Page 1 of 2 CREDIT BUBBLE BULLETIN Just the facts
Weekly watch by Doug Noland
Treasury bills traded this week again at negative yields. By week's end,
one-month Treasury bill rates were at .01% and three-month yields at .015%.
Two-year government yields fell 13 bps to 0.68%. Five-year T-note yields
declined 4 bps this week to 1.52%. Ten-year yields fell 3 bps to 2.68%, and
long-bond yields declined 4 bps to 3.15%. The implied yield on 3-month December
'09 Eurodollars sank 18 bps to 1.845%. Benchmark Fannie MBS yields sank 60 bps
to 4.13%. The spread between benchmark MBS and 10-year T-notes narrowed 56 to
146 bps. Agency 10-yr debt spreads narrowed 33 to 62 bps (2-wk drop of 55 bps).
The 2-year dollar swap spread declined 17.5 to 105.25 bps, the 10-year dollar
swap spread declined 12.25 to 19 bps, and the 30-year
swap spread declined 2.75 to negative 33 bps. Corporate bond spreads were
mixed. An index of investment grade bond spreads narrowed 13 to 203 bps, and an
index of junk bond spreads widened 32 to 1,222 bps.
Investment-grade debt issuance included GE Capital $6.2bn, Regions Bank $2.5bn,
HSBC $2.7bn, Suntrust $2.75bn, Morgan Stanley $2.5bn, JPMorgan Chase $2.3bn,
Bank of America $1.5bn, Dupont $1.0bn, Keycorp $250 million, Key Bank $1.0bn,
Goldman Sachs $775 million, Cox Coomunications $600 million, FPL Capital $450
million, and Monongahela Power $300 million, and Wisconsin Electric Power $250
million.
I saw no junk or convert issuance this week.
International debt issues included Royal Bank of Scotland $3.0bn, Shell
International $2.75bn, Macquarie Group $1.7bn, ANZ Bank $1.75bn, and Westpac
Banking $1.5bn.
German 10-year bund yields jumped 27 bps to 3.29%. The German DAX equities
index rallied 6.4% (down 42.2% y-t-d). Japanese 10-year "JGB" yields added 2
bps to 1.385%. The Nikkei 225 gained 4.0% (down 46.2% y-t-d). Emerging markets
were generally stronger. Brazil's benchmark dollar bond yields sank 46 bps to
7.25% (2-wk drop 95bps). Brazil's Bovespa equities index jumped 10% (down 39.2%
y-t-d). The Mexican Bolsa rose 7.5% (down 27.5% y-t-d). Mexico's 10-year $
yields fell 44 bps to 6.58% (2-wk decline 132bps). Russia's RTS equities index
rallied 10.6% (down 71.5% y-t-d). India's Sensex equities index recovered 5.0%,
reducing y-t-d losses down to 52.2%. China's Shanghai Exchange declined 3.2%,
boosting y-t-d losses to 62.9%.
Freddie Mac 30-year fixed mortgage rates declined 6 bps to 5.47% (down 64bps
y-o-y). Fifteen-year fixed rates sank 13 bps to 5.20% (down 58bps y-o-y).
One-year ARMs declined 7 bps to 5.09% (down 41bps y-o-y). Bankrate's survey of
jumbo mortgage borrowing costs had 30-yr fixed jumbo rates at 7.05% (up 37bps
y-o-y).
Bank Credit surged $75.7bn to $9.980 TN (week of 12/3). Bank Credit has
expanded $767bn y-t-d, or 8.8% annualized. Bank Credit has expanded $588bn over
the past 13 weeks. For the week, Securities Credit jumped $83.1bn. Loans &
Leases declined $7.4bn to $7.176 TN (52-wk gain of $425bn, or 6.3%). C&I
loans dropped $10.2bn, reducing y-t-d growth to 10.7%. Real Estate loans
increased $3.2bn (up 5.8% y-t-d). Consumer loans added $1.8bn, while Securities
loans fell $9.8bn. Other loans gained $7.6bn.
M2 (narrow) "money" supply jumped $37bn to a record $7.986 TN (week of 12/1).
Narrow "money" has expanded $523bn y-t-d, or 7.6% annualized. For the week,
Currency gained $3.6bn, and Demand & Checkable Deposits increased $4.0bn.
Savings Deposits rose $14.3bn, and Small Denominated Deposits gained $6.9bn.
Retail Money Funds rose $8.5bn.
Total Money Market Fund assets (from Invest Co Inst) jumped $34.0bn to a record
$3.777 TN, with a y-t-d expansion of $664bn, or 22.6% annualized.
Total Commercial Paper outstanding surged $48.6bn this week to an 11-week high
$1.700 TN, with CP down $84.9bn y-t-d. Asset-backed CP gained $7.1bn, with 2008
posting a decline of $34.0bn. Over the past year, total CP has contracted
$138bn, or 7.5%.
Federal Reserve Credit jumped $123.7bn to a record $2.241 TN, with a historic
13-wk increase of $1.353 Trillion. Fed Credit has expanded $1.368 TN y-t-d
(163% annualized). Fed Foreign Holdings of Treasury, Agency Debt last week
(ended 12/10) declined $1.0bn to $2.494 TN. "Custody holdings" were up $437bn
y-t-d, or 22% annualized.
International reserve assets (excluding gold) - as accumulated by Bloomberg's
Alex Tanzi - have dropped a notable $198bn over the past eight weeks. Over the
past year reserves were up $657bn, or 10.8%, to $6.749 TN.
Global Credit Market Dislocation Watch
December 11 - Bloomberg (Shobhana Chandra): "US household wealth fell in the
third quarter by the most on record as property values and stock prices tumbled
... Net worth for households and non-profit groups decreased by $2.81 trillion
... according to the Federal Reserve's Flow of Funds report ...
Real-estate-related assets declined by $646.9 billion, three times the prior
quarter's drop ... 'This is not pretty'," said Michael Feroli, an economist at
JPMorgan ... 'It's going to take a long time to repair balance sheets that are
being severely impaired ...' Household net worth dropped to $56.5 trillion, the
lowest level since the last three months of 2006, from $59.4 trillion in the
second quarter. The decline over the 12 months ended in September, at 11%, is
the biggest year-over-year drop since records began ... "
December 11 - Bloomberg (Michael J. Moore): "The rally in Treasuries that
pushed yields on bills below 0% this week is adding to concerns that the $5.3
trillion market for government debt is a bubble waiting to burst. Investors
seeking safety from losses in equity and credit markets charged the Treasury 0%
interest when the government sold $30 billion of four-week bills on Dec. 9. A
day later three-month bill rates turned negative for the first time since the
US began selling the debt in 1929. Yields on two-, 10- and 30-year securities
touched record lows this month."
December 10 - Bloomberg (Gonzalo Vina and Robert Hutton): "UK Chancellor of the
Exchequer Alistair Darling is considering credit guarantees for households and
companies to spur bank lending ... Darling is looking at a range of options to
revive credit including whether to expand a 250 billion pound ($370 billion)
Treasury program to support bank debt so that it covers mortgages and other
loans ... "
December 10 - Wall Street Journal (Jon Hilsenrath and Damian Paletta): "The
Federal Reserve is considering issuing its own debt for the first time, a move
that would give the central bank additional flexibility as it tries to
stabilize rocky financial markets. Government debt issuance is largely the
province of the Treasury Department, and the Fed already can print as much
money as it wants. But as the credit crisis drags on and the economy suffers
from recession, Fed officials are looking broadly for new financial tools ...
One hurdle: The Federal Reserve Act doesn't explicitly permit the Fed to issue
notes beyond currency. Just exploring the idea underscores many challenges the
ongoing problems are creating for the Fed, as well as the lengths to which the
central bank is going to come up."
December 9 - Bloomberg (Ambereen Choudhury and Jonathan Keehner): "Forced sales
demanded by creditors and government-brokered transactions may provide the only
consolation for bankers in what promises to be the slowest year for mergers and
acquisitions since 2004. Bankers at Barclays Capital and Nomura Holdings Inc.
say the value of deals may decline 30% in 2009 to about $2 trillion. Takeovers
so far this year are down 36% from the same period in 2007 ... "
Currency Watch
December 11 - Bloomberg (James M. Gomez): "Sebastian Socaciu, a 29-year-old
Romanian, decided his country should adopt the euro when he had to choose
between buying a new coat or paying the mortgage. With his house payments in
euros and his salary in lei, the Romanian currency's slump forced Socaciu to
forego the coat he needs to brave the frigid winter building cell-phone towers.
'I'm totally for euro adoption; it would really spare me,' Socaciu said
...Eastern Europeans are pushing to join the 15-nation euro club sooner than
planned to shield the former communist nations from the global financial
crisis."
December 12 - Bloomberg (Emma O'Brien): "Russia's ruble headed for its biggest
weekly decline against the euro since 2000 after the central bank eased its
defense of the currency for the fifth time in a month ... The ruble dropped
3.3% this week to 37.0395 per euro ... "
The dollar index sank 4.0% to 83.64. For the week on the upside, the South
Korean won increased 7.5%, the Danish krone 5.2%, the Euro 5.1%, the Norwegian
krone 4.2%, the Swiss franc 3.7%, the Swedish krona 3.5%, the Australian dollar
2.8%, and the New Zealand dollar 2.7%. On the downside, the Mexican peso
declined 0.3%.
Commodities Watch
December 10 - Bloomberg (Rebecca Keenan and Brett Foley): "Rio Tinto Group, the
world's third- largest mining company, will eliminate 14,000 jobs, cut capital
spending by more than half and sell 'significant assets' as demand for metals
sinks in the global recession."
Gold jumped 8.7% to $822.40, and Silver gained 8.5% to $10.23. January Crude
rose $5.47 to $46.28. January Gasoline surged 19.6% (down 57% y-t-d), while
January Natural Gas dropped 4.4% (down 26.7% y-t-d). March Copper increased 4%.
March Wheat rallied 7.9% and Corn 20.8%. The CRB index rallied 8.8% (down 36.7%
y-t-d). The Goldman Sachs Commodities Index (GSCI) gained only 1.1% (down 41.6%
y-t-d).
China Watch
December 12 - Bloomberg (Li Yanping and Lee Spears): "China's economic slowdown
is deepening, with overcapacity in almost all industries, and won't bottom out
until after the first quarter of next year, two senior officials said today.
'The international financial crisis is having a severe domestic impact,' Li
Yizhong, head of the Ministry of Industry and Information Technology, said ...
'We don't think we've bottomed out yet, and the impact will broaden further in
December.'"
December 11 - Bloomberg (John Liu): "Dai Chen broods as train No. 1076 rumbles
across south China's Guangdong province, taking him back to the fields and
trees of his rural home. He'd rather be on the noisy, cramped factory floor in
Dongguan where he used to work. 'There's nothing to do in the countryside
except be a farmer," Dai, 21, says ... "I don't want to be a farmer.' As many
as 20 million migrants may leave coastal cities next year as the worst
financial crisis since the Great Depression shutters factories ... Until now
migration has been a safety valve for China, with the population of rural areas
dropping by 140 million since 1999. As workers return to the countryside, where
wages are a third of those in the cities, there is growing concern among
China's leaders that rising tensions could undermine the Communist Party ..."
December 10 - Bloomberg (Kevin Hamlin and Li Yanping): "China's exports fell
for the first time in seven years ... Exports declined 2.2% in November from a
year earlier ... Imports plunged 17.9%, pushing the trade surplus to a record
$40.09 billion. China's leaders pledged 'more forceful measures' to help small
companies and create jobs in statements within hours of the trade report."
December 11 - Bloomberg (Wang Ying): "China's power production slumped 7.1%
last month, the biggest decline in more than seven years ... That's the
steepest drop since January 2001 ... "
Japan Watch
December 12 -
Bloomberg (Toru Fujioka): " Japan's consumers
became the most pessimistic in at least 26 years,
indicating their weaker spending may deepen the
recession. The confidence index dropped to 28.4
last month from 29.4 in October ...It's the lowest
since the government began compiling the figures
in 1982."
December 12 - Bloomberg (Kathleen Chu and Mariko Yasu): "The Japan
Housing Finance Agency, with $429 billion in assets, said it needs a new
business model after copying the failed practices of Fannie Mae and Freddie
Mac."
India Watch
December 12 - Bloomberg (Kartik Goyal): "India's industrial production
unexpectedly fell for the first time in 15 years, putting pressure on policy
makers to add to interest rate and tax cuts to shield the weakening economy
from a global recession. Output at factories, utilities and mines dropped 0.4%
in October from a year earlier ... "
Latin America Watch
December 9 - Bloomberg (Joshua Goodman): "Brazil's economy expanded more than
expected in the third quarter, as investment and consumer spending remained
resilient in the early days of the global economic crisis. Gross domestic
product jumped 6.8% from the same period a year earlier ... "
Unbalanced Global Economy Watch
December 10 - Bloomberg (Brian Swint): "The UK economy may contract at the
fastest pace since 1990 in the current quarter as
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