Archive for the ‘Debt Market’ Category

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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Notes From Underground: The World Is Digesting Trump and About Europe Grow

January 22, 2017

The inauguration is over. Davos is behind us. Let’s start examining the impact of policy and politics as we move forward. The first three weeks has brought stasis for equity markets as the S&Ps have not set new highs since the December exuberance. Investors are beginning to comprehend that the slow-moving legislative process will impede Trump’s efforts for an expedited deregulation and tax reform program. But, if you follow the proliferation of stories about a possible dissolution of the EU, my prediction with Rick Santelli about Europe being the main focus of 2017 is coming to fruition. One wonders what was discussed in the backrooms of Davos that led so many global executives to suddenly express concerns about the increased populism in the Netherlands, France and even Germany. It seems that the Dutch elections have gained a prominent position as a severe test for Brussels-based eurocrats.

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Notes From Underground: First Friday Of The New Month, You Must Be ‘Jobbing’ Me

January 5, 2017

I’m still nursing a New Year’s hangover. It takes a long time for the mind to rid itself of all the news the mainstream media deems fit to read. But as the third rock keeps spinning, markets will keep moving and we will strive to untangle the ball of confusion. After today’s tepid ADP data the market has settled into a consensus for 175,000 nonfarm payrolls. Again, I would love to see a number greater than 250,000 just to test the recent market action. BONDS rallied, currencies rallied against the DOLLAR, precious metals are showing early year strength and commodities have held support levels in the age of TRUMFLATIONARY EXPANSIONARY EXPECTATIONS.

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Notes From Underground: What a Long Strange Trip It’s Been

December 22, 2016

This year has been a year of surprises as conventional wisdom-based forecasts have proven to be like oral agreements: not worth the paper on which they are written. The coming year promises to bring more confusion and volatility as the markets are preparing for the U.S. to be a Trumpian utopia of wealth creation. I caution against blindly accepting this narrative for it will not be a U.S.-centric year. Attention will turn to Europe as the political cycle brings elections in the main players. France and Germany are the EU and the rest just the trimmings (so stated Charles De Gaulle). The EU is fraught with problems, so the more uncertainty raises the profile of the ECB President Mario Draghi. Senator Charles Schumer once said to Fed Chair Ben Bernanke, “You are the only game in town.” Well, an ECB with a printing press and no political accountability provides a central bank on steroids. Mario Draghi perceives himself as the savior of the EU project so expect him to be hyperactive in response to any major political changes in France. Greece, Italy and Spain still remain an economic issue so the entire EU financial system will be subject to paroxysms within its debt and equity markets.

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Notes From Underground: Will the Year of the Rooster Deliver a Wakeup Call?

December 18, 2016

In a September 11 post, I criticized the Japanese Central Banks’s policy for its technical approach to attempt to steepen its 2/10 yield. I wrote the following:

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