Philly Fed
November 19th, 2009 10:15 amThe Philly Fed Index popped from 11.5 to 16.7.
The entrails of the report manifest some strength with increases in new orders, shipments, employment and the average work week.
Swap Spreads
November 19th, 2009 10:04 amSwap Spreads are wider across the curve today.
Two year spreads are a basis point wider at 31. Five year and 10 year spreads have each leaked a basis point wider at 29 1/2 and 10 1/2, respectively.
Thirty year spreads are 2 basis points wider at NEGATIVE 12.
Early MBS Color
November 19th, 2009 9:20 am**Mortgages not particpating much in rally and are wider by ~1
to 1.5bps across the stack. Higher dollars bring origination
and MBS have had trouble finding clearing levels with 4.5’s
north of 102. Better selling yesterday also has an overhang in
the market and we expect mortgages to lag given the amount of
orignation and paper floating around over the last couple
session. 15yrs have cheapned and provide a better alternative
for those lookign to stay invovled in MBS.
Stimulus
November 19th, 2009 8:39 amHere is an interesting piece from the Bureau of Labor Statistics. The 2008 one shot payments to taxpayers as stimulus in 2008 were largely ineffective. Taxpayers used nearly 70 percent of that money to pay down old debt or for savings. Only 30 percent was actually spent.
IG 13 and Some CDS
November 19th, 2009 8:20 am- 5yr Snr Bank CDS: BAC 123/128 (+3), CITI 190/200 (+8), JPM 54/59 (+1), WFC 93/98 (+2)
- 5yr Snr Broker CDS: GS 103/108 (+2), MS 136/141 (+2)
- CDS Index: IG13 101.25/101.75 (+2)
Antipodean Currency Thoughts Via Brown Brothers
November 19th, 2009 8:18 amThe New Zealand dollar is leading the move lower against the dollar and yen, and highlights concern about possible moves by various countries to limit currency gains. Today’s pressure on the New Zealand dollar stems from official comments from the Treasury and from the opposition Labour party. According to a local press report, the Treasury argued that significant tax reforms and the front-loading of fiscal policy followed by cuts in government spending could take pressure off monetary policy and weaken the New Zealand dollar for several years while opposition Labour party leader Phil Goff said the party could no longer support the central bank’s policy of targeting inflation, and instead supported a shift in focus to the external sector and the promotion of a stable currency. The comments from the Treasury appear to be emerging from a study on “options for reform” and actual policy decisions may take more time to decide upon and implement. That’s in contrast to some emerging economies like Brazil that have introduced clear forms of capital controls. Still, with heightened concerns that countries are taking action to try to limit currency gains, and with some market participants likely beginning to wind down positions ahead of the year end, the New Zealand dollar has given up over half of this month’s gains. The Australian dollar is also under pressure amidst more talk of a large sell order possibly related the US private equity group, TPG and Blum Capital’s, sale of their shares of Australia’s Myer’s Department store for A$2.2bln.
Intervention
November 19th, 2009 7:47 amOne trader reports via email the HKMA purchased a rather chunky $ 2.1 billion US dollars overnight.
Bond Market Open November 19 2009
November 19th, 2009 7:43 amPrices of Treasury coupon securities are registering virtually no change in overnight trading.
As I peruse the news ,there is not one story which jumps out and grabs me as particularly pithy. And I guess I am not alone as the US bond market manifests virtually no movement.
An examination of various small pieces of data does yield, I think, one theme at least in the overnight trading. It appears that risk reduction is a minor theme overnight.
European equity futures are posting declines , albeit modest ones. The futures market indicates that the US stock market will open with a modest decline.
The dollar has gained against the Euro and has slipped versus the yen. The dollar and the yen are repositories of risk and that slippage indicates a modicum, of risk reduction is underway at least for this one session. I also note that gold has declined modestly as has oil.
If that mentality lasts for more than a day it will redound to the everlasting benefit of the US taxpayer next at which time my close personal friends at the US Treasury will offer $ 115 billion in 2 year notes, 5 year notes and 7 year notes to the unsuspecting investors.
As we turn the pages on the calendar and careen towards year end, I suspect that there should be more risk aversion in front of us. Anyone who has had the prescience to own various types of spread product this hear has made piles of money.
Prudence would dictate that some choose to monetize a portion of those profits as traders lock in the potential for a shiny Porsche or a share of a slug of weekends in the Hamptons.
There has also been a bit of an epiphany regarding Federal Reserve policy. I think that the Bernanke speech was very dovish and it resonated with the sceptics n the class. I think that a reasonable chunk of the unbelieving have shifted to the view that the extended period will be quite extended and the initial beneficiary of that change of heart will be the 2 year note which will be attractive versus shorter expensive paper.
With the supply announcement later today we will have the forward rolls into the WI issues. One set of analysis which I have observed suggests rolls of about 6 basis points on the 2 year note, 5 basis points on the 5 year note and 4 basis points on the 7 year note.
The yield on the 2 year note is dramatically unchanged at 0.745 basis points. The yield on the 3 year note is unchanged at 1.27 percent. Likewise the yield on the 5 year note is unchanged at 2.19 percent and the 7 year is unchanged at 2.89 percent. The yield on the 10 year note has slipped a basis point to 3.36 percent and the yield on the Long Bond has edged lower by a basis point to 4.29 percent.
The 2 year/10 year spread is a basis point narrower at 262 basis points.
The 10 year/30 year spread is 93 basis point. I still love being long 30s versus 10s at this spread as I think that the belly will cheapen versus the wings for the supply event next week.
The 2 year/5 year/30 year spread begins this day at 65 basis points.
Preview of Economic Data Via UBS
November 19th, 2009 6:33 amPreview: UBS est jobless claims 500k, Philly Fed index 15.0, LEI +0.2%
(1) The trend in new jobless claims (cons 504k, UBSe 500k, after 502k) has been downward. At 520,000, the latest four-week average was the lowest level since November 2008. The upcoming report will cover the week including the Veterans Day holiday. The holiday has generally not caused a bias in claims readings in earlier years, but the difficulty of seasonally adjusting for the timing of holidays always raises the potential for extra volatility. (2) The index of leading economic indicators likely edged up in September (UBSe: 0.2%, cons: 0.4%, after 1.0%)—its sixth consecutive monthly gain. We project that the coincident index will be reported -0.1% in October after no change in September. (We cut our earlier projection after the weaker-than-expected industrial production data in October.) (3) We forecast a modest gain in the Philadelphia Fed manufacturing survey in November (UBSe: 15.0, cons: 12.2, after 11.5 in Oct). (4) Fed officials Fisher (4:45pm EST) and Plosser (11:45pm EST) are scheduled to speak.
Administrative Note
November 18th, 2009 12:46 pmToday I will be gone for the afternoon. I have a meeting in the big city.
My apologies and normal blogging will resume tomorrow.