Archive for July, 2014

July 14th 2014 Opening

Monday, July 14th, 2014

Prices of Treasury coupon securities have edged a touch lower in quiet overseas trading. The frantic trading which developed last week with the problems at the Portuguese bank have subsided and with that the urgency to trade has faded. One analyst also noted the France is closed for Bastille Day ...

Bond Market Volatility : A Eulogy

Monday, July 14th, 2014

I began my career shortly after Paul Volcker introduced incredible volatility into the fixed income markets in late 1979 with his plan to crush the withering inflation of the 1970s. That action by Volcker induced incredible volatility with frightening price movements. Those of you who have been initiated into the ...

Obama Foreign Policy

Sunday, July 13th, 2014

This article is from the WSJ and it is a mostly critical look at foreign policy under the incumbent President. The article notes that the President confronts a tense globe with crisis in Iraq and Syria and the Ukraine. Those geopolitical minuets play out against the backdrop of a President ...

ECB Open to Non Conventional Measures

Sunday, July 13th, 2014

ECB May Adopt Non-Conventional Measures: Coeure to Kathimerini By Nikos Chrysoloras July 12 (Bloomberg) -- European Central Bank is committed to adopting non-conventional monetary measures if necessary, Executive-Board member Benoit Coeure says in interview with Greek newspaper Kathimerini, to be published tomorrow. * ECB’s focus at the moment is to allow enough time ...

From the Oh Canada Department

Sunday, July 13th, 2014

This story I received from a fully paid up subscriber and it is another article on the potential for a US style housing crash north of the 49th parallel. I am not going to hold my breath. I worked for TD Securities from November 2009 until my very amicable retirement ...

Falling Commodity Prices

Saturday, July 12th, 2014

I will confess that I have paid little attention to this but commodity prices are at multi year lows. The Department of Agriculture issued an estimate yesterday on the corn and soybean harvest and that forecast sent prices reeling. Via the WSJ: Commodities Corn, Soybeans Plunge as Forecasts Top Expectations USDA Forecasts Record Soybean ...

Another Repo Article

Friday, July 11th, 2014

This one deals with the increasing number of fails and deep specials in repo. According to the story dealers are devoting less balance sheet to the product and the result in my opinion is more specials and less liquidity. I had previously published this article earlier in the week. Via Bloomberg: Repo Market-Making Capacity Has Begun Decline, Barclays Says 2014-07-11 14:29:55.601 GMT By Alexandra Harris July 11 (Bloomberg) -- Increasing dealer balance sheet scarcity is changing how dealers trade repo, pushing fails higher and “simultaneously moving cash-long investors” to the Fed’s RRP, Barclays strategist Joseph Abate writes in weekly note. * There may be a permanent increase in volume of both specials and fails across a “broader mix of securities” than “calendar-influenced” OTR 10Y * Historically, OTR 2Y note has “rarely traded deeply special in repo -- that is, until this year” * Volume weighted avg “specialness” surged in June, 85bps vs 27bps avg. Jan.-May; avg. premium widened to highest level since Sept. 2011 * Fails volume avg. $58b on cumulative basis Jan.-May, or ~1% of daily dealer Treasury transactions * Dealers have become less inclined to take “balance sheet- consuming” repo positions * Pre-crisis, a dealer might “willingly” take an outright short-term or long-term position in repo markets, “particularly against a specific issue trading at a premium in repo” * Reluctance to “freely trade” balance sheet may increase overall “specialness” across all issues * Increase in repo demand for OTR collateral has “run up against a bottleneck caused by a lack of lendable supply” * Although Fed’s UST portfolio ~$2.4t, “its OTR cupboard is bare” since the after-effects of Operation Twist * Historically, Fed has reinvested its maturing Treasuries in next available Treasury security at next auction * With no maturing USTs until Feb. 2016, Fed has been unable to buy new OTRs and has avoided buying them as part of its monthly QE purchases * 10Y OTR a “special case” and “recurring theme” in repo market * In month after first auction, 10Y note trades special in repo, then cheapens “considerably” with each reopening * Makes short base in 10Y OTR “initially bigger” than available supply, which makes security expensive to borrow * “Recurring bouts of specialness have gotten deeper” since 2013

Hilsenrath Story

Friday, July 11th, 2014

WSJ is carrying a Hilsenrath authored piece on the public discussions and debate among regional Reserve Bank Presidents on the topic of when the Fed should start hiking rates. The article does not break new ground and quotes statements already in the public domain. it begins with a citation of ...

Treasury Market

Friday, July 11th, 2014

The Treasury market is rallying and the curve is flatter. I spot 5s 30s at 170.5 versus 171.5 early this morning. Dealers report light activity on this beautiful summer Friday. I think the reason for the rally is twofold: supply is out of way and so the powerful flattening trade ...

FX

Friday, July 11th, 2014

Via a fully paid up subscriber: {CA} Highlight of our session has been USDCAD where a weaker employment report took us through 1.0700 but we've since found very good longer term RM sellers up here and have more offers on the books now into 1.0740-60. Meanwhile I expect there to be ...