Jun. 6, 2014, 9:34 AM
- “The most consistent way to trade a payrolls release this year has been to fade any rates sell off that results from an above-consensus NFP result," says Janney chief fixed-income strategist Guy LeBas, noting this morning's inline report may not offer that opportunity today, but the trend of the retreating importance of NFP and "every other high-frequency result" in driving policy continues.
- Edison Investment's Peter Molloy, however, says the 2.1% Y/Y growth in average hourly earnings indicates marginally less slack in the U.S. economy than previously thought. "It’s a difficult time for Fed policymakers as they have to balance their views on how this cycle might be different with unemployment at levels which would more usually be associated with low but rising interest rates. We can see why at least some Fed officials are concerned that markets are too tranquil given the uncertainties.”
- The 10-year yield is lower by two basis points to 2.56%. Eurodollar futures are higher by a couple of basis points (yields lower), with the first rate hike still pretty much priced in by June of next year.
- ETFs: SHY, IEF, PST, IEI, TYO, DTYS, BIL, UST, SHV, TBX, VGIT, VGSH, SCHO, GSY, ITE, SCHR, DTYL, TYD, SST, TUZ, DTUL, DTUS, TBZ, FIVZ, DFVL, DFVS, TYNS
Jun. 2, 2014, 2:22 PM| Comment!
May. 29, 2014, 12:32 PM
- "Being different is absolutely essential if you want a chance at being superior," says Howard Marks. Hoping to return to the top of the heap in fixed income performance, Bill Gross is at odds with many on the Street, loading the portfolio of the Total Return Fund (ETF: BOND) with Treasurys in the belly of the curve.
- The play is a bet on Gross' "new neutral," in which the neutral Fed Funds rate is at least a couple of hundred basis points less than commonly believed. If he's right, Treasurys with duration in the 3-7 year area should benefit the most as rate hikes are postponed or come in at a far slower pace.
- "Once they see the whites of the eyes of full employment, they will want to normalize rates at a faster clip," says Jonathan Beinner, co-head of global fixed income at Goldman Sachs Asset Management, summing up the conventional Street wisdom.
- ETFs: AGG, BOND, BND, BIV, SCHZ, LAG, SAGG, GBF, GVI, SHY, BIL, SHV, VGSH, SCHO, SST, TUZ, DTUL, DTUS
- Previously: Pimco: "New neutral" explains Treasury rally
May. 24, 2014, 9:09 AM
- Investors have generally underestimated the impact QE has had on the economy, says Stephanie Pomboy in a Barron's interview, and as a consequence are underestimating the effect of the taper. That the economy has no self-sustaining momentum is starting to come into focus though, she says, expecting to see nominal growth continue to decline. "Over the longer term there is no material upside risk to Treasury yields ... You want to sell at 2% and buy at 3%."
- Housing is key, says Pomboy, and there's little doubt QE had an enormous positive impact on the sector. This more or less came to and end one year ago when Ben Bernanke simply raised the possibility of the taper, and housing hasn't recovered its footing since. "What we need to sustain housing from here, if anything, is lower rates, not a taper."
- Summarizing her view of the economy is a chart comparing net worth with consumer spending. Household net worth is up $25T since the March 2009 bottom, but spending growth hasn't materially accelerated alongside - an unprecedented occurrence over the past 50 years. And what spending increase there has been, she says, is almost fully the result of inflation - hardly a sign of consumer strength.
- ETFs: TBT, TLT, TMV, SHY, IEF, TBF, PST, EDV, TTT, TMF, ZROZ, SBND, TLH, IEI, DLBS, TYO, DTYS, VGLT, BIL, UST, UBT, SHV, TBX, VGIT, TLO, VGSH, SCHO, GSY, TENZ, SCHR, DTYL, ITE, LBND, TYD, SST, TYBS, TUZ, DTUL, DTUS, TBZ, DFVL, FIVZ, DLBL, DFVS, TYNS
May. 21, 2014, 2:17 PM
- Treasury yields remain as they were ahead of the FOMC minutes, the 10-year up four basis points on the session to 2.55% and the 2-year up one basis point to 0.34%.
- The minutes reveal a committee convinced the weather was behind the Q1 slowdown, and that the early Q2 numbers point to a rebound.
- The Eurodollar futures market is pricing in the first rate hike by about this time next year.
- TLT -0.7%, TBT +1.4%
- ETFs: TBT, TLT, TMV, SHY, IEF, TBF, PST, EDV, TTT, TMF, ZROZ, SBND, IEI, TLH, DLBS, TYO, DTYS, VGLT, BIL, UST, UBT, SHV, TBX, VGIT, TLO, VGSH, SCHO, GSY, TENZ, SCHR, DTYL, ITE, LBND, TYD, SST, TYBS, TUZ, DTUL, DTUS, TBZ, DFVL, FIVZ, DLBL, DFVS, TYNS
May. 20, 2014, 3:19 PM
- The third mandate: It looks like it's up to buyers and sellers of financial assets when it comes to how quickly the Fed moves when it begins its rate hike cycle. FRBNY chief Bill Dudley says the FOMC will keep a close eye on markets as rates move up. If the response is relatively mild - like the way the bond market has treated the taper - than the Fed may move quicker. If markets tank, than slower.
- ETFs: SHY, BIL, SHV, VGSH, SCHO, SST, TUZ, DTUS, DTUL, IEF, PST, IEI, TYO, DTYS, UST, TBX, VGIT, GSY, SCHR, ITE, DTYL, TYD, TBZ, FIVZ, DFVL, DFVS, TYNS
May. 16, 2014, 9:13 AM
- Harkening back to the "new normal" thesis peddled by former colleague Mohamed El-Erian for the past few years, Bill Gross (BOND) talks of a "new neutral" to try and explain why 2.50 on the 10-year Treasury is a perfectly reasonable yield.
- With debt remaining high and economic expansion continuing to be lame, the "new neutral" real Fed Funds rate is about 0%-0.5%, says Gross, along with Richard Clarida. "If the new neutral policy rate is 0% and the Fed achieves its 2% inflation target, than the 10-year Treasury should trade at close to 2%."
- The investment implications: Bubble risk is lower than expected as markets have priced in a real Fed Funds rate of 1-2% and nominal of 3-4% by the end of the decade. If the "new neutral" of 0% real rates and 2% nominal plays out, asset markets could see plenty of support.
- ETFs: AGG, BOND, BND, SHY, BSV, BIV, BLV, SCHZ, BIL, PLW, SHV, GOVT, VGSH, LAG, SCHO, BYLD, ILTB, SAGG, ISTB, SST, GBF, TUZ, GVI, DTUS, DTUL, MINC, FWDB, AGND, AGZD
May. 15, 2014, 2:56 PM
- Joe LaVorgna's forecasting has been less than on point for awhile, but every dart thrower hits the bullseye once in a while, and the Deutshce Bank chief U.S economist sees a sharp rebound in the economy this quarter.
- Pointing to examples from June-July 2003 and May-June 2013, LaVorgna says the rise in rates will be dramatic and fast. "Each instance saw an unexpected and substantial sell-off in interest rates that was the direct result of a shift in investors’ expectations of the path of monetary policy."
- The catalyst could be the economic data, or maybe the Fed itself wants to suck some of the froth out of the market by taking a hawkish stance, says LaVorgna.
- "More importantly, we believe that it will be obvious to the FOMC sometime over the next few months, that policymakers’ soft targets on unemployment and inflation will be met much sooner than what was built into the last publicly available forecast in March."
- The 10-year yield is lower by four basis points on the session to 2.50%. TLT +0.7%
- ETFs: TBT, TLT, TMV, SHY, TBF, EDV, TTT, TMF, ZROZ, SBND, TLH, DLBS, VGLT, BIL, UBT, SHV, VGSH, TLO, SCHO, TENZ, LBND, SST, TYBS, TUZ, DTUL, DTUS, DLBL
May. 2, 2014, 2:50 PM
- For a 2nd consecutive day, longer-duration bonds are ignoring solid headline numbers on the economy and rallying, with the 10-year yield off another four basis points to 2.58% - within a couple of ticks of its lowest level since last summer.
- The yield had jumped to 2.70% in the moments following this morning's jobs report showing 288K jobs gained and the unemployment rate diving to 6.3%.
- The short end of the curve is a different story, with the 2-year yield gaining two basis points to 0.43%. Taken together, it's a flatter yield curve - maybe discounting some combination of Fed tightening and slower economic growth ahead.
- TLT +0.7%, TBT -1.4%
- ETFs: TBT, TLT, TMV, SHY, IEF, TBF, PST, EDV, TTT, TMF, ZROZ, SBND, IEI, TLH, DLBS, TYO, DTYS, VGLT, BIL, UST, UBT, SHV, VGIT, VGSH, TLO, TBX, SCHO, GSY, SCHR, TENZ, DTYL, ITE, LBND, TYD, TYBS, SST, TUZ, DTUL, DTUS, TBZ, DFVL, FIVZ, DLBL, DFVS, TYNS
May. 1, 2014, 2:20 PM| Comment!
Apr. 30, 2014, 2:12 PM
- Stocks aren't moving a whole lot following a pretty much as-expected FOMC statement, with another $10B added to the taper and the committee sticking to its story that the winter economic slowdown was due to the winter. S&P 500 (SPY +0.1%), Nasdaq 100 (QQQ).
- The 10-year Treasury yield ticks higher by one basis point, now off two bps on the session to 2.67%. TLT +0.3%
- Gold slips about $5 per ounce to $1,291.70. GLD -0.4%
- Treasury ETFs: TBT, TLT, TMV, SHY, IEF, TBF, PST, EDV, TTT, TMF, ZROZ, SBND, TLH, IEI, DLBS, TYO, DTYS, VGLT, BIL, UST, UBT, SHV, VGIT, TBX, VGSH, TLO, SCHO, GSY, TENZ, ITE, DTYL, SCHR, LBND, TYD, TYBS, DTUL, SST, TUZ, DTUS, TBZ, FIVZ, DFVL, DLBL, DFVS, TYNS
- S&P 500 ETFs: SPY, SH, SSO, SDS, VOO, IVV, SPXU, UPRO, SPXL, RSP, RWL, EPS, BXUB, TRND, SFLA, SPLX, BXUC, BXDB
Apr. 30, 2014, 1:46 PM
- "Interest rates have to be lower in a levered economy so that debtors can survive, debt can be reduced as a percentage of GDP, and economies can avoid recessions/depressions," writes Bill Gross, arguing the "neutral" fed funds rate is likely far lower than what past history would suggest. A recent Fed paper suggests the current neutral Fed Funds rate might be as low at 50 basis points currently, and would be just 1.5% if PCE inflation rises to 2% in the future.
- Bill Dudley mused similarly in a speech in 2012, and Pimco's Saumil Parikh suggested the same one year ago.
- "I suspect these estimates which average less than 2%, are much closer to financial reality than the average, 4% 'blue dot' estimates of Fed 'participants,' dismissed somewhat by Fed Chair Janet Yellen herself last month," says Gross.
- Why is this so important? Forward markets have priced in a 4% policy rate around 2020. If it's closer to 2% instead, says Gross, then longer-term bonds - far from being artificially and highly priced - would actually present an attractive value right now.
- ETFs: TBT, TLT, TMV, SHY, IEF, TBF, PST, EDV, TTT, TMF, ZROZ, SBND, TLH, IEI, DLBS, TYO, DTYS, VGLT, BIL, UST, UBT, PLW, SHV, VGIT, GOVT, TBX, VGSH, TLO, SCHO, GSY, TENZ, DTYL, ITE, SCHR, LBND, TYD, TYBS, TUZ, DTUS, DTUL, SST, TBZ, FIVZ, DFVL, DLBL, DFVS, TYNS
Apr. 30, 2014, 8:42 AM
- Treasury prices pop and yields slip after Q1 GDP growth is revised to a gain of just 0.1%. The original estimate had been expansion of well over 2%.
- The ADP jobs gain of 220K was ahead of estimates for 210K, and also included upward revisions for March and April totaling 72K jobs, though January was revised lower by 54K, and December lower by 47K. There's additional revisions further back, but what's the point?
- The 10-year Treasury yield - higher earlier - is now off by one basis point at 2.69%. TLT +0.1%
- ETFs: TBT, TLT, TMV, SHY, IEF, TBF, PST, EDV, TTT, TMF, ZROZ, SBND, TLH, IEI, DLBS, TYO, DTYS, VGLT, BIL, UST, UBT, SHV, VGIT, VGSH, TBX, TLO, SCHO, GSY, TENZ, ITE, DTYL, SCHR, LBND, TYD, TYBS, DTUL, SST, TUZ, DTUS, TBZ, FIVZ, DFVL, DLBL, DFVS, TYNS
Apr. 28, 2014, 7:38 AM
- Commercial banks have boosted their holdings of Treasurys by $42B this year, according to Fed data, after culling their stakes for the first time in six years in 2013. Bank of America is the only lender of the five largest to publicly release a breakdown of available-for-sale assets said Treasury holdings ballooned to $29.6B in Q1 from $8.95B at the start of the year.
- “The economic situation is still not fully bared out and they have to do something with their cash,” says fixed-income manager Jeffery Elswick. “Banks have been big buyers of Treasurys. They need safe assets.”
- Treasurys overall have returned 2.2% YTD vs. a 3.4% loss in 2013, but the money's really been made in the long end, with 30-year bonds returning 10.8% - the best start to the year since at least 1988, according to BAML data.
- ETFs: TBT, TLT, TMV, SHY, IEF, TBF, PST, EDV, TTT, TMF, ZROZ, SBND, TLH, IEI, DLBS, DTYS, TYO, VGLT, BIL, UST, UBT, SHV, VGIT, TLO, VGSH, TBX, SCHO, GSY, SCHR, ITE, DTYL, LBND, TENZ, TYD, TYBS, DTUL, SST, TUZ, DTUS, FIVZ, TBZ, DFVL, DLBL, DFVS, TYNS
Apr. 10, 2014, 11:18 AM
- A renewed tumble in the market's perkier names is trumping fast economic data (initial jobless claims dropped to a 7-year low) as Treasury yields slide to near their lowest level of the year, the 10-year off six basis points to 2.63%. TLT +0.7%, TBT -1.4%
- Looking at Eurodollar futures, the Dec. 2016 contract has wiped off more than one 25 basis point rate hike in the past few sessions, now pricing in a Fed Funds rate of about 2% by the end of 2016.
- ETFs: TBT, TLT, TMV, SHY, IEF, TBF, PST, EDV, TTT, TMF, SBND, ZROZ, IEI, TLH, DLBS, TYO, DTYS, VGLT, BIL, UST, SHV, TBX, UBT, TLO, VGIT, VGSH, SCHO, GSY, DTYL, ITE, SCHR, LBND, TENZ, TYD, TYBS, DTUL, SST, DTUS, FIVZ, TUZ, TBZ, DFVL, DLBL, DFVS, TYNS
Apr. 8, 2014, 3:01 PM
- Inflation is too low, unemployment is too high, and the Fed is being too hasty in removing stimulus, says Minneapolis Fed boss Kocherlakota. "An unemployment rate of 6.7% means that the U.S. labor market is far from healthy," he says, "but I would say that this measure - troubling as it is - could well overstate the degree of improvement in the U.S. labor market."
- Kocherlakota was the sole dissenter at the last FOMC meeting, when the group voted to taper further and signal a hike in the Fed Funds rate in H1 of 2015.
- At this point December 2015 Eurodollar futures are pricing in just a bit more than three 25 basis point hikes in the Fed Funds rate between now and then. At the long end, the 10-year Treasury yield is off two basis points on the session to 2.68%.
- TLT +0.25%, TBT -0.5%
- ETFs: TBT, TLT, TMV, SHY, TBF, EDV, TTT, TMF, SBND, ZROZ, TLH, DLBS, VGLT, BIL, SHV, UBT, TLO, VGSH, SCHO, LBND, TENZ, TYBS, DTUS, SST, DTUL, TUZ, DLBL
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