Page 1 of 2 CREDIT BUBBLE BULLETIN Just the facts
Commentary and weekly watch by Doug Noland
The S&P500 gained 1.6% (down 5.2% y-t-d), and the Dow added 0.8% (down
7.9%). The broader market rally continued. The S&P400 Mid-Caps jumped 2.2%
(down 0.3%), and the small cap Russell 2000 rose 2.6% (down 6.3%). The Morgan
Stanley Retail index surged 3.4%, increasing y-t-d gains to a noteworthy 22.8%.
The Morgan Stanley Cyclicals increased 3.7% (down 5.1%), and the Morgan Stanley
Consumer index gained 0.5% (down 5.9%). The Transports added 0.4% (down 15.5%),
while the Utilities slipped 0.6% (down 11.1%). The Nasdaq100 increased 1.8%,
increasing y-t-d gains to 10.6%. The Morgan Stanley High Tech index rose 1.1%
(up 17.7%), the Semiconductors added 1.3% (up 19.9%), and the InteractiveWeek
Internet index jumped 2.3% (up 24.8%). The Biotechs increased 0.4% (down 3.0%).
The
Broker/Dealers gained 2.1% (up 11.2%), and the Banks surged 8.9% (down 23.7%).
With Bullion $14, the HUI Gold index dropped 4.6% (down 2.8%).
One-month Treasury bill rates ended the week at 14 bps, and three-month bills
closed at 19 bps. Two-year government yields were little changed at 0.91%. Five
year T-note yields rose 5 bps to 1.85%. Ten-year yields increased 4 bps to
2.92%. The long-bond saw yields jump 6 bps to 3.75%. The implied yield on
3-month December '09 Eurodollars fell 7 bps to 1.33%. Benchmark Fannie MBS
yields sank 16 bps to 3.92%. The spread between benchmark MBS and 10-year
T-notes narrowed a noteworthy 20 to 99 bps. Agency 10-yr debt spreads narrowed
5 to 66 bps. The 2-year dollar swap spread declined 0.75to 56.75 bps; the
10-year dollar swap spread increased 1.25 to 19.25 bps; and the 30-year swap
spread increased 2.0 to negative 27.5 bps. Corporate bond spreads were mostly
narrower. An index of investment grade bond spreads narrowed 9 to 252 bps,
while an index of junk spreads narrowed 35 to 1,142 bps.
Investment grade issuance included Conagra $1.0bn.
Junk issuers included Qwest $810 million and Ventas Realty $200 million.
Convert issuance included Borg-Warner $375million and Micron Technologies $200
million.
International debt issues this week included Korea $3.0bn, KFW $3,0bn, Suncorp
$2.5bn, and Hutchinson Whampoa $1.5bn.
UK 10-year gilt yields dropped 14 bps to 3.28%, while German bund yields added
3 bps to 3.26%. The German DAX equities index rallied 2.5% (down 6.6%).
Japanese 10-year "JGB" yields increased 4 bps to 1.45%. The Nikkei 225 gained
2.4% (up 1.2%). The emerging market rally continued for the most part. Brazil's
benchmark dollar bond yields sank 20 bps to a 3-month low 6.16%. Brazil's
Bovespa equities index jumped 2.5% (up 21.3% y-t-d). The Mexican Bolsa declined
2.0% (down 8.3% y-t-d). Mexico's 10-year $ yields rose 4 bps to 6.02%. Russia's
RTS equities index jumped 9.6% (up 29.4%). India's Sensex equities index gained
4.2% (up 12%). China's Shanghai Exchange added 0.8% (up 34.2%).
Freddie Mac 30-year fixed mortgage rates rose 9 bps to 4.87% (down 101bps
y-o-y). Fifteen-year fixed rates added 2 bps to 4.54% (down 88bps y-o-y).
One-year ARMs jumped 8 bps to 4.83% (down 35bps y-o-y). Bankrate's survey of
jumbo mortgage borrowing costs had 30-yr fixed jumbo rates were unchanged at
6.46% (down 66bps y-o-y).
Federal Reserve Credit jumped $21.0bn last week to $2.070 TN. Fed Credit has
dropped $177bn y-t-d, although it expanded $1.181 TN over the past 52 weeks
(139%). Elsewhere, Fed Foreign Holdings of Treasury, Agency Debt last week
(ended 4/8) rose $12.0bn to a record $2.621 TN. "Custody holdings" have been
expanding at a 15.5% rate y-t-d, and were up $403bn over the past year, or
18.2%.
M2 (narrow) "money" supply dropped $28.5bn to $8.308 TN (week of 3/30). Narrow
"money" has now inflated at a 23.6% rate over the past 6 months and 13.5% over
the past year. For the week, Currency added $1.7bn, and Demand & Checkable
Deposits were about unchanged. Savings Deposits fell $13.1bn, while Small
Denominated Deposits declined $4.3bn. Retail Money Funds dropped $12.8bn.
Total Money Market Fund assets (from Invest Co Inst) increased $12bn to $3.846
TN.
Total Commercial Paper outstanding surged $56.8bn this past week to $1.533 TN.
CP has declined $148bn y-t-d (33% annualized) and $284bn over the past year
(15.6%). Asset-backed CP added $3.6bn last week to $704.5bn, with a 52-wk drop
of $100bn (12.4%).
Global Credit Market Dislocation Watch
April 6 - Bloomberg (Howard Mustoe): "The toxic debt of banks and insurers
could increase to $4 trillion, the International Monetary Fund will say in new
forecasts ... The IMF is expected to raise its estimates for U.S. bad debt to
$3.1 trillion from its January estimate of $2.2 trillion, with estimates of
another $900 billion of toxic assets from Europe and Asia…"
April 7 - Bloomberg (John Glover): "Thirty-five companies defaulted in March,
the highest number in a single month since the Great Depression, according to
Moody's ... The rate at which speculative-grade corporate borrowers worldwide
failed to meet their obligations rose to 7% from 4.1% at the end of last year
... So far this year, 79 companies rated by Moody's have defaulted…"
April 6 - Bloomberg (John Glover): "About 53% of U.S. companies that issued
high-risk, high-yield bonds will default over the next five years, according to
Jim Reid at Deutsche Bank AG. The figure compares with a 31% five-year rate in
the early 1990s and 2000s, and as much as 45% 'in a very, very different market
in the Great Depression,' Reid ... wrote... 'Given that this recession will
easily outstrip the 90s and 00s, then 40% high-yield defaults over five years
seems to be a minimum starting point for this default cycle,' he wrote. A 50%
rate is 'not unrealistic.'"
April 6 - Bloomberg (Mark Deen): "Britain's government budget deficit may rise
by 32 billion pounds ($48 billion) more than the level forecast in November ...
the Institute for Fiscal Studies said. The shortfall of 150 billion pounds
would amount to 10.4% of gross domestic product in the fiscal year through
March 2010…"
April 7 - Bloomberg (Aaron Kirchfeld): "The German government may make an offer
for Hypo Real Estate Holding AG, the bailed-out commercial property lender, by
the end of the week as it moves closer to the country's first bank
nationalization since the 1930s, three people close to the matter said."
April 8 - Bloomberg (Denis Maternovsky and Torrey Clark): "Russian overdue bank
loans are increasing by 20% a month, a pace that will bankrupt weak lenders as
the financial crisis deepens, OAO Sberbank Chief Executive Officer German Gref
said ... Russian companies and individuals owe 18.4 trillion rubles ($549bn) to
domestic banks, according to central bank data."
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