SA News • Thu, Mar. 20
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Wed, Apr. 30, 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
Wed, Apr. 30, 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
Tue, Apr. 29, 9:12 AM
- It was nearly one year ago to the day when Apple's corporate finance department caught the near-bottom tick in bond yields with its massive debt sale. With yields now having retreated from the peaks seen late in 2013, Apple is at it again, filing for a 7-part debt offering (size yet to be disclosed, but assumed to be around $17B, same as last year).
- The 10-year Treasury yield is up two basis points on the session to 2.72%. One year ago when Apple sold paper, it was sub-2%.
- TLT -0.5%, TBT +1%
- ETFs: TBT, TLT, TMV, IEF, TBF, PST, EDV, TTT, TMF, ZROZ, SBND, TLH, IEI, DLBS, TYO, DTYS, VGLT, UST, UBT, VGIT, TBX, TLO, GSY, ITE, SCHR, TENZ, DTYL, LBND, TYD, TYBS, TBZ, FIVZ, DFVL, DLBL, DFVS, TYNS
- Previously: Apple files for 7-part debt offering, launches cheaper MacBook Airs
Mon, Apr. 28, 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
Thu, Apr. 10, 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
Wed, Apr. 2, 11:48 AM
- Hawkish before he was dovish, and now hawkish again, St. Louis Fed boss Jim Bullard tells Bloomberg he expects the first rate hike in Q1 of 2015, though conceding he's ahead of the pace of most of his FOMC colleagues. His "dot" for the end of 2016 is 4%-4.25%, again ahead of that of most of the FOMC members.
- As for bubbles, the man who belonged to the group having no inkling of the pre-crisis housing bubble sees none now.
- The 10--year Treasury yield climbs a couple of more basis points in response to Bullard's remarks, now up 4 bps on the session to 2.81%. December 2015 Eurodollar futures at 98.80 are pricing in about 100 basis points of tightening next year.
- ETFs: TBT, TLT, TMV, SHY, IEF, TBF, PST, EDV, TTT, TMF, SBND, ZROZ, IEI, TLH, DLBS, TYO, DTYS, VGLT, BIL, UST, SHV, TBX, UBT, VGIT, VGSH, TLO, SCHO, GSY, DTYL, ITE, SCHR, LBND, TYD, TENZ, TYBS, DTUL, SST, TBZ, FIVZ, TUZ, DTUS, DFVL, DLBL, DFVS, TYNS
Mon, Mar. 31, 11:48 AM
- "This could be one of the most dovish speeches I have ever read from a Federal Reserve official," says Jefferies' David Zervos after reading Janet Yellen's Chicago remarks. " If anyone doubts Janet’s belief that there is excessive slack in labor markets - read the tape. And if anyone doubt’s Janet conviction that there are no material inflation risks on the horizon - read the tape."
- Zervos is excited, but the bond market - for now - is shrugging Yellen off, remaining largely as it was prior to her talk.
- Earlier: Yellen walks back hawkish vibe
- ETFs: IEF, PST, IEI, TYO, DTYS, UST, TBX, VGIT, GSY, DTYL, SCHR, ITE, TYD, TBZ, FIVZ, DFVL, DFVS, TYNS
Fri, Mar. 28, 11:13 AM
- If this is a bear move, bulls say "bring it on." The 10-year Treasury yield (including today's 3 bp increase) is at 2.71% vs. 2.67% at the start of March. Not a perfect gauge, the iShares Barclays 20+ Year Treasury Bond ETF (TLT) is actually higher by 0.8% this month.
- The move in fixed-income comes as the S&P 500 held flat and the FOMC signaled a sooner-than-expected end to QE and quicker-than-expected possible boost in the Fed Funds rate. More tied to what the Fed may or may not do with its benchmark, the 2-year note yield jumped a big 14 basis points to 0.45% in March.
- Taken together, the yield curve is flatter today than it was at the start of the month - not great news for those trying to earn a spread - and maybe suggesting slower growth going forward amid a Fed thinking of tapping the brakes on the economy.
- ETFs: TBT, TLT, TMV, SHY, IEF, TBF, PST, EDV, TTT, TMF, SBND, ZROZ, TLH, IEI, DLBS, TYO, DTYS, VGLT, BIL, UST, SHV, TBX, UBT, VGIT, VGSH, TLO, SCHO, GSY, DTYL, SCHR, ITE, LBND, TENZ, TYD, TYBS, DTUL, SST, DTUS, TUZ, TBZ, DFVL, FIVZ, DFVS, DLBL, TYNS
Wed, Mar. 26, 1:24 PM
- Treasury yields drop after strong demand at today's $35B 5-year note auction, which came in with a bid-to-cover ratio of 3:1, and indirect bidders taking down 51% of the action.
- The 5-year yield slides six basis points to 1.67% and the 10-year yield drops five bps to 2.70%. TLT +0.4%, TBT -0.8%
- ETFs: TBT, TLT, TMV, IEF, TBF, PST, EDV, TTT, TMF, SBND, ZROZ, TLH, IEI, DLBS, TYO, DTYS, VGLT, UST, TBX, VGIT, UBT, TLO, GSY, DTYL, SCHR, LBND, ITE, TENZ, TYD, TYBS, TBZ, DFVL, FIVZ, DLBL, DFVS, TYNS
Mon, Mar. 24, 9:02 AM
- The die may already be cast for a hike in the Fed Funds rate next year, but overlooked in the recent Fed news, writes Jon Hilsenrath, is the FOMC's expectation of a 5.4% jobless rate in 2016, but a Fed Funds rate of just over 2%. This is far below the 4% the Fed considers appropriate for an economy hitting on all cylinders, so what gives?
- "The economy can't bear a level of interest rates that looked normal in the past because it has been so deeply scarred by the financial crisis," writes Hilsenrath, shortening the explanation offered by Yellen at her press conference. There is precedent here, and that's the 1940s when the Fed kept rates extraordinarily low as the economy recovered from the Great Depression (though WWII kind of muddles things).
- Back to being a hawk, St. Louis Fed chief Jim Bullard isn't thrilled with this sort of thinking and hopes and expects the Fed Funds rate to be near 4% by the end of 2016. "Ultimately, I think the committee will do the right thing," he said on Friday.
- ETFs: TBT, TLT, TMV, SHY, IEF, TBF, PST, EDV, TTT, TMF, SBND, ZROZ, TLH, IEI, DLBS, TYO, DTYS, VGLT, BIL, UST, SHV, TBX, UBT, VGIT, TLO, VGSH, SCHO, GSY, DTYL, SCHR, LBND, ITE, TENZ, TYBS, TYD, DTUL, SST, DTUS, TUZ, FIVZ, DFVL, TBZ, DLBL, DFVS, TYNS
Thu, Mar. 20, 3:24 PM
- "Investing in fixed income today is almost the opposite of what it was one year ago," says BlackRock's Rick Rieder, believing those sectors which performed poorly last year will do well in 2014. As such, he sees the best value in long-dated munis and long-dated TIPs, and wants to avoid the belly of the curve - 3 to 7 years.
- He gives Janet Yellen good grades for her performance yesterday, saying she's merely acting appropriately to changing economic conditions. The "dots" are "a survey, not policy," says Rieder, but nevertheless, the markets quickly priced to them.
- ETFs: TIP, MUB, IEF, HYD, PST, BAB, PZA, MUNI, VTIP, IEI, IPE, TFI, SCHP, TYO, DTYS, LTPZ, STPZ, ITM, HYMB, TIPZ, UST, MLN, CMF, TBX, STIP, VGIT, SHM, BABZ, XMPT, BABS, SUB, PRB, GSY, NYF, PZT, SMB, SCHR, DTYL, ITE, CXA, SHYD, TYD, PWZ, TPS, FIVZ, PVI, DFVL, TDTT, TBZ, SMMU, INY, MUAF, TIPX, TDTF, DFVS, VRD, MUAG, MUAD, MUAE, TYNS, MUAC, GMMB, MUAH, RVNU, SIPE
Thu, Mar. 20, 9:28 AM
- "Yellen didn’t sound at all like a lady with much conviction on that six-month timeframe," says the WSJ's Jon Hilsenrath, offering his take on the line that seemed to upset Wall Street so much yesterday.
- A check of the Fed schedule finds the late October meeting the one at which the FOMC could decide to end QE. Six months from that point suggests a rate hike in April, "but a lot would have to go right in the economy for that to happen," he writes. "Yellen doesn’t sound like a person who feels particularly bound to that course."
- What Yellen did do yesterday, he says, is reawaken investors to interest rate risk - Wall Street had become a bit complacent in believing hikes weren't coming until mid-to-late 2015, and now must price in the chance of tighter policy somewhat ahead of that time frame.
- Long-term yields have backed off a bit from yesterday's spike, the 10-year Treasury down four basis points to 2.78%, but the 2-year Treasury gains another basis point to 0.43% - matching its highest level since September. The June 2015 Eurodollar futures contract is pricing in a Fed Funds rate about 40 basis points higher than it is today.
- ETFs: TBT, TLT, TMV, SHY, IEF, TBF, PST, EDV, TTT, TMF, ZROZ, SBND, TLH, IEI, DLBS, TYO, DTYS, VGLT, BIL, UST, SHV, UBT, TBX, VGIT, TLO, VGSH, SCHO, GSY, DTYL, SCHR, LBND, ITE, TENZ, TYBS, TYD, DTUL, SST, DTUS, TUZ, FIVZ, DFVL, TBZ, DLBL, DFVS, TYNS
Wed, Mar. 19, 2:16 PM
- "The Committee currently judges that there is sufficient underlying strength in the broader economy to support ongoing improvement in labor market conditions," says the FOMC cutting QE another $10B to $55B per month.
- Updating its economic projections, the central forecast for headline unemployment at year's end drops to 6.1%-6.3% from 6.3%-6.5% expected last December. Core PCE inflation remains at 1.4%-1.6%.
- 13 of 16 members expect the first rate hike next year, with 10 seeing a Fed Funds rate of 1% or higher by the end of 2015.
- Treasurys are taking hard the news of faster and sooner rate hikes, the 10-year yield up eight basis points to 2.75%. TLT -0.8%. Gold takes it hard as well, -1.9% to $1,334 per ounce. GLD -1.6%, but the dollar (UUP +0.6%) is higher across the board.
- A check of Eurodollar futures finds nearly a full additional 25 basis point rate hike getting priced into the 2015 and 2016 contracts that wasn't there 20 minutes ago.
- Stocks slip just a bit, the S&P 500 (SPY -0.2%).
- Janet Yellen's press conference begins at 2:30 ET.
- Treasury ETFs: TBT, TLT, TMV, SHY, IEF, TBF, PST, EDV, TTT, TMF, ZROZ, SBND, TLH, IEI, DLBS, TYO, DTYS, VGLT, BIL, UST, SHV, UBT, TBX, VGSH, TLO, VGIT, SCHO, GSY, DTYL, SCHR, LBND, ITE, TENZ, TYD, TYBS, DTUL, SST, DTUS, TUZ, FIVZ, DFVL, TBZ, DLBL, DFVS, TYNS
- Gold ETFs: GLD, IAU, PHYS, SGOL, UGL, DGP, GLL, DZZ, UGLD, DGL, GLDI, DGZ, AGOL, DGLD, TBAR, UBG, GLDE, GYEN, GEUR, GGBP
- Dollar ETFs: UUP, UDN, DBV, FORX, UDNT, UUPT, USDU
- S&P 500 ETFs: SPY, IVE, SH, SSO, SDS, IVV, VOO, SPXU, UPRO, RSP, RWL, EPS, IVW, SPYG, RPG, RPV, SPYV, BXUB, VOOG, VOOV, TRND, SFLA, BXUC, BXDB, FTA
Wed, Mar. 12, 3:32 PM
- "Buyside demand was the highest in a year for any 10-year auction and it showed," says RBS of today's $21B sale of reopened Treasury notes.
- Already ahead on the session, Treasury prices added to gains following the auction, and the 10-year yield is now off five basis points to 2.72%. TLT +0.8%, TBT -1.6%.
- GMP Securities Adrian Miller notes demand was far higher than for Tuesday's 3-year auction, with a bid-to-cover ratio of 2.92:1. He notes expectations for the Fed to adjust forward guidance next week to assure markets of no rate hikes until 2015 H2.
- ETFs: TBT, TLT, TMV, SHY, IEF, TBF, PST, EDV, TTT, TMF, SBND, ZROZ, TLH, IEI, DLBS, TYO, DTYS, VGLT, UST, BIL, SHV, TBX, UBT, VGIT, VGSH, TLO, SCHO, GSY, DTYL, SCHR, LBND, ITE, TENZ, TYD, TYBS, DTUL, SST, DTUS, TUZ, FIVZ, DFVL, TBZ, DLBL, DFVS, TYNS
Mon, Mar. 10, 9:07 AM
- Under the old plan from 2011, the Fed expected to take a number of steps to remove the trillions it pumped into the financial system. A new plan being considered would instead leave that money in, perhaps permanently, instead paying interest on excess reserves and anchoring rates using reverse repos.
- The upshot: The Fed would set interest rates by managing the cost rather than the supply of money.
- This jibes with previous Fed comments that the central may not have to actively sell MBS on its balance sheets, and just last week FRBNY President Bill Dudley said the Fed wouldn't have to allow paper to mature and run off its balance sheet months ahead of rate hikes.
- The new plan is just a trial balloon, reminds Hilsenrath, noting some at the Fed would prefer a return to the old days of scarce reserves and setting rates by managing those levels.
- Shorter-dated Treasury ETFs: SHY, IEF, PST, IEI, TYO, DTYS, UST, BIL, SHV, VGIT, TBX, VGSH, SCHO, GSY, DTYL, SCHR, ITE, TYD, DTUL, SST, FIVZ, DTUS, TUZ, DFVL, TBZ, DFVS, TYNS
Fri, Mar. 7, 8:48 AM
- The BLS notes severe winter weather occurring in much of the country during the February survey period. Bad weather - says the agency - is more likely to show up in average weekly hours than in the headline payroll number, and this month's report has the average workweek declining by 0.1 hours to 34.2 hours.
- Previous: Jobs +175K vs. +154K expected
- Maybe most surprising in today's report is the 0.4% increase in average hourly earnings, the biggest gain in nearly a year.
- The labor force participation rate is flat at 63% - it was 63.5% a year ago. The employment-to-population ratio is flat at 58.8% - it was 58.6% a year ago.
- Expiring unemployment benefits didn't put a dent in long-term unemployed which rose 203K.
- The broader U-6 unemployment rate slips to 12.6% from 12.7% - it was 14.9% a year ago.
- Bond traders are seeing a strong report, with the 10-year Treasury yield shooting up to 2.81% from 2.72% before the release. TLT -0.8%, TBT +1.7%.
- Treasury ETFs: TBT, TLT, TMV, SHY, IEF, TBF, PST, EDV, TTT, TMF, SBND, ZROZ, TLH, IEI, DLBS, TYO, DTYS, VGLT, UST, BIL, SHV, UBT, VGIT, VGSH, TBX, TLO, SCHO, GSY, DTYL, SCHR, LBND, ITE, TENZ, TYD, TYBS, DTUL, SST, DTUS, TUZ, FIVZ, DFVL, TBZ, DLBL, DFVS, TYNS
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