Donald van Deventer
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Stressed Out: A Bond Market Risk Ranking Of Leading Financial Institutions
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
Summary
 On January 23, there were 19,710 bond trades in 3,131 noncall 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 matchedmaturity 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 AllIn Yields Fall 0.02% To 0.04%, And Value Of Net Servicing Closes Down 0.67% This Week
Summary
 15 and 30year 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 30year fixed rate mortgage dropped 0.67% during the week.
 The 10year forward implied allin yield on a 15year fixed rate mortgage was down just 0.008% on the week.

Bank Of America: A Final PreStress Test Credit Risk Analysis
Summary
 Bank of America was the 4th most heavily traded bond issuer in the US on January 20. The bank's shortterm 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 TBill Rates By 0.27%
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 10Year Bond Trades
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 AllIn Yields Fall 0.07% And Value Of Net Servicing Closes Down 0.26% This Week
Summary
 Fixed rate mortgage allin 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 30year 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 TBill Rates Drop Up To 0.43% While U.S. Treasury Term Premium Stay Steady At 0.69% At 30 Years
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
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 1Year Sovereign Default Probability 9.05%, Up 5.52% In 6 Months
Summary
 Modern reduced form default probabilities for sovereigns have been available since 2008.
 Recent events in the Russian Federation have driven the oneyear 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 AllIn Yields Fall 0.05% To 0.07%, And Value Of Net Servicing Closes Up 0.60%
Summary
 Allin costs on 15 and 30year fixed rate mortgages have fallen 0.054% and 0.070% since our prior analysis on December 18.
 15year 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 30year fixed rate mortgage have risen 0.60% from December 18.

Implied Forward TBill Rates Plunge 0.36% In 2019, Forward 10Year Treasury Yields Drop 0.25%
Summary
 The implied peak in forward 1month 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 1month Treasury bill rates was more than 0.36% in mid 2019.
 The implied forward 10year U.S. Treasury yield fell 0.25% from our December 18 analysis.

Travelers Companies' Bond Issue Leads Best Value 10Year Bond Trades
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 matchedmaturity 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
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 TBill Rates Rise 0.09% In 2019 And Fall 0.02% From 2021 To 2024
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 30Year Fixed Rate Mortgage AllIn Yields Fall 0.12%, And Value Of Net Servicing Closes Up 0.16% For The Week
Summary
 15 and 30year fixed rate mortgage allin yields fell 0.096% and 0.122% this week, despite a rise in points and fees from 0.5% to 0.6%.
 The 10year forward implied 15year fixed rate mortgage rate dropped 0.174% to 4.772%.
 The value of net servicing on a 30year fixed rate mortgage rose 0.16% this week.

Transocean Default Risk Falls And Bond Trading Volume Tops The Charts
Summary
 The Transocean oneyear 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
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%
Summary
 Bond prices for RadioShack have fallen another 4 points, trading on Friday at a tradeweighted 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.
 Oneyear default probabilities for RadioShack are currently 47.15%.

Primary 30Year Fixed Rate Mortgage Yields Rise 0.04% And Value Of Net Servicing Closes Up 1.69% For The Week
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.
 Allin yields on new mortgages respond with a lag. The 30year fixed rate yield rose 0.04%, and the 15year fixed rate yield jumped 0.10%.
 The value of net servicing for 30year 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?
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 10year 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
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%
Summary
 FINRA's TRACE system reports the tradeweighted 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 oneyear default probability is 42% and the 10year cumulative default probability is 96%.

Implied Forward Treasury 10Year Yields Drop 0.03% As Forward TBill Rates Rise 0.08% In 2017
Summary
 Current 3year Treasury yields showed the largest rise this week, at 0.04%, triggering a bend in the forward Tbill curve.
 Implied forward Tbill rates in 2017 rose as much as 0.08% while the largest decline came in 2024 at 0.03%.
 Forward 10year U.S. Treasury yields were down 0.03% in 2024, and the peak in implied Tbill rates was unchanged from last week.

Primary 30Year Fixed Rate Mortgage Yields Drop 0.08% And Value Of Net Servicing Closes Narrowly Mixed
Summary
 A 0.04% rise in 3year Treasury yields did not stop a 0.07% and 0.08% fall in 15 and 30year fixedrate mortgage allin costs.
 The 15year fixedrate 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
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
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 Tbill 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 30Year Fixed Rate Mortgage Yields Drop 0.02% And Value Of Net Servicing Rises 0.44% For The Week
Summary
 The allin yield on 30year 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 allin yield on 15year fixed rate mortgages was unchanged, but the implied forward yield in 2024 was down 0.052%.
 The value of net servicing on a 30year fixed rate mortgage rose 0.44% on the week.

Alpha Natural Resources' 1Year Default Probability Drops But Bonds Lead Widest Credit Spread Rankings
Summary
 The oneyear 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 LongTerm Bond Rankings
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
Summary
 Petrobras oneyear 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 TBill Rates Stays At 3.18% In 2021
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 Tbill 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%.