Page 2 of 4 CREDIT BUBBLE BULLETIN
Reflation watch
Commentary and weekly watch by Doug Noland
WEEKLY WATCH
For the week, the S&P500 slipped 0.4% (down 4.1% y-t-d), and the Dow
declined 0.7% (down 8.0%). Other sectors were much stronger. The Morgan Stanley
Cyclicals surged 7.0% (up 8.4%), and the S&P Homebuilding index gained 4.6%
(up 31.9%). The Morgan Stanley Retail index jumped 3.9%, increasing 2009 gains
to 31.2%. The Transports rose 1.4% (down 11.3%). The Morgan Stanley Consumer
index fell 1.6% (down 4.8%), and the Utilities declined 2.1% (down 14.2%). The
S&P 400 Mid-Cap (up 2.2%) and small cap Russell 2000 (down 4.1%) indexes
were both about unchanged. The Nasdaq100 gained 1.4% (up 13.3%), and the Morgan
Stanley High Tech index jumped 3.4% (up 23.7%). The Semiconductors declined
0.5% (up 19.6%), while the InteractiveWeek Internet index rose another 2.3% (up
30.7%). The
Biotechs sank 3.3% (down 4.6%). The Broker/Dealers dipped 0.4% (up 19.6%), and
the Banks were hit for 7.1% (down 22.0%). While Bullion was little changed, the
volatile HUI Gold index rallied 12.9% (up 2.8%).
One-month Treasury bill rates ended the week at 8 bps, and three-month bills
closed at 12 bps. Two-year government yields declined 2 bps to 0.94%. Five year
T-note yields rose 5 bps to 1.93%. Ten-year yields gained 5 bps to 2.96%. The
long-bond saw yields jump 8 bps to a 5-month high 3.88%. The implied yield on
3-month December '09 Eurodollars fell 5.5 bps to 1.325%. Benchmark Fannie MBS
yields dropped 8 bps to 3.97%. The spread between benchmark MBS and 10-year
T-notes narrowed 13 to 98 bps. Agency 10-yr debt spreads tightened 8 to 48 bps.
The 2-year dollar swap spread increased 1.25 to 61.5 bps; the 10-year dollar
swap spread declined 2 to 15 bps; and the 30-year swap spread declined 4.25 to
negative 36.5 bps. Corporate bond spreads ground tighter. An index of
investment grade bond spreads was one tighter to 236 bps, and an index of junk
spreads tightened 23 to 1,084 bps.
Corporate issuance slowed this week. Investment grade issuers included Stanford
$1.0 billion, and Toledo Edison $300 million.
Junk issuers included Georgia-Pacific $750 million, Lennar $400 million, and
Digitalglobe $355 million.
I saw no convert issuance this week.
International dollar debt issuers included Swedbank $1.4bn and Export
Development Bank Canada $1.0bn.
U.K. 10-year gilt yields jumped 13 bps to 3.48%, and German bund yields rose 8
bps to 3.19%. The German DAX equities index was little changed (down 2.8%).
Japanese 10-year "JGB" yields were down 2 bps to 1.42%. The Nikkei 225 gave
back 2.2% (down 1.7%). The emerging markets were mixed. Brazil's benchmark
dollar bond yields rose 5 bps to 6.37%. Brazil's Bovespa equities index gained
1.6% (up 24.6% y-t-d). The Mexican Bolsa rallied 1.6% (up 0.9% y-t-d). Mexico's
10-year $ yields jumped 25 bps to 6.13%. Russia's RTS equities index dipped
0.5% (up 31.5%). India's Sensex equities index gained 2.8% (up 17.4%). China's
Shanghai Exchange slipped 2.2% (up 34.5%).
Freddie Mac 30-year fixed mortgage rates declined 2 bps to 4.80% (down 123bps
y-o-y). Fifteen-year fixed rates were unchanged at 4.48% (down 114bps y-o-y).
One-year ARMs declined 3 bps to 4.82% (down 47bps y-o-y). Bankrate's survey of
jumbo mortgage borrowing costs had 30-yr fixed jumbo rates down another 5 bps
to 6.28% (down 89 bps y-o-y).
Federal Reserve Credit surged $70.3bn last week to $2.169 TN (high since the
first week of January). Fed Credit has dropped $77bn y-t-d, although it
expanded $1.300 TN over the past 52 weeks (150%). Elsewhere, Fed Foreign
Holdings of Treasury, Agency Debt last week (ended 4/22) rose $6.5bn to a
record $2.648 TN. "Custody holdings" have been expanding at a 16.9% rate y-t-d,
and were up $395bn over the past year, or 17.5%.
Bank Credit gained $6.0bn to $9.711 TN (week of 4/15). Bank Credit was up
$299bn year-over-year, or 3.2%. Bank Credit expanded $300bn over the past 32
weeks, while it was down $202bn y-t-d (7.1% annualized). For the week,
Securities Credit rose $3.7bn. Loans & Leases increased $2.3bn to $7.037 TN
(52-wk gain of $157bn, or 2.3%). C&I loans fell $5.8bn, with one-year
growth of 1.9%. Real Estate loans dropped $12.9bn (up 4.5% y-o-y). Consumer
loans slipped $0.5bn, while Securities loans jumped $18.1bn. Other loans gained
$3.5bn.
M2 (narrow) "money" supply added $1.6bn to $8.249 TN (week of 4/13). Narrow
"money" has expanded at a 2.2% rate y-t-d and 8.3% over the past year. For the
week, Currency added $1.4bn, while Demand & Checkable Deposits dropped
$69.5bn. Savings Deposits jumped $82.9bn, while Small Denominated Deposits fell
$5.5bn. Retail Money Funds declined $7.7bn.
Total Money Market Fund assets (from Invest Co Inst) declined $11.4bn to $3.806
TN (low since December). Money fund assets have declined $24bn y-t-d, or 2.0%
annualized. The 52-wk expansion was reduced to $323bn, or 9.3%. Total
Commercial Paper outstanding slipped $1.7bn this past week to $1.472 TN. CP has
declined $209bn y-t-d (41% annualized) and $314bn over the past year (17.6%).
Asset-backed CP dropped $9.9bn to $671bn (low since 12/04), with a 52-wk drop
of $1180bn (15%).
More signs of liquidity returning to the ABS market. Year-to-date total US ABS
issuance of $25.7bn (tallied by JPMorgan's Christopher Flanagan) is approaching
half of the $62.7bn from comparable 2008. U.S. CDO issuance of $20.9bn compares
to last year's y-t-d $13.0bn.
International reserve assets (excluding gold) - as accumulated by Bloomberg's
Alex Tanzi - were little changed y-o-y to $6.663 TN. Reserves have declined
$284bn over the past 27 weeks.
Global Credit Market Dislocation Watch
April 21 - Bloomberg (Timothy R. Homan): "Worldwide losses tied to rotten loans
and securitized assets may reach $4.1 trillion by the end of 2010 ... the
International Monetary Fund said. Banks will shoulder about 61% of the
writedowns, with insurers, pension funds and other nonbanks assuming the rest
... The fund projected losses of $2.7 trillion at U.S. financial institutions,
an increase from its estimates of $2.2 trillion in January and $1.4 trillion in
October."
April 24 - Bloomberg (Mark Pittman): "The Federal Reserve took on more than $74
billion in subprime mortgages, depreciating commercial leases and other assets
after Bear Stearns Cos. and American International Group Inc. collapsed."
April 20 - Bloomberg (Simon Kennedy and Sandrine Rastello): "The International
Monetary Fund may be so conscious of having handed out bad advice to needy
countries in the past that it isn't offering them enough guidance now. The ...
lender is combating the worst financial turmoil in its 64-year history with
more than $55 billion in loans for nations from Pakistan to Serbia. As the fund
prepares to lend even more, it is retreating from its practice -- carried out
with adverse effects a decade ago in Asia -- of demanding that governments
overhaul their economic systems in return for aid ... ‘The pendulum may be
swinging too far,' says Claudio Loser, former head of the fund's Western
Hemisphere department and now a fellow at the Inter-American Dialogue ... There
was a strong perception that the IMF used to ask too much of countries. Now
there is a major danger it's moved too far in the direction of not setting
enough conditions.'"
April 24 - Bloomberg (John Detrixhe): "Corporate borrowing costs fell this week
to the lowest since October amid signs that government efforts to repair broken
credit markets are working. The extra yield investors demand to own corporate
debt instead of Treasuries fell to 698 bps as of yesterday from the December
peak of 896 bps, according to Merrill Lynch ... "
Government Finance Bubble Watch
April 22 - Bloomberg (Michael McKee): "Millions of lost jobs mean billions in
lost tax revenue for the U.S. government, and billions in additional Treasury
debt to fund a federal budget deficit that may soar to more than four times
last year's record $454.7 billion ... With spending on unemployment insurance
and other safety- net programs rising, the deficit is already at a record
$956.8 billion six months into the fiscal year."
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