In post-Memorial Day trading the BONDS had a large selloff as yields on long-term debt rose dramatically. The U.S. DOLLAR followed the rate increase and rose against all major currencies. Let’s reflect: Equities are impervious to rising long-term interest but the DOLLAR attracts foreign investors in search of a little more yield. The fact that the short-end of the curve is anchored by the FED, the result is that the 2/10 U.S. yield curve is steepening and actually made 52-week highs today as it rose to 186 basis points. The STEEPENING YIELD CURVE is aiding financial stocks. The 2/10 has increased to 184 from 145 basis points during the last three weeks, which has helped banks and other financials to pick up 40 EXTRA POINTS in yield by selling the short-end and buying the longer end. This is an interesting situation for usually steepening curves will put pressure on a currency.
Posts Tagged ‘collateral’
Notes From Underground: Did The Chinese Fudge The PMI???
May 23, 2013First, Happy Memorial Day to all the readers of Notes From Underground. If you are a veteran of the U.S. Military, thank you for your service. If you aren’t a veteran, take the time to thank those who have served to fight for the freedom to write blogs and entertain the free interchange of ideas.
Notes From Underground: The Basel Accord Gets Watered Down. What Are The Potential Impacts?
January 8, 2013In the most significant news over the weekend, the Basel Committee announced that it was backing off from the implementation of the 2015 enhanced capital requirements for banks. Under the original Basel III requirements, global banks were going to have to have enough LIQUID ASSETS to be able to sustain a possible financial crisis of 30 days. The ability to sell assets to meet a possible run meant that banks would be forced to hold a larger amount of high quality, easily sellable assets. European banks have been clamoring for relief from the new capital rules for fear that the new standards would create less bank lending as banks rushed to shore up their balance sheets. U.S. banks were supporting the lobbying efforts by the European banks and thus the Basel Committee showed forbearance and lessened the possible impact by extending full compliance with the new regs out until 2019.
Notes From Underground: U.S. to be the Top Energy Producer (Then Fiscal Compromise is a No Brainer)
November 12, 2012The Financial Times headline played up the report from the International Energy Agency (IEA) that by 2017 the U.S. will become the world’s largest energy producer. The use of fracking and other newly developed technologies has enabled the exploitation of previously uneconomic carbon deposits. In 1974 I sat in an economic geography class in which the professor claimed that the U.S. was full on shale oil and gas and its development was merely a matter of price. Being a know-it-all about the Club of Rome studies on the limits of growth, I entered into a lively debate with the prof about why he was wrong and the effects of the energy crisis was going to lead to the demise of Kapitalism. If I could remember his name I would send an appropriate apology.
Notes From Underground: It’s Raining Liquidity All Over the World
September 9, 2012Friday’s unemployment report solidified the TRIFECTA of LIQUIDITY for the week. ECB President Draghi seeded the “liquidity clouds” at Thursday’s press conference by announcing the installation of the OTM (outright monetary transaction), which will allow the ECB/ESM to purchase unlimited amounts of sovereign debt of up to three-year duration–of course with conditions for those asking for help. Draghi is hoping to buy the whole EU project enough time so that a FISCAL UNION CAN BE FORMED WITH THE ABILITY FOR THE EU TO ISSUE A TRUE EUROBOND.
Notes From Underground: The COLLATERAL DAMAGE From Bernanke’s Fed Policy
June 24, 2012Is there anyone involved in financial markets who doesn’t believe that GLOBAL BOND MARKETS ARE BROKEN AS INDICATORS OF PREDICTED ECONOMIC PERFORMANCE? The FED has pursued a policy of TWISTS AND QEs as it pursued a policy of forcing real long-term yields to ultra-low levels in an effort to stimulate the housing market, capital investment and the portfolio balance channel in forcing investors to opt for riskier assets to enhance yield (Greenspan’s beloved wealth effect). The problem is that as the FED and other CENTRAL BANKS have bought TRILLIONS of sovereign debt in an effort to stimulate the global economy much COLLATERAL has gone onto the books of the monetary authorities and left the REPO markets lacking the necessary collateral.
Notes From Underground: JOBS, Another Disappointing Data Release
June 3, 2012Tonight’s BLOG POSTING WILL BE THE LAST FOR TWO WEEKS AS I HEAD OFF TO THE LAND OF THE RISING SUN. MY SUGGESTION IS TO GET LONG VOL AS MARKET ACTION ALWAYS INCREASES WHEN I TAKE AN EXTENDED LEAVE (just giving you the ultimate economic and trading indicator.)
Notes From Underground: As I PONDER WEAK AND WEARY
May 17, 2012The market action has rendered this trader/analyst very weak and weary … quoth the trader nevermore. When FUNDAMENTALS MEET A DELEVERAGING SET IN MOTION IT IS ENOUGH TO LEAVE ONE WEAK AND WEARY. Every conversation I have had for three days is: What is wrong with the GOLD and how can it not rally with all the problems that the global financial system is facing? The corollary to the GOLD IS OF COURSE THE GLOBAL BOND MARKETS. Today, the SCHATZ traded down to three basis points. The U.S. 2/10 yield curve is undergoing a severe flattening as the curve closed at around 143 BASIS POINTS TODAY. The buying of high quality DEBT is indicative of a movement to havens coupled with the need for QUALITY COLLATERAL FOR THE REPO MARKET.
Notes From Underground: OPA! Time to Drink Some Ouzo and Reflect on the Greek Situation
February 13, 2012Europe was/is/will be the catalyst for the markets, from equities and commodities to, of course, currencies. Whether the problems are violent strikes in Athens or insolvent banks in France and Spain, the issues that PLAGUE EUROPE ARE EXISTENTIAL IN NATURE. Can the problems of sovereign default and the deflationary impact rippling from a massive deleveraging be contained by a massive douse of LTRO or QE3 in the U.S.? For now the markets are CONTENT to allow the flood of liquidity be the potion for increased portfolio risk.
Notes From Underground: S&P, The Insider’s Trading Edge
January 16, 2012It is startling to think that the S&P downgrades could have any sort of effect on the markets. The sovereign debt markets have been telling those who are attentive that not all countries in the European Union are equal. Several of the GIIPS have had interest rate yields far above those of the German benchmark for almost two years. Even the French 10-year note has widened to 150 BASIS POINTS over the German 10-year BUND during the last six months. DO WE REALLY NEED S&P OR OTHER RATING AGENCIES TO CERTIFY WHAT THE MARKETS HAVE BEEN SAYING?
