Page 1 of 4 CREDIT BUBBLE BULLETIN Just the facts
Market watch by Doug Noland
For the week, the Dow was pounded for 4.2% (down 14.5% y-t-d), and the
S&P500 sank 3.0% (down 12.9%). Economically-sensitive issues were under
pressure, with the Transports hammered for 5.5% (up 7.4%) and the Morgan
Stanley Cyclicals 5.4% (down 14.2%). The Utilities declined 2.7% (down 7.3%),
and the Morgan Stanley Consumer index fell 2.9% (down 12.1%). The small cap
Russell 2000 sank 3.8% (down 8.9%) and the S&P400 Mid-Caps 3.6% (down
4.1%). The NASDAQ100 fell 3.6% (down 11.0%), and the Morgan Stanley High Tech
index dropped 4.0% (down 10.1%). The Semiconductors declined 3.7% (down 9.5%),
the Street.com Internet Index 4.1% (down 9.3%), and the NASDAQ
Telecommunications index 7.3% (down 7.6%). The Biotechs lost 1.7% (down 6.5%).
The Broker/Dealers were hit for
5.6% (down 28.2%) and the Banks 5.5% (down 33%). With Bullion surging $26, the
HUI gold index rallied 8.6% (up 10.2%).
One-month Treasury bill rates fell 12 bps this week to 1.37%, and 3-month
yields dropped 17 bps to 1.66%. Two-year government yields sank 27 bps to
2.63%. Five-year T-note yields dropped 25 bps to 3.35% and 10-year yields fell
20 bps to 3.97%. Long-bond yields declined 21 bps to 4.52%. The 2yr/10yr spread
widened six to 133 bps. The implied yield on 3-month December '09 Eurodollars
sank 21 bps to 4.07%. Benchmark Fannie MBS yields fell 14 bps to 5.81%. The
spread between benchmark MBS and 10-year Treasuries widened 6 bps to 185, the
high since March 14th. The spread on Fannie's 5% 2017 note widened 7 bps to 76
bps, and the spread on Freddie's 5% 2017 note widened 6 bps to 75 bps - both
wides since March 14th. The 10-year dollar swap spread widened 2 to 70.25.
Corporate bond spreads were generally wider. An index of investment grade bond
spreads widened 5 to 125 bps, while an index of junk bond spreads was little
changed at 545 bps.
Investment grade issuance included Rockies Express $1.3bn, National Rural
Utility Co-op $1.3bn, and Cameron International $750 million.
Junk issuers included Macy's $650 million, BE Aerospace $600 million,
Quicksilver $475 million, CW Media $360 million, Linn Energy $255 million, and
Atlas Pipeline $250 million.
Convert issuance this week included Evergreen Solar $325 million.
International dollar bond issuance included Rio Tinto $5.0bn, Intelsat $3.5bn,
Telesat Canada $900 million, Vedanta Resources $1.25bn, and GS Caltex $300
million.
June 24 - Bloomberg (Hugh Collins): "Mexican peso bonds declined, pushing
yields to a two-year high, after a government report showed inflation increased
almost twice as much as forecast by economists in the first half of June.
Yields on benchmark 10% bonds due December 2024 rose 8 bps... to 9.10% ..."
German 10-year bund yields declined 11 bps to 4.52%. The German DAX equities
index fell 2.4% (down 20.4% y-t-d). Japanese 10-year "JGB" yields sank 14.5 bps
to 1.61%. The Nikkei 225 dropped 2.9% (down 11.5% y-t-d and 24.1% y-o-y).
Emerging markets were again under pressure. Brazil's benchmark dollar bond
yields jumped 16 bps to 5.77%. Brazil's Bovespa equities index slipped 0.5% (up
0.7% y-t-d and 18.8% y-o-y). The Mexican Bolsa declined 0.8% (down 0.8% y-t-d).
Mexico's 10-year $ yields jumped 20 bps to 5.46%. Russia's RTS equities index
fell 2.8% (up 1.2% y-t-d). India's Sensex equities index sank 5.3%, boosting
y-t-d losses to 32%. China's Shanghai Exchange index fell 2.9%, pushing 2008
losses to 48%.
Freddie Mac 30-year fixed mortgage rates rose 3 bps to a 9-month high 6.45%
(down 22bps y-o-y). Fifteen-year fixed rates increased 2 bps to 6.04% (down 30
bps y-o-y). One-year adjustable rates jumped 8 bps to 5.27% (down 38bps y-o-y).
Bank Credit dropped $24.8bn to $9.339 TN (week of 6/18). Bank Credit has now
expanded only $126bn y-t-d, or 2.9% annualized. Bank Credit posted a 52-week
rise of $754bn, or 8.8%. For the week, Securities Credit rose $8.5bn. Loans
& Leases sank $33.3bn to $6.865 TN (y-o-y gain of $585bn, or 9.3%). C&I
loans added $0.4bn, with one-year growth of 18.7%. Real Estate loans sank
$20.2bn (up 2.4% y-t-d). Consumer loans rose $5.0bn, while Securities loans
declined $1.8bn. Other loans sank $16.8bn. On the Liabilities side, Deposits
dropped $19.6bn.
M2 (narrow) "money" supply added $2.4bn to $7.690 TN (week of 6/16). Narrow
"money" has expanded $227bn y-t-d, or 6.6% annualized, with a y-o-y rise of
$436bn, or 6.0%. For the week, Currency added $0.5bn, while Demand &
Checkable Deposits slipped 0.4$bn. Savings Deposits gained $7.9bn, while Small
Denominated Deposits declined $0.9bn. Retail Money Funds fell $4.7bn.
Total Money Market Fund assets (from Invest Co Inst) rose $14bn last week to
$3.455 TN, increasing the y-t-d rise to $342bn, or 22.9% annualized. Money Fund
assets have posted a one-year increase of $919bn (36.2%).
Asset-Backed Securities (ABS) issuance this week slowed to $2.6bn. Year-to-date
total US ABS issuance of $106bn (tallied by JPMorgan's Christopher Flanagan) is
running at 27% of the comparable level from 2007. Home Equity ABS issuance of
$303 million compares with 2007's $198bn. Year-to-date CDO issuance of $14bn
compares to the year ago $225bn.
Total Commercial Paper increased $1.1bn to $1.753 TN. CP has declined $471bn
over the past 46 weeks. Asset-backed CP fell another $5.0bn last week (46-wk
drop of $447bn) to $748bn. Over the past year, total CP has contracted $390bn,
or 18.2%, with ABCP down $412bn, or 35.5%.
Fed Foreign Holdings of Treasury, Agency Debt last week (ended 6/25) increased
$5.329bn to a record $2.322 TN. "Custody holdings" were up $266bn y-t-d, or 26%
annualized, and $316bn year-over-year (17.6%). Federal Reserve Credit declined
$2.8bn to $875bn. Fed Credit has increased $1.1bn y-t-d and $27bn y-o-y (3.2%).
International reserve assets (excluding gold) - as accumulated by
Bloomberg's Alex Tanzi - were up $1.389 TN y-o-y, or 25%, to $6.825 TN.
Global Credit Market Dislocation Watch
June 25 - Bloomberg (Sree Vidya Bhaktavatsalam): "Mohamed El-Erian, co-chief
executive officer of Pacific Investment Management Co., said established
markets led by the US and U.K. have lost credibility in the credit crisis
sparked by the default of subprime mortgages. 'We are living through the
unthinkable,' El-Erian said. 'The list of casualties is very different.
What has suffered most is the credibility of the most sophisticated financial
systems in the world.'"
June 23 - Bloomberg (Shannon D. Harrington): "More than 2,000 collateralized
debt obligations made bets on the creditworthiness of bond insurers and some
now may face a fresh wave of downgrades. Ratings warnings may be on the horizon
for so-called synthetic CDOs linked to corporate bonds after Moody's
last week stripped MBIA Inc. and Ambac Financial Group Inc. of their top
insurer ratings and slashed units of FGIC Corp. and Security Capital Assurance
Ltd. to below investment grade. The insurers were common components of
synthetic CDOs, which pay noteholders from the fees generated by credit-default
swaps linked to a basket of companies."
June 27 - Bloomberg (Neil Unmack): "Deerfield Capital Management LLC and
Declaration Management & Research LLC pushed the amount of collateralized
debt obligations in default to $220 billion, according to Wachovia.
Downgrades to mortgage bonds and their underlying securities triggered
so-called events of default on 200 CDOs since October, Wachovia analysts
wrote. The failures are equivalent to 36% of CDOs that include US
asset-backed debt sold since 2003, and 19.3% of all CDOs."
June 23 - Bloomberg (John Glover): "Downgrades on securities guaranteed by MBIA
Inc. and Ambac Financial Corp. may only 'scratch the surface' of rating cuts
after the bond insurers lost their top grades, CreditSights analysts said. As
much as $1.28 trillion of debt is covered by the so-called monolines,
CreditSights said, citing data compiled by International Swaps and Derivatives
Association. S&P cut the ratings of 0.42% of securities included in Merrill
Lynch & Co. indexes of asset-backed debt, the analysts said."
June 27 - Bloomberg (Christine Richard): "MBIA Inc. faces a 'tenuous situation'
as the bond insurer seeks to cover payments
Head
Office: Unit B, 16/F, Li Dong Building, No. 9 Li Yuen Street East,
Central, Hong Kong Thailand Bureau:
11/13 Petchkasem Road, Hua Hin, Prachuab Kirikhan, Thailand 77110
