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Donald van Deventer

 
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  • Stressed Out: A Bond Market Risk Ranking Of Leading Financial Institutions
    Tue, Jan. 27 ALLY, BLK, BRK.B Comment!

    Summary

    • Traded credit spreads for leading financial institutions are a much more accurate risk measure than the Fed's CCAR 2015 stress tests for many reasons.
    • We analyze 1,281 trades on 202 heavily traded bonds of 51 different legal entities in the financial services business.
    • Northern Trust, in the eyes of the bond market, is the least risky firm. Wells Fargo ranks 18th, JPMorgan 29th, Citigroup 34th, and Bank of America 42nd.
  • Bunge Limited Leads The 20 Best Value Bond Trades With Maturities Over One Year
    Mon, Jan. 26 BG, BRK.A, BRK.B 4 Comments

    Summary

    • On January 23, there were 19,710 bond trades in 3,131 non-call fixed rate bond issues of 964 corporations representing $5.7 billion in principal.
    • We rank these trades by our usual "best value" criterion, the ratio of credit spread to matched-maturity default probability.
    • Bunge Limited led the list of 20 best value trades with a credit spread to default probability ratio of more than 206 times.
  • Primary Fixed Rate Mortgage All-In Yields Fall 0.02% To 0.04%, And Value Of Net Servicing Closes Down 0.67% This Week
    Sat, Jan. 24 AGNC, BBT, C 1 Comment

    Summary

    • 15- and 30-year fixed rate mortgage yields dropped 0.036% and 0.022% this week, despite a rise in Treasuries of 0.02% to 0.07% and an 0.1% increase in points.
    • Net servicing values for a newly originated 30-year fixed rate mortgage dropped 0.67% during the week.
    • The 10-year forward implied all-in yield on a 15-year fixed rate mortgage was down just 0.008% on the week.
  • Bank Of America: A Final Pre-Stress Test Credit Risk Analysis
    Fri, Jan. 23 BAC 57 Comments

    Summary

    • Bank of America was the 4th most heavily traded bond issuer in the US on January 20. The bank's short-term default probabilities are up almost 0.40% since September 9.
    • The bank's average credit spread is 0.196% over the composite marginal cost of funds of big bank peers as measured by the U.S. Dollar Cost of Funds Index.
    • The ratios of credit spread to default probabilities for Bank of America bonds rank in the bottom 38% of all heavily traded bond issues on January 20.
  • U.S. Treasury Term Premium Unchanged But Higher Expected Rates Increase Forward T-Bill Rates By 0.27%
    Fri, Jan. 23 AGG, BND, IEF 2 Comments

    Summary

    • Current U.S. Treasury yields rose 0.02% to 0.07% at maturities from 2 to 20 years this week. The implied U.S. Treasury yield in 2025 rose 0.04% from last week.
    • The U.S. Treasury term premium held steady at 0.43% for 10 years and 0.70% for 30 years.
    • Forward 1 month Treasury bill rates now peak at 2.52% in August 2021, a peak up 0.11% and 6 months earlier than projected last week.
  • Hess Corporation Bond Issue Leads Best Value 10-Year Bond Trades
    Thu, Jan. 22 HES Comment!

    Summary

    • On January 20, there were 20,472 bond trades in 3,144 issues of 982 issues in the U.S. corporate bond market.
    • We rank the best trades by our usual criterion, the ratio of credit spread to matched maturity default probability.
    • Hess Corporation's bond due 2041 was ranked best value with a spread to default probability ratio of 34 times.
  • Primary Fixed Rate Mortgage All-In Yields Fall 0.07% And Value Of Net Servicing Closes Down 0.26% This Week
    Fri, Jan. 16 BAC, AGNC, BBT 1 Comment

    Summary

    • Fixed rate mortgage all-in yields fell 0.07% this week, lagging the 0.18% to 0.28% drop in current U.S. Treasury yields at maturities from 2 to 30 years.
    • The value of net servicing fell 0.26% for the week on newly originated 30-year fixed rate mortgages.
    • We show the difference between forward U.S. Treasury rates and the best estimates of the market's expected rates beginning with this week's note.
  • Forward 1 Month T-Bill Rates Drop Up To 0.43% While U.S. Treasury Term Premium Stay Steady At 0.69% At 30 Years
    Fri, Jan. 16 BND, BOND, IEF 3 Comments

    Summary

    • Forward rates took a sharp drop this week as current U.S. Treasury yields dropped 0.18% to 0.28% at maturities from 2 years to 30 years.
    • We use a 9 factor HJM model of the U.S. Treasury curve to separate forward rates from the market's estimates of the actual short term rates looking forward.
    • We show that the market expects to earn a term premium or risk premium of 0.69% over 30 years in excess of expected short term Treasuries.
  • Measuring The Term Premium In The U.S. Treasury Curve
    Mon, Jan. 12 IEF, SHY, TBT 3 Comments

    Summary

    • Measuring the term premium in the U.S. Treasury curve is critical from the perspective of central bankers, market participants and academics.
    • We do that in this article for the U.S. Treasury curve of January 9, 2015.
    • We use the approach of Heath, Jarrow and Morton using a 9 factor constant coefficients model estimated on quarterly U.S. Treasury data from 1962 through September 30, 2014.
  • Russian Federation 1-Year Sovereign Default Probability 9.05%, Up 5.52% In 6 Months
    Mon, Jan. 12 ERUS, RBL, RSX 4 Comments

    Summary

    • Modern reduced form default probabilities for sovereigns have been available since 2008.
    • Recent events in the Russian Federation have driven the one-year default probability for the Russian Federation up 5.52% to 9.05% in the last six months.
    • As with corporate default probabilities, modern statistical default probabilities are more accurate and more granular than legacy credit ratings. They are not subject to pressure from sovereign governments.
  • Fixed Rate Mortgage All-In Yields Fall 0.05% To 0.07%, And Value Of Net Servicing Closes Up 0.60%
    Thu, Jan. 8 AGNC, BBT, C 2 Comments

    Summary

    • All-in costs on 15- and 30-year fixed rate mortgages have fallen 0.054% and 0.070% since our prior analysis on December 18.
    • 15-year fixed rate mortgage yields implied by the mortgage year curve are projected to rise from 3.122% to 4.687% in 2025, down 0.09% from December 18.
    • Net servicing values on a 30-year fixed rate mortgage have risen 0.60% from December 18.
  • Implied Forward T-Bill Rates Plunge 0.36% In 2019, Forward 10-Year Treasury Yields Drop 0.25%
    Thu, Jan. 8 TLT, BND, NUV 2 Comments

    Summary

    • The implied peak in forward 1-month Treasury bill rates has dropped 0.21% and shifted 7 months to September 2021 since our December 18 analysis.
    • The biggest drop in implied forward 1-month Treasury bill rates was more than 0.36% in mid 2019.
    • The implied forward 10-year U.S. Treasury yield fell 0.25% from our December 18 analysis.
  • Travelers Companies' Bond Issue Leads Best Value 10-Year Bond Trades
    Wed, Jan. 7 TRV, AMGN, AZN Comment!

    Summary

    • On January 6, there were 18,448 trades in 3,128 bond issues by 963 issuers, with a principal value of $5.5 billion.
    • We rank the bond issues with maturities of 10 years or more by our usual "best value" criterion, the ratio of credit spread to matched-maturity default probability.
    • The Travelers Companies, Inc.-related bond issue wins the best value ranking, with a spread to default probability of almost 38 times.
  • Donald van Deventer Positions For 2015: It's No Time To Go Double Or Nothing
    Editors' Pick • Wed, Jan. 7 2 Comments

    Summary

    • From university and public pension funds to individual investors, we find investors consistently overlooking their cash needs in deciding their asset strategies.
    • My major real estate focus would be to control one’s housing costs in all dimensions so that you are protected if inflation and rates rise.
    • The theme is “be very careful” and understand how a changing environment can help or hurt you.
  • Implied Forward T-Bill Rates Rise 0.09% In 2019 And Fall 0.02% From 2021 To 2024
    Dec. 19, 2014 BND, BOND, REM Comment!

    Summary

    • Current Treasury yields closed the week 0.03% to 0.06% higher in the 3 month to 10 year range, but finished down 0.02% at 30 years.
    • This caused a bulge in 1 month implied forward Treasury bill rates of up to 0.09% in 2019.
    • On the long end of the curve, however, 1 month implied forward Treasury bill yields dropped about 0.02%.
  • Primary 30-Year Fixed Rate Mortgage All-In Yields Fall 0.12%, And Value Of Net Servicing Closes Up 0.16% For The Week
    Dec. 18, 2014 BAC, AGNC, BBT 4 Comments

    Summary

    • 15- and 30-year fixed rate mortgage all-in yields fell 0.096% and 0.122% this week, despite a rise in points and fees from 0.5% to 0.6%.
    • The 10-year forward implied 15-year fixed rate mortgage rate dropped 0.174% to 4.772%.
    • The value of net servicing on a 30-year fixed rate mortgage rose 0.16% this week.
  • Transocean Default Risk Falls And Bond Trading Volume Tops The Charts
    Dec. 18, 2014 RIG 31 Comments

    Summary

    • The Transocean one-year default probability dropped 3.49% today but remains very high at 15.30%.
    • Transocean was the most heavily traded bond issuer in the U.S. corporate bond market on December 16.
    • Ranked by the ratio of credit spread to matched maturity default probability, the seven most heavily traded Transocean bonds rank in the bottom 16 of the 197 bonds ranked.
  • DirecTV Leads The 20 Best Value Bond Trades With Maturities Of 1 Year Or More
    Dec. 18, 2014 DTV Comment!

    Summary

    • On December 16 in the U.S. corporate bond market, there were 18,644 trades in 3,032 issues of 969 issuers worth $5.1 billion in notional principal.
    • We rank all bonds with at least $5 million in trading volume and maturities of one year or more by "best value," the ratio of credit spread to default probability.
    • DirecTV Holdings led the ranking, with a ratio of 99 times, more than the 196 other bonds issues which met our criteria.
  • RadioShack Bonds Trade At 18.14%, Down From 22 Last Week, With 1 Year Default Probability At 47.15%
    Dec. 16, 2014 RSH 2 Comments

    Summary

    • Bond prices for RadioShack have fallen another 4 points, trading on Friday at a trade-weighted average of 18.14.
    • This was the lowest price reported for any bond issue in the U.S. corporate fixed rate market with more than $5 million in daily trading volume.
    • One-year default probabilities for RadioShack are currently 47.15%.
  • Primary 30-Year Fixed Rate Mortgage Yields Rise 0.04% And Value Of Net Servicing Closes Up 1.69% For The Week
    Dec. 13, 2014 BAC, AGNC, BBT 3 Comments

    Summary

    • Current Treasury yields rose 0.07% to 0.08% at 1 to 3 years, and fell 0.12% and 0.10% at 20 to 30 years.
    • All-in yields on new mortgages respond with a lag. The 30-year fixed rate yield rose 0.04%, and the 15-year fixed rate yield jumped 0.10%.
    • The value of net servicing for 30-year fixed rate mortgages rose, up 1.69% this week.
  • What Does This Week's Big Twist In The U.S. Treasury Market Mean For The Next 10 Years?
    Editors' Pick • Dec. 12, 2014 TLT, SHY, TBT 29 Comments

    Summary

    • Current Treasury yields rose 0.07% to 0.08% at 1 to 3 years and fell 0.12% and 0.10% at 20 and 30 years.
    • The implied path for 1 month forward Treasury bill rates shows a peak at 2.91% in June 2021, 0.14% lower and 4 months later than implied last week.
    • Forward 10-year Treasury yields in 2024 were implied at 3.00%, a major drop of 0.21% from last week.
  • Allergan Leads The 20 Best Value Bond Trades With A Maturity Of 1 Year Or More
    Dec. 10, 2014 AGN Comment!

    Summary

    • On December 8, there were 17,784 bond trades in 3,123 fixed rate corporate bond issues of 982 issues with underlying principal of $5.7 billion.
    • We rank the heavily traded issues from best to worst using the ratio of credit spread to matched maturity default probability as our "best value" measure.
    • Allergan Inc. leads the ranking with a spread to default probability ratio of more than 300 times.
  • RadioShack Bonds Trade At 22, Cumulative Default Risk At 96%
    Dec. 6, 2014 RSH 16 Comments

    Summary

    • FINRA's TRACE system reports the trade-weighted price of RadioShack's bonds due May 15, 2019, at 22.437. This was the lowest price of all heavily traded bonds December 4.
    • Trading volume was light, however, with RadioShack ranking only 201st of 999 names traded in the U.S. corporate bond market on the day.
    • The firm's one-year default probability is 42% and the 10-year cumulative default probability is 96%.
  • Implied Forward Treasury 10-Year Yields Drop 0.03% As Forward T-Bill Rates Rise 0.08% In 2017
    Dec. 5, 2014 BND, IEF, NUV 2 Comments

    Summary

    • Current 3-year Treasury yields showed the largest rise this week, at 0.04%, triggering a bend in the forward T-bill curve.
    • Implied forward T-bill rates in 2017 rose as much as 0.08% while the largest decline came in 2024 at 0.03%.
    • Forward 10-year U.S. Treasury yields were down 0.03% in 2024, and the peak in implied T-bill rates was unchanged from last week.
  • Primary 30-Year Fixed Rate Mortgage Yields Drop 0.08% And Value Of Net Servicing Closes Narrowly Mixed
    Dec. 4, 2014 AGNC, BBT, C Comment!

    Summary

    • A 0.04% rise in 3-year Treasury yields did not stop a 0.07% and 0.08% fall in 15- and 30-year fixed-rate mortgage all-in costs.
    • The 15-year fixed-rate mortgage rate all in cost of 3.172% is implied by current yields to rise to 5.036% in 10 years, down 0.116% from last week.
    • Net servicing values closed narrowly mixed compared to last week.
  • Transocean Risk Jumps And Bond Trading Volume Tops The Charts
    Dec. 4, 2014 RIG 33 Comments

    Summary

    • We labeled Transcean bonds "high risk, low return" on July 15, 2014. Default probabilities have jumped to 9.96% at one year since then and bond trading volume has skyrocketed.
    • The firm was the most heavily traded issuer in the U.S. bond market on December 2, and three of its individual bond issues were the most heavily traded.
    • When we rank the 270 most heavily traded bond issues by "best value," Transocean has six bonds ranked among the 12 worst.
  • Implied Forward Treasury Bill Rates Plunge As Much As 0.23% With Projected Peak At 3.05% In 2021
    Nov. 28, 2014 BND, NUV, TMF 2 Comments

    Summary

    • Current U.S. Treasury yields dropped 0.10% to 0.13% at maturities of 5 years and longer this week.
    • The result was a plunge in forward implied T-bill rates. The peak is now implied at 3.05% in February 2021 and the largest drop of 0.23% came in November 2017.
    • Forward implied 10 year Treasury yields dropped 0.13% to 3.24% in 2024.
  • Primary 30-Year Fixed Rate Mortgage Yields Drop 0.02% And Value Of Net Servicing Rises 0.44% For The Week
    Nov. 28, 2014 AGNC, BBT, C 3 Comments

    Summary

    • The all-in yield on 30-year fixed rate mortgages dropped 0.02% for the week in the wake of a fall of 0.10% to 0.13% in current Treasuries over 5 years.
    • The all-in yield on 15-year fixed rate mortgages was unchanged, but the implied forward yield in 2024 was down 0.052%.
    • The value of net servicing on a 30-year fixed rate mortgage rose 0.44% on the week.
  • Alpha Natural Resources' 1-Year Default Probability Drops But Bonds Lead Widest Credit Spread Rankings
    Nov. 25, 2014 ANR 31 Comments

    Summary

    • The one-year default probability for Alpha Natural Resources dropped 0.79% to 7.31% on Friday.
    • In spite of this drop, ANR bonds ranked first among all heavily traded corporate bond issues in the "widest credit spread" ranking.
    • The firm's bonds also were the lowest priced of any heavily traded issues in the corporate bond market.
  • Kinder Morgan Energy Partners, Prudential Financial Dominate Best Value Long-Term Bond Rankings
    Nov. 25, 2014 KMP, PRU, AET 2 Comments

    Summary

    • On November 24, there were 20,395 bond trades in 3,292 bond issues of 987 issuers representing $5.8 billion in notional principal.
    • We rank them by the ratio of credit spread to matched maturity default probabilities for all issues with maturities of 10 years or more.
    • Kinder Morgan Energy Partners bonds took the top three rankings, followed by The Williams Companies and Prudential Financial, with five bonds in the top 10.
  • Petrobras Default Probabilities Drop 0.14% But The Firm Still Tops Bond Volume Rankings
    Nov. 21, 2014 PBR 20 Comments

    Summary

    • Petrobras one-year default probabilities dropped 0.14% to 1.55% Wednesday, but the firm still was the most actively traded issuer in the U.S. market with $323 million in trading volume.
    • Five of the 20 most heavily traded bond issues were Petrobras bonds, led by $94 million in the bonds due in 2021. All five issues traded more than $30 million.
    • Vale and Cliffs Natural Resources also had bond issues in the top 5 by trading volume.
  • Short And Long Treasuries Move Down 0.01% To 0.03% This Week But Implied Peak In T-Bill Rates Stays At 3.18% In 2021
    Nov. 20, 2014 BND, BOND, REM Comment!

    Summary

    • Current Treasury yields finished the week 0.01% lower on the short end and 0.01% to 0.03% lower from 10 to 30 years.
    • The implied peak in forward 1 month T-bill rates remained at 3.18% but moved 2 months earlier to March, 2021.
    • The implied forward 10 year Treasury yields in 2024 were down 0.04% from last week to 3.37%.