on the month, led by a sharp fall in petroleum product exports and in esoteric consumer goods (jewelry and artwork).  “Other” goods and auto exports also fell sharply and the capital goods category only managed a rise because of a spike in aircraft shipments overseas.  In short, the weakness was nearly across the board.  On the other side of the ledger, the 1.3% rise in goods imports came despite a roughly $2 billion plunge in petroleum imports.  The big driver was a $4 billion surge in consumer goods imports.  Over half of that reflected cell phones and was presumably a function of the new iPhone rollout.  Most of the rest represents a phenomenon that we have seen all year.  Since the delays caused by the West Coast ports labor situation, goods imports have been coming in waves in roughly 3 month increments.  The West Coast port backlogs were unwound in March, then the ships’ crews collected as many empty containers as they could find and immediately hightailed it back to Asia for their next load.  That round trip cycle apparently takes 2-3 months, as consumer goods imports so far this year have been:

Billions of Dollars

Consumer Goods Imports

















As you can see, the August surge came, if anything, a month ahead of “schedule.”  In any case, hopefully, the detailed breakdown gives you a sense of why I do not expect the deterioration seen in August to be fully sustained in September (much less extended).  I am penciling in a partial reversal for September, but the net result is still a noticeable drag from net exports for the quarter.

JPMorgan Duration Survey

October 6th, 2015 8:44 am

Via Bloomberg:

RATES: Longs and Shorts Rise in Latest JPM Survey
2015-10-06 12:28:02.658 GMT

By Robert Elson
(Bloomberg) — The JPMorgan Treasury Client Survey for the
week ended Oct. 5 vs week ended Sept. 28.

* Longs 17 vs 15
* Neutrals 63 vs 68
* Shorts 20 vs 17
* Net longs -3 vs -2
* “The all clients survey remains 8%-pts longer than its 1-
year average’’
* All clients survey:
* Longs 8, unchanged
* Neutrals 75 vs 84
* Shorts 17 vs 8
* Net longs -9 vs 0
* “The active clients survey is 4%-pts shorter than its 1-
year average’’

What to Watch Today

October 6th, 2015 6:50 am

Via Bloomberg:


* (All times New York)
* Economic Data
* 8:30am: Trade Balance, Aug., est. -$48b (prior -$41.86b)
* 10:00am: IBD/TIPP Economic Optimism, Oct., est. 44.5
(prior 42)
* Central Banks
* 9:15am: Fed’s George speaks in Chicago
* 1:00pm: European Central Bank’s Draghi speaks in
* 5:30pm: Fed’s Williams speaks in San Francisco
* 11:00pm: Bank of Japan’s Kuroda holds news conference on
policy statement
* Supply
* 11:30am: U.S. to sell $8b 4W bills, $15b 25-day CMB
* 1:00pm: U.S. to sell $24b 3Y notes


October 6th, 2015 6:45 am

Via Marc Chandler at Brown Brothers Harriman:

Dollar Softens in Consolidative Trade

– The US dollar is trading softer though largely within yesterday’s ranges against the majors
– The Reserve Bank of Australia kept rates on hold today, as widely expected
– German factory orders disappointed
– During the North American session, the US reports August trade; Canada reports September Ivey PMI
– It was a tale of two EM countries in terms of inflation
– Poland central bank met and kept rates steady at 1.5%, as expected

Price action:  The dollar is broadly weaker against the majors but remains in recent trading ranges.  The Aussie is the best performer after the RBA left rates steady but issued a less dovish than expected statement.  The Scandies are also outperforming, while the Kiwi and the Loonie are underperforming.  The euro is trading just above $1.12, up slightly despite weaker than expected German orders.  Sterling is trading heavy and continues to have trouble clearing the $1.52 area, while dollar/yen is still trading just above 120.  EM currencies are mixed.  IDR, KRW, and the CEE currencies are outperforming while RUB, TWD, and ZAR are underperforming.  MSCI Asia Pacific rose 0.8%, with the Nikkei up 1% on the day.  China markets remain closed until October 8.  The Dow Jones Euro Stoxx 600 is up 0.2% near midday, while S&P futures are pointing to a lower open.  The US 10-year yield is down 1 bp to 2.04%, while European bond markets are mostly softer.  Commodity prices are mixed, though oil prices are hanging on to most of the Monday gains.

  • The US dollar is trading softer though largely within yesterday’s ranges against the major currencies.  The rally in equities carried over into Asia but European markets are narrowly mixed, and US shares are trading lower.  Bond yields are mostly higher though US Treasury yields are paring yesterday’s push higher.  
  • The dollar bloc continues to firm.  Some attribute this to new carry plays in the wake of the Fed’s decision to stand pat last month.  However, as the positioning the futures suggest, the gains are not simply participants going long these currencies, but shorts are being covered.  
  • The Reserve Bank of Australia kept rates on hold today, as widely expected.  The statement was not particularly dovish, suggesting the bar is high to a rate cut this year.  The RBA cited improvement in the labor market.  Separately, Australia reported a larger-than-expected trade deficit (exports flat, imports up 1%).  This shows Australia is still struggling with the terms of trade shock.  The $0.7150 area is the next major hurdle.  
  • The New Zealand dollar is slightly firmer as the market awaits the global dairy auctions amid expectations of higher prices.  The $0.6530-0.6550 area caps the upside.  Elsewhere, sentiment toward the Canadian dollar was helped by recent economic data indicating the economy has returned to a growth track (in June and July) after contracting for the first several months of the year.  Today’s news may challenge its ability to recover much more.  The trade deficit is expected to widen sharply in August and the IVEY survey is expected to soften to 54.0 vs. 58.0 in August.  Initial support for the US dollar is seen near CAD1.3050.  The nearby cap is seen in the CAD1.3100-1.3120 region.  
  • German factory orders disappointed.  They fell 1.8% in August.  The market had expected a 0.5% increase.  Adding insult to injury, the July series was revised to a 2.2% decline rather than a 1.4% fall.  Domestic orders fell 2.6% in August.  Foreign orders fell 1.2%, but this was mitigated by a strong 2.5% increase in orders from the eurozone.  The euro eased less than a quarter of a cent on the news.  
  • In addition to the Canadian data, the North American session features the US trade figures and two Fed officials (George, a hawk, and Williams–after the markets close).  The newly introduced flash merchandise trade report last week warns of a large shortfall, with weak exports leading to a downgrade in the Q3 growth “Nowcast” by the Atlanta Fed’s model from 1.8% SAAR to 0.9% SAAR.  Confirmation may pose headline risks but not contain much new information.  It will support the consolidative tone.    
  • It was a tale of two EM countries in terms of inflation.  Colombia reported higher than expected inflation, while the Philippines reported lower than expected inflation.  The monetary policy trajectories are also divergent.  Colombia reported inflation at 5.35% y/y, well above 5.0% consensus and even further above the 2-4% target range.  We did not think an aggressive tightening cycle would be seen, but the data may push the central bank into front-loading it more.  On the other hand, Philippine inflation of 0.4% y/y is well below the 2-4% target range.  Even though the bank has been on hold since its last 25 bp hike in September 2014, rising deflation risks suggest the bank may have to tilt more dovish in the coming months.      
  • Poland central bank met and kept rates steady at 1.5%, as expected.  The bank has been on hold since March.  September CPI came in lower than expected at -0.8% y/y vs. -0.6% in August.  Deflation remains persistent and should prevent the central bank from tightening until well into 2016.  And if the downside risks to the economy increase enough, we would not rule out a resumption of the easing cycle.  The monetary policy outlook will get a bit cloudier, however, as 8 out of 9 MPC members will see their terms end in early in 2016.  President Duda will name two replacements, while the lower and upper houses will each name three replacements.  The late October elections could see a shift in the balance of power in parliament, and so the MPC could take on a more dovish bent if the populist Law and Justice party wins.  

Corporate Liquidity

October 6th, 2015 6:42 am

The Liberty Street Economics Blog (aka Federal Reserve Bank of New York at 33 Liberty Street) is running a series of articles on bond market liquidity. The first article deals with liquidity in the corporate bond market and concludes that liquidity is improving. Here is the concluding paragraph:

In Sum
In conclusion, the price-based liquidity measures—bid-ask spreads and price impact—are very low by historical standards, indicating ample liquidity in corporate bond markets. This is a remarkable finding, given that dealer ownership of corporate bonds has declined markedly as dealers have shifted from a “principal” to an “agency” model of trading. These findings suggest a shift in market structure, in which liquidity provision is not exclusively provided by dealers but also by other market participants, including hedge funds and high-frequency-trading firms.

Here is a link to the full article which has lots of nice charts which do not translate well to this low rent blog.

This link here takes you to another Liberty Street blog post which describes the full series of articles which the NY Fed will release this week on market liquidity.