Corporate ETFs and Risk Appetite

Via Bloomberg : Bond ETFs Awash in Pain May Be Red Flag for Risk Appetite (1)
2018-01-22 14:56:05.415 GMT By Dani Burger and Sid Verma
(Bloomberg) — U.S. corporate debt exchange-traded funds
have bled a near-historic sum of assets over the past two weeks,
but holders of the underlying securities are paying little heed.
The bonds themselves are enjoying some of the tightest
spreads on record as appetite for new issues remains strong. On
one hand, tax reform, rising oil and global growth may be
fueling demand for yield. Yet the ETFs — in the midst of the
longest outflow streak in at least seven years — point to a
The divergence is stumping Wall Street strategists who use
the ETF market not only as a proxy for investor sentiment in
debt, but also as a gauge of risk appetite for equities and
other assets. Though technical Continue reading "Corporate ETFs and Risk Appetite"

Margin Debt

Via Bloomberg; Margin Debt Ratio at NYSE Rises To Most Speculative Since 2003
2017-12-28 14:07:01.421 GMT By Bloomberg Automation
(Bloomberg) — Net debt in New York Stock Exchange customer
margin accounts rose to 1.03 percent of companies’ market
capitalization in November, the most in data going back to 2003
and a signal that traders became more speculative.
* Net margin debt, or debits in the accounts minus cash,
increased to $286.9 billion in November from $269.7 billion in
the prior month.
* October’s total represented 0.99 percent of the companies’
market cap.
* The margin ratio was 0.8 percent in November a year earlier.
* Leverage tends to rise and fall with the market’s value.
Margin borrowing exceeding cash indicates more speculation,
while cash greater than debt suggests greater investor caution.
The last time the accounts held more cash than debt was in
December Continue reading "Margin Debt"

CMBS Stumble

Via Bloomberg:
Grocery CMBS Stumble Suggests Repricing After Amazon-Whole Foods
2017-08-03 11:56:49.192 GMT By Adam Tempkin
(Bloomberg) — Investors gained concessions on the first
commercial mortgage bond backed by grocery-anchored centers
since Amazon announced it was buying Whole Foods Market,
suggesting a repricing of CMBS risk after that transformational
* Spreads on the bond, sold by Madison International Realty and
the REIT DDR Corp., widened considerably from initial guidance
* “Amazon buying Whole Foods has certainly brought grocery-
anchored centers into focus from a longer-term viability
standpoint,” Principal Global investors wrote in a 2Q CMBS
market review
** In addition to pressure on the sector from Amazon, foreign
entrants Aldi and Lidl are making a push to increase their
footprints in the U.S., adding more competition to the grocery
sector The bond was comprised of several pools, and some may have
fared better than others Continue reading "CMBS Stumble"

Only Perfect Hedge Is In a Japanese Garden

This is an interesting piece from Robert Sinche at Amherst Pierpont on the changing relationship between US 10 year and Eurpean govies on a hedged basis. The US is looking less attractive.   Via Robert Sinche at Amherst Pierpont Securities: One of the persistent sources of support for US Treasury debt, particularly at the longer end of the yield curve, was its relative “high yield “ status. Throughout 2015 and 1H2016 the yield of the 10-year Treasury exceeded the hedged yield (using a conventional 3-month hedge) of 10-year bonds in other developed countries. The dynamics of the hedged-yield analysis is driven by yield curve shapes, with a flattening yield curve in the US making the effective hedged yields in foreign markets more attractive.  As a result of the steepening yield curves across the EZ and UK, the hedged yields on benchmark 10-year bonds in France (2.82%), Germany (2.55%) Continue reading "Only Perfect Hedge Is In a Japanese Garden"

Delinquent CMBS Creeping Higher

Via Bloomberg: CMBS Monthly Late-Pays Spike Most in Six Years, Still Low: Fitch
2017-07-17 15:49:57.920 GMT By Adam Tempkin
(Bloomberg) — U.S. CMBS loan delinquencies increased 22bps
to 3.72% in June from 3.50% a month earlier, the largest month-
over-month spike in six years, Fitch said in a statement.
* This represented largest monthly increase in delinquencies
since the 9.01% peak in July 2011
* Silver lining is that halfway through 2017, loan delinquencies
so far remain considerably below Fitch’s estimate of between
5.25% and 5.75%
* Primary reasons are strong repayment activity of maturing
loans during the first six months of the year, many of which
were previously identified as highly leveraged and would face
difficulty refinancing
* Remainder of the year looks promising with only $20b left to
refinance in 2017 and new issuance still healthy
* Fitch lowering its year-end Continue reading "Delinquent CMBS Creeping Higher"

Some Fed Policy Analysis

Excellent piece via Chris Low at FTN Financial:

AM Economic Comments

by Chief Economist Chris Low

Monday, June 12, 2017

Stocks are lower in Asia and Europe overnight and NASDAQ futures are down enough this morning to suggests Friday’s tech selloff will continue today. US 10-yr note yields were higher overnight but have fallen back to 2.209%, likely in part thanks to the weakness in equities.

The front page Fed-vs-the-financial markets article in today’s WSJ dives into what ought to be the most controversial reason the Fed is raising rates this year: They have decided stocks are overvalued and they can’t stand when long-term interest rates fall when they raise short rates. The paper notes the Goldman Sachs Financial Conditions Index, which has fallen considerably since December, suggesting markets have eased more than the Fed has tightened. The GSFCI is just exactly the sort of thing the Fed loves Continue reading "Some Fed Policy Analysis"

Comments on Possible Fed Appointees

Via Stephen Stanley at Amherst Pierpont Securities:

GOP Collapse in Reddest of States

This story is via the left wing website DailyKos ( I do not agree with the site’s politics  but if you want a deep dive into elections it is worth a visit.   Via the DailyKos:
Daily Kos Elections Morning Digest

Leading Off

Special Elections: On Tuesday night, voters in two counties on the eastern outskirts of Oklahoma City cast ballots in a special election to fill a vacancy for Oklahoma’s 28th State House District, a seat Republicans should have held without so much as an eyeblink: Donald Trump carried it by a monster 73-23 margin in November, even better than Mitt Romney’s 69-31 win four years earlier.

So what happened? Republican Zack Taylor, the owner of an oil and gas company, eked out just a 50-48 victory over attorney Steve Barnes, his Democratic opponent, a difference of only 56 votes. That is, simply put, a stunning Continue reading "GOP Collapse in Reddest of States"

Firing Comey and Trump Agenda

This is an interesting collage of analyst opinions on the firing of FBI Director Comey and the impact that action will have on the Trump legislative agenda. I think the Watergate comparisons are hyperventilating hyperbole. Watergate had been a dominating  from March of 1973 and the so called Saturday Night Massacre was in October. There was a Select Committee chaired by Senator Sam Ervin which produced the John Dean ” cancer on Presidency” narrative and there was Alexander Butterfield and his bomb shell disclosure of Nixon’s taping system. There was significant evidence that Tricky Dick was a crook. In my opinion we have nothing remotely analogous to that body of evidence this time.   Here is the Bloomberg article: Comey’s Firing May Suck Oxygen From Trump’s Agenda: Street Wrap
2017-05-10 13:46:39.346 GMT By Felice Maranz and Brian Chappatta
(Bloomberg) — Donald Trump’s abrupt firing of FBI Director
James Comey Continue reading "Firing Comey and Trump Agenda"

Resistance Broken

This is an excerpt from a piece written by Steve Feiss of Government Perspectives. The excerpt summarized dealer views on the break of resistance on the 10 year note at 2.28/2.30 and what that signals for the near term course of interest rates. If you have Twitter you can follow Steve Feiss  @stevefeiss. Via Steve Feiss at Government Perspectives:

Ø  CitiFX Weekly RoundUp: Sacre Bleur. To parity and beyond? … and on US RATES (“flip a coin”), “The 2.30% area we have been highlighting on US 10s is now coming under pressure. Our medium to long term bias of higher US yields remains unchanged; however, the question is whether the base is in from which we will move higher or whether a broader decline (position flush out) will first be seen before higher levels later in the year. Unfortunately, for the time being, the answer Continue reading "Resistance Broken"

Impending Debt Crisis

Via UK Telegraph and Ambrose Evans Pritchard:

Dealing With Debt

Carmen Reinhart spoke yesterday at Harvard (where she teaches) and one of my contacts summarized her comments:

·         The debt overhang in Europe will act as a constraint on ECB policy and she expects no action by the ECB this year (although they will need to announce something about the current Asset Purchase Program which is set only through December).

·         Target 2 (T2) balances, which represent claims on the financial systems within the EZ (banks in Greece lost deposits to banks in Germany, so the Central Banks must square up these flows) are an representation of FX rates within the EUR. In other words, if there were floating exchange rates within the EUR the large capital outflow from Greece, Spain and Italy, among others, would have forced devaluations of their currencies and the capital flight into Germany a revaluation of its (non-existent) currency. The large magnitude of Continue reading "Dealing With Debt"


Via Marc Chandler at Brown Brothers Harriman: Dollar Pushed Lower in Subdued Activity
  • Geopolitical concerns continued to be elevated
  • Oil is threatening to snap a five-day rally
  • There is little concession built for today’s $20 bln auction of US 10-year notes
  • South Africa and Mexico report February manufacturing and industrial production
The dollar is mostly softer against the majors.  The Scandies are outperforming, while the dollar bloc is underperforming.  EM currencies are mixed.  ZAR and RUB are outperforming, while MXN and KRW are underperforming.  MSCI Asia Pacific was down 0.1%, with the Nikkei falling 0.3%.  MSCI EM is down 0.1%, with China markets rising 0.3%.  Euro Stoxx 600 is flat near midday, while S&P futures are pointing to a lower open.  The 10-year UST yield is down 2 bp at 2.34%.  Commodity prices are mixed, with oil down 0.3%, copper up 0.2%, and Continue reading "FX"


Via Marc Chandler at Brown Brothers: Drivers for the Week Ahead
  • Even though the Federal Reserve does not meet, Yellen’s speech on Monday (with live and Twitter-sourced questions) will be closely monitored
  • Economic data for the US and Europe may not be important drivers
  • The UK reports on inflation and employment in the holiday-shortened week
  • EM FX weakness is carrying over to this week, due in large part to rising political risks
The dollar is mostly firmer against the majors as the holiday-shortened week starts.  Markets remain nervous after US missile strikes on Syria, amidst reports that a US aircraft carrier has been diverted to waters near North Korea.  Sterling and Nokkie are outperforming, while the euro and Aussie are underperforming.  EM currencies are mostly weaker.  IDR and PHP are outperforming, while ZAR and KRW are underperforming.  MSCI Asia Pacific was flat, with the Nikkei rising 0.7%.  MSCI EM Continue reading "FX"

Treasury Auctions This Week

The Treasury will auction 3s 10s and 30s this week. Here is some interesting commentary from Ian Lyngen at BMO Capital markets on auction dynamic. This is an excerpt from a longer note to clients:

We’ll also see the takedown of the 3s, 10s, 30s trio of Treasury auctions on an accelerated scheduled with the first installment on Monday afternoon. While the shift in timing and holiday closures might intuitively be concerns for auction participation, this week’s $56 bn in gross issuance will be more than offset by $76.8 bn in maturities, leaving a net paydown of $20.8 bn.  For context, this will be the largest paydown on record for this trio and in fact, one needs to go back to May 2008 (prior to the introduction of the 3-year) for find a larger paydown. The influence on the auction process is less obvious from the net Continue reading "Treasury Auctions This Week"

Jobs Report Dissected

Via TDSecurities:

·         The March employment report was a mixed bag on the surface, with payrolls disappointing sharply. But this apparent softness was more than offset by a significant and healthy drop in the unemployment rate and continued firming in wage pressures.


·         The as-expected wage growth and out-sized decline in the unemployment rate suggest a June rate hike is still very much in play at the Fed, especially if weather was a factor driving the weakness in payrolls.


Nonfarm payrolls moderated much more than expected with a 98k increase in March vs a downwardly revised 219k in February. Net revisions over the prior two months totaled -38k. A return to more seasonal winter temperatures along with snowstorms in the eastern region had been expected to dampen the March figures. Adverse weather impacts appeared evident in construction payrolls, where job growth pulled back sharply (+6k) after Continue reading "Jobs Report Dissected"


Via Marc Chandler at Brown Brothers : Dollar Firm Ahead of Jobs Report Amidst Rising Geopolitical Risks
  • The highlight today is the March US jobs data
  • Geopolitical concerns are rising, but the impact on markets is unclear
  • Canada also reports March jobs data
  • Mexico reports March CPI, which is expected to rise 5.31% y/y
The dollar is mostly higher against the majors ahead of the jobs report.  Markets remain nervous after US missile strikes on Syria.  The yen and Loonie are outperforming, while sterling and Aussie are underperforming.  EM currencies are mostly weaker.  INR and PHP are outperforming, while RUB and TRY are underperforming.  MSCI Asia Pacific was up 0.2%, with the Nikkei rising 0.4%.  MSCI EM is down 0.3%, with China markets rising 0.1%.  Euro Stoxx 600 is down 0.4% near midday, while S&P futures are pointing to a lower open.  The 10-year Continue reading "FX"


Via Marc Chandler at Brown Brothers Harriman: Euro Resilient Despite Draghi’s Dovish Signals
  • ECB President Draghi made it clear that the market’s hawkish take on recent comments was undesirable
  • Some points about the FOMC minutes are worth mentioning, as the Fed put a lot of focus on balance sheet issues
  • Reserve Bank of India surprised markets and hiked the reverse repo rate 25 bp
  • Israel and Peru expected to keep policy unchanged
The dollar is mixed against the majors in choppy trading.  Nokkie and Kiwi are outperforming, while Stockie and Aussie are underperforming.  EM currencies are mostly weaker.  ZAR and MXN are outperforming, while KRW and TWD are underperforming.  MSCI Asia Pacific was down 0.8%, with the Nikkei falling 1.4%.  MSCI EM is down 0.6%, with China markets rising 0.3%.  Euro Stoxx 600 is down 0.4% near midday, while S&P futures are pointing to a Continue reading "FX"

FOMC Minutes Dissected

Via Stephen Stanley at Amherst Pierpont Securities:

Commercial Mortgages at Risk

Via Bloomberg: