Page 1 of 3 CREDIT BUBBLE BULLETIN Just the facts
Weekly watch by Doug Noland
For the week, the S&P500 fell 5.0% (down 2.3% y-t-d), and the Dow lost 3.6%
(down 5.8% y-t-d). Economically sensitive stocks gave back some of their recent
big gains. The Morgan Stanley Cyclicals sank 10.7% (up 8.3%), and the
Transports dropped 8.9% (down 13.7%). The Morgan Stanley Consumer index
declined 3.3% (down 1.5%), and the Utilities sank 5.1% (down 12.4%). The
broader market was in retreat. The S&P 400 Mid-Caps (up 1.4%) and the small
cap Russell 2000 (down 4.7%) each fell 7.0%. The Nasdaq100 declined 2.8% (up
11.8%), and the Morgan Stanley High Tech index lost 2.5% (up 19.9%). The
Semiconductors fell 3.0% (up 14.2%), and the InteractiveWeek Internet index
sank 3.6% (up 30.4%). The Biotechs fell 3.0% (down 4.9%). After last week's
melt-up, the Banks sank 16.2%
(down 17.3%), and the Broker/Dealers fell 9.1% (up 18.4%). Although Bullion
gained another $15, the HUI gold index slipped 0.4% (up 13.1%).
One-month Treasury bill rates ended the week at 11 bps, and three-month bills
closed at 9 bps. Two-year government yields fell 13 bps to 0.79%. Five year
T-note yields fell 15 bps to 1.97%. Ten-year yields dropped 16 bps to 3.13%.
The long-bond saw yields drop 18 bps to 4.08%. The implied yield on 3-month
December '09 Eurodollars fell 15 bps to 0.95%. Benchmark Fannie MBS yields fell
16 bps to 3.96%. The spread between benchmark MBS and 10-year T-notes was
unchanged at 83 bps. Agency 10-yr debt spreads widened 7 to 37 bps. The 2-year
dollar swap spread declined 4.5 to 41.75 bps; the 10-year dollar swap spread
declined 2.5 to 9.25 bps; and the 30-year swap spread increased 0.5 to negative
41.5 bps. Corporate bond spreads were mixed. An index of investment grade bond
spreads widened 13 to 207 bps, while an index of junk spreads narrowed 40 to
953 bps.
Corporate issuance remained exceptionally strong. Investment grade issuers
included Microsoft $3.75 billion, Anheuser-Busch $3.0 billion, American Express
$3.0 billion, JPMorgan Chase $2.5 billion, Wal-Mart $1.0 billion, Allstate $1.0
billion, US Bancorp $1.0 billion, Becton Dickson $750 million, Occidental
Petroleum $750 million, Sempra Energy $750 million, Simon Properties $600
million, Southern Co. $350 million, and San Diego G&E $300 million.
Junk bond funds saw inflows of $885 million this past week (from AMG), the
strongest 4-week flows in six years. Junk issuers included MGM Mirage $1.5
billion, Calpine $1.0 billion, EQT Corp $700 million, Ameristar Casino $500
million, Maritime & Northeast Pipeline $500 million, Ameren $425 million,
Sandbridge Energy $365 million, Range Resources $300 million, Speedway
Motorsports $275 million, Regency Energy $250 million, Linn Energy $250
million, Black Hills $250 million, Wyndham Worldwide $250 million, El Pollo
Loco $132 million, and Rock-Tenn Co. $100 million.
Convert issuance this week included GLG Par trillioners $200 million.
International dollar debt issuers included Lloyds Bank $6.75 billion, Standard
Chartered $1.5 billion, Arcelormittal $2.25 billion, Inter-American Development
Bank $2.0 billion, Fowloon-Canton Railway $750 million, Canadian Pacific
Railroad $350 million and KFW $200 million.
U.K. 10-year gilt yields dropped 19 bps to 3.53%, and German bund yields fell 8
bps to 3.36%. The German DAX equities index dropped 3.6% (down 1.5%). Japanese
10-year "JGB" yields declined 2 bps to 1.42%. The Nikkei 225 declined 1.8% (up
4.6%). Emerging markets held together pretty well. Brazil's benchmark dollar
bond yields rose 5 bps to 6.00%. Brazil's Bovespa equities index dropped 4.6%
(up 30.5% y-t-d). The Mexican Bolsa fell 3.1% (up 4.3% y-t-d). Mexico's 10-year
$ yields increased 4 bps to 5.91%. Russia's RTS equities index was down only
0.6% (up 48.2%). India's Sensex equities index gained 2.5% (up 26.2%). China's
Shanghai Exchange added 0.7% (up 45.3%).
Freddie Mac 30-year fixed mortgage rates increased 2 bps to 4.86% (down 115bps
y-o-y). Fifteen-year fixed rates added one basis point to 4.52% (down 108bps
y-o-y). One-year ARMs dropped 7 bps to 4.71% (down 47bps y-o-y). Bankrate's
survey of jumbo mortgage borrowing costs had 30-yr fixed jumbo rates up 3 bps
to 6.37% (down 68bps y-o-y).
Federal Reserve Credit jumped $75.1 billion last week to $2.116 trillion. Fed
Credit has declined $130 billion y-t-d, although it expanded $1.250 trillion
over the past 52 weeks (144%). Elsewhere, Fed Foreign Holdings of Treasury,
Agency Debt this past week (ended 5/13) surged $23.5 billion to a record $2.684
trillion. "Custody holdings" have been expanding at an 18.2% rate y-t-d, and
were up $405 billion over the past year, or 17.8%.
Bank Credit increased $14.3 billion to $9.797 trillion (week of 5/6). Bank
Credit was up $372 billion year-over-year, or 4.0%. Bank Credit was down $117
billion y-t-d (3.4% annualized). For the week, Securities Credit added $1.9
billion. Loans & Leases rose $12.5 billion to $7.130 trillion (52-wk gain
of $216 billion, or 3.1%). C&I loans declined $3.5 billion, with one-year
growth of 1.6%. Real Estate loans increased $4.0 billion (up 7.4% y-o-y).
Consumer loans slipped $0.9 billion, while Securities loans added $1.5 billion.
Other loans jumped $11.3 billion.
M2 (narrow) "money" supply rose $18.9 billion to $8.304 trillion (week of 5/4).
Narrow "money" has expanded at a 3.8% rate y-t-d and 9.1% over the past year.
For the week, Currency slipped $0.7, while Demand & Checkable Deposits
jumped $32.3 billion. Savings Deposits fell $9.3 billion, and Small Denominated
Deposits declined $3.8 billion. Retail Money Funds added $0.6 billion.
Total Money Market Fund assets (from Invest Co Inst) increased $2.3 billion to
$3.790 trillion. Money fund assets have declined a modest $40.7 billion y-t-d,
or 2.9% annualized. Money funds have expanded $292 billion, or 8.3% over the
past year.
Total Commercial Paper outstanding sank an additional $81.0 billion this past
week to $1.298 trillion. CP has declined $383 billion y-t-d (62% annualized)
and $456 billion over the past year (26%). Asset-backed CP fell $22.3 billion
to $600 billion, with a 52-wk drop of $144 billion (19.4%).
International reserve assets (excluding gold) - as accumulated by Bloomberg's
Alex Tanzi - were down $101 billion y-o-y to $6.689 trillion. Reserves have
declined $257 billion over the past 30 weeks.
Global Credit Market Dislocation Watch
May 15 - Bloomberg (Anna Rascouet): "The cost of borrowing in dollars between
banks fell, capping its biggest weekly decline in four months ... The London
interbank offered rate, or Libor, for such loans, decreased almost two bps to
0.83%... The TED spread, the difference between what banks and the US Treasury
pay to borrow for three months, narrowed to the lowest level since August 2007,
when the credit crisis began."
May 15 - Bloomberg (John Detrixhe and Caroline Salas): "Citigroup Inc. plans to
sell $2 billion of 10-year notes in its first benchmark offering without a US
government guarantee since August, according to a person familiar with the
transaction. The notes, to be sold as soon as today, may price to yield about
562.5 bps more than similar-maturity Treasuries, said the person…"
May 15 - Bloomberg (John Detrixhe): "Microsoft Corp., the world's biggest
software maker, and Wal-Mart Stores Inc. were among companies selling $32.6
billion of debt this week as investors show signs of "pulling back" after a
seven-week credit rally. Wal-Mart, the world's largest retailer, raised $1
billion of notes, and ... Microsoft sold $3.75 billion of bonds in its debut
issue ... Companies sold $29.4 billion of debt without government backing this
week, down ... from $34.7 billion the week before when borrowers raised the
most debt without a sovereign guarantee in a year."
May 15 - Bloomberg (Jeremy R. Cooke): "Municipal bond sales rose to ... $6.8
billion ... The Bond Buyer 20, a weekly index of 20-year general obligation
bond yields, slid to 4.54%, matching the level reached Sept. 11, 2008 ... State
and local government bonds headed for their sixth weekly gain in the past seven
weeks…"
May 11 - Bloomberg (Oshrat Carmiel): "Delinquencies on commercial property
loans soared in the first quarter, as rising vacancies and credit contraction
made loan refinancing difficult, S&P said ... The number of commercial
loans that paid off at maturity in the first quarter decreased to 55%, compared
with 83% in the fourth quarter…"
May 13 - Bloomberg (Eugene Tang): "China Development Bank's sale of 10-year
floating-rate debt for 18 bps less than analysts estimated reflects growing
confidence that the recent round of interest-rate cuts is over, Bank of China
Ltd. said ... The notes were priced to yield 55 bps more than the one-year
benchmark deposit rate, less than the 72.5 bps premium forecast by analysts…"
May 12 - Bloomberg (Svenja O'Donnell): "The U.K.'s housing slump eased in April
and manufacturing shrank at the slowest pace in more than a year, evidence the
recession may be abating."
May 13 - Bloomberg (Tracy Withers): "New Zealand home sales rose in April from
a year earlier, adding to signs that falling interest rates and prices are
helping the property market recover. Sales increased 39.6% to 6,210 last month
from 4,450 in April last year…"
Government Finance Bubble Watch
May 14 - Bloomberg (Scott Lanman): "The size of the Federal Reserve's balance
sheet rose 5.6% over the past week as the central bank bought Treasuries and
mortgage-backed securities to bring down US interest rates ... Mortgage-backed
securities held by the Fed totaled $431.5 billion as of yesterday, up $65.7
billion from the previous week ... Total US Treasury securities owned by the
Fed rose $16.5 billion to $577.1 billion…"
May 15 - Wall Street Journal (Andrew Dowell and Jamie Heller): "The Treasury
Department will make federal bailout funds available to a number of US life
insurers ... The Treasury is prepared to inject up to $22 billion into the
insurers under the rescue plan launched last fall as the Troubled Asset Relief
Program…"
May 11 - Bloomberg (Kevin Hamlin and Rob Delaney): "China's new lending cooled
in April, easing concern that banks are taking on too much risk in a credit
boom after the government dropped restrictions on loans in November. Money
supply rose by a record. Lending was 591.8 billion yuan ($86.7 billion) ... The
number is about a third of the record 1.89 trillion yuan in March.
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