Archive for the ‘Debt Market’ Category

Notes From Underground: Yield Curves Are Needles and Pins

August 7, 2017

I saw her today, I saw her face
It was the face I loved, and I knew
I had to run away
And get down on my knees and pray,that they go away
Still it begins
Needles and pins

These lyrics seem to describe the market’s relationship with Janet Yellen and her FOMC board. When I blog about yield curves it seems to elicit the greatest response as traders are trying to position themselves in a low-risk, high-reward trade. There was a question on last night’s POST from RLD concerning the 2/10 curve and the possibility of buying bank stocks, if my thesis about a steepening curve reaction to QT is correct. This is an interesting query and reflects on the intelligence of the readers of NOTES. The mainstream media reports on the relationship of yield curves and bank stocks in a regular fashion and theorizes that the correlation is high: Steeper curves beget higher bank revenues resulting in higher bank stocks.T he correlation is far from consistent as bank stocks were making highs in 2007 even as the curve dramatically flattened.

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Notes From Underground: Brainard’s Speech Was So Significant She Delivered It Again

July 13, 2017

Yes, Fed Governor Lael Brainard actually delivered Tuesday’s speech, “Cross-Border Spillovers of Balance Sheet Normalization,” AGAIN. This time it was to the National Bureau of Economic Research Summer Institute in New York City. Of course I jest as to why she redelivered it. Brainard was overshadowed by Chair Yellen’s testimony to the Senate Banking Committee, even though the Fed Chair deviated very little from Wednesday’s House testimony. The interesting thing was that Yellen backtracked on her hubristic statement she made last week about not experiencing another systemic financial crisis in her lifetime. A brazen statement like that is Greenspanish but certainly out of character for the demure Janet Yellen.

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Notes From Underground: G-20 and Unemployment

July 6, 2017

The data “dependent” FED will have a look at the unemployment report Friday and hope to see VERY ROBUST gains in NONFARM PAYROLLS, but most importantly, to see a 0.4% rise in WAGES in order to deflect from  the recent criticism directed at them. The consensus is for an increase of 175,000 jobs and for an average hourly earnings to rise 0.3%. If the data is tepid, the long-end of the curve will attempt to rally, a reversal of the SIGNIFICANT steepening of yield curves seen during the most recent selloff in developed bond markets.

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Notes From Underground: Disabusing You of an ECB Tapering

June 28, 2017

On Tuesday, Mario Draghi, the Magician of Frankfurt, created a temporary maelstrom in global bond markets by hinting at a possible end to the ECB’s current QE program. While Draghi suggested that low rates were still a necessity to ensure that the European recovery remains on pace, the ECB president raised the issue that deflation was no longer a threat for the EU. Sovereign debt YIELDS rose dramatically as volatile hedge fund positions were liquidated and speculators sold bund, oat and BTP futures. On Wednesday, the ECB “explained” that Draghi’s statements were misconstrued and did not deviate from current ECB policy. ECB Vice President Vitor Constancio claimed Draghi was “totally” in line with existing ECB policy.

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Notes From Underground: Pour a Yamizaki, Enjoy 30 Minutes of Harris and Crudele

June 19, 2017

This morning I had the pleasure of sitting with a professional trader and discussing several themes that have coursed through NOTES FROM UNDERGROUND for the past several months, if not years. In staying with the Crudele hit I want to spend some time on offering some views on the significant flattening of the 5/30 curve during the last few weeks. More importantly, the 5/30 curve broke out to new multi-year lows, blowing through the previous low of 100.98. Today we closed at 99.5. The 2/10 curve was very stable and closed at 82.5 basis points holding above last weeks lows. Why is the more SPECULATIVE-oriented curve flattening more than the conventional investment directed curve?

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Notes From Underground: Some Perspective on Wednesday’s FOMC Meeting

June 13, 2017

The FED has painted itself into the proverbial corner by pre-announcing a rate hike. The market will be listening to Chair Janet Yellen’s press conference, which takes place at 1:30 CDT, a half hour after the Fed releases its statement and summary of economic projections. The market is expecting some discussion Fed’s balance sheet unwind, but Yellen will be cautious as she won’t want to cause a large selloff in the Treasuries led by the algo-driven headline readers. Tomorrow morning the Bureau of Labor Statistics releases the CPI data, alongside the Census Bureau’s retail sales data. Market consensus is for tepid numbers on both releases.

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Notes From Underground: Is the Yield Curve Taunting the Fed?

June 6, 2017

There were many responses to last night’s post regarding one of my favorite topics: the yield curve. The airwaves have been filled with opinions about the impact of the 2/10 curve on bank stocks and other financial asset valuations. Long-time readers know that I often note the significance of the shape of the curve for hinting at possible investment opportunities. Last year the 2/10 curve FLATTENED (a relative term) to long-term support levels at 74.8 basis points and then steepened out to about 150 basis points as the market feared a Trump inflation scenario.

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Notes From Underground: Things That Go Trump In the Night

February 8, 2017

Please Donald, will the POTUS STFU, PLEASE. This is not a political statement. It is free advice because the more you communicate the less impact you will have. You may be trying to use the bully pulpit to jawbone the DOLLAR lower but every tweet diminishes your influence. Peter Navarro tried to create a weaker dollar but you have lessened the impact of his misinformed missives. Historically, jawboning has had a short-term market effect, but your late-night 140 character references are losing the power to persuade. You must learn that words are like your campaign sexual references, less is more. SO PLEASE, STFU.

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Notes From Underground: Let’s Look at Global Yield Curves

February 7, 2017

One of the most important indicators for financial markets is yield curves. They are predictive as they have historically shown coming economic turmoil, or, more importantly, the end of a business cycle. The severity of any recession depends on the amount of debt that has preceded the onset of an economic slowdown. I will remind readers that before the 2007-08 financial crisis, the U.S. 2/10 curve actually INVERTED to NEGATIVE SIX BASIS POINTS. Some financial pundits like to cynically advise consumers that the STOCK markets have predicted 10 of the last 5 recessions, but that is not so with yield curves. The difficulty with the signalling mechanism of yield curves is predicting the time for even during the GREAT RECESSION equity markets continued to rally even as the curve flattened.

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Notes From Underground: Today, It Was Europe (Or, a Preview of Things to Come)

February 6, 2017

Notes From Underground has been concerned that 2017 would be the year of Europe as the ECB’s  quantitative easing policy and NEGATIVE interest rates would be an issue for many of the elections taking place this year. The Dutch, French and Germans will hold parliamentary elections. Those following the mass media will be focusing on immigration while NFU will continually seek to underline the importance of the repressive financial policies of the ECB. It is this narrative we will use to take the pulse of potential upheavals to the status quo. There is no doubt that the opposition to President Draghi is growing. In a threat to the Empress of Europe, Angela Merkel, received news that her coalition partner, SPD, has overtaken her party in the polls.

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