Page 1 of 3 CREDIT BUBBLE BULLETIN Just the facts
Commentary and weekly watch by Doug Noland
WEEKLY WATCH
For the week, the S&P500 gained 2.3% (up 21.1% y-t-d), and the Dow
increased 2.5% (up 17.0% y-t-d). The Morgan Stanley Cyclicals surged 4.7% (up
65.1%), and Transports increased 2.8% (up 12.0%). The Morgan Stanley Consumer
index gained 2.7% (up 21.3%), and the Utilities added 1.0% (down 1.4%). The
Banks increased 0.7% (down 2.7%), and the Broker/Dealers rallied 2.6% (up
51.9%). The S&P 400 Mid-Caps rallied 2.5% (up 29.7%), and the small cap
Russell 2000 increased 1.0% (up 17.4%). The Nasdaq100 jumped 3.3% (up 47.6%),
and the Morgan Stanley High Tech index gained 3.7% (up 62.4%). The
Semiconductors surged 5.2% (up 49.6%). The InteractiveWeek Internet index rose
3.1% (up 69.2%). The Biotechs were little changed (up 37.7%). With bullion
jumping $24, the HUI gold index rose 4.1% (up 52.3%).
One-month Treasury bill rates ended the week at 5 bps, and three-month bills
closed at 6 bps. Two-year government yields
declined 4 bps to 0.81%. Five-year T-note yields fell 4 bps to 2.25%. Ten-year
yields were 8 bps lower to 3.42%. Long bond yields declined 4 bps to 4.36%.
Benchmark Fannie MBS yields sank 16 bps to 4.13%. The spread between 10-year
Treasuries and benchmark MBS yields narrowed 8 to 71 bps. The implied yield on
December 2010 eurodollar futures dropped 8 bps to 1.355%. The 10-year dollar
swap spread declined 4.25 to 11.5 bps; and the 30-year swap spread declined
3.25 to negative 13.5 bps. Corporate bond spreads were mostly narrower. An
index of investment grade bond spreads narrowed 2 bps to 148, and an index of
junk spreads narrowed 4 bps to 565 bps.
Investment grade issuers included Cisco Systems $5.0bn, GE Capital $1.5bn,
Lockheed Zimmer $1.0bn, Massachusetts Electric $800 million, Quest Diagnostic
$750 million, Emerson Electric $600 million, Waste Management $600 million,
PG&E $550 million, Raytheon $500 million, Praxair $400 million, NSTAR $350
million, Revlon $330 million, CNA Financial $350 million, HCC Insurance $300
million, Northern States Power $300 million, Cleco Power $295 million, Enogex
$250 million, Public Service Oklahoma $250 million, and Amerenenergy $250
million.
Junk bond funds saw inflows of $ million this week. Junk issuers included
Capital One $1.0bn, Toys R Us $725 million, Discover Bank $700 million, United
Rental $500 million, Pioneer Natural Resources $450 million, Entergy Louisiana
$400 million, Antero Resources $375 million, Belo Corp $275 million, Swift
Energy $225 million, Viasystems $220 million, and Triumph Group $175 million.
I saw no convert issues this week.
International dollar-denominated debt issuers included Ontario $4.0bn, CBQ
Finance $1.6bn, Eksportfinans $1.5bn, Inmarsat $650 million, Commercial Bank
Qatar $600 million, Transalta $500 million, and Banco Santander $500 million.
U.K. 10-year gilt yields fell 9 bps to 3.79%, and German bund yields rose 2 bps
to 3.38%. The German DAX equities index jumped 3.6% (up 18.2% y-t-d). Japanese
10-year "JGB" yields sank 11 bps to 1.34%. The Nikkei 225 slipped 0.2% (up
10.3%). Emerging markets were higher. Brazil's Bovespa equities index rose 1.3%
(up 74.0%), and Mexico's Bolsa jumped 3.8% (up 38.5%). Russia's RTS equities
index increased 0.8% (up 124.6%). India's Sensex equities index surged 4.3% (up
74.6%). China's Shanghai Exchange added 0.7%, boosting 2009 gains to 75.1%.
Brazil's benchmark dollar bond yields dropped 18 bps to 5.07%, and Mexico's
benchmark bond yields fell 18 bps to 5.20%.
Freddie Mac 30-year fixed mortgage rates dropped 7 bps to a 5-wk low 4.91%
(down 123bps y-o-y). Fifteen-year fixed rates declined 4 bps to 4.36% (down
145bps y-o-y). One-year ARMs dipped one basis point to 4.46% (down 87bps
y-o-y). Bankrate's survey of jumbo mortgage borrowing costs had 30-yr fixed
jumbo rates down 19 bps to 5.91% (down 159bps y-o-y).
Federal Reserve Credit declined $33.2bn last week to $2.116 TN. Fed Credit has
declined $131bn y-t-d and $82.5bn over the past 52 weeks. Elsewhere, Fed
Foreign Holdings of Treasury, Agency Debt this past week (ended 11/11)
increased $6.9bn to a record $2.917 TN. "Custody holdings" have expanded at an
18.4% rate y-t-d, and were up $409bn over the past year, or 16.3%.
M2 (narrow) "money" supply declined $6.5bn to $8.387 TN (week of 11/2). Narrow
"money" has expanded at a 2.8% rate y-t-d and 5.7% over the past year. For the
week, Currency slipped $0.5bn, while Demand & Checkable Deposits surged
$28.4bn. Savings Deposits dropped $22.1bn, and Small Denominated Deposits
declined $8.0bn. Retail Money Funds fell $4.3bn.
Total Money Market Fund assets (from Invest Co Inst) slipped $3.8bn to $3.335
TN. Money fund assets have declined $495bn y-t-d, or 14.9% annualized. Money
funds declined $302bn, or 8.3%, over the past year.
Total Commercial Paper outstanding slumped $76.7bn (13-wk gain of $164bn) to
$1.239 TN. CP has declined $443bn y-t-d (30.4% annualized) and $364bn over the
past year (22.7%). Asset-backed CP declined $4.7bn last week to $510bn, with a
52-wk drop of $231bn (31.2%).
International reserve assets (excluding gold) - as accumulated by Bloomberg's
Alex Tanzi - were up $749bn y-o-y to a record $7.517 TN. Reserves have
increased $752bn year-to-date.
Global Credit Market Watch
November 13 - Bloomberg (William Selway): "US state and local governments sold
$9.5 billion of bonds this week, led by California, as demand from investors
allowed Connecticut to almost double the size of its offering of tax-exempt
securities."
November 10 - Bloomberg (Laura Cochrane and Esteban Duarte): "Islamic bond
issues surged this year as offerings from governments and state-related
companies fostered a more efficient market, according to Moody's… Global sales
of so-called sukuk that comply with Islamic religious laws increased 40% in the
10 months to October ... Moody's ... Faisal Hijazi ... wrote…"
November 9 - Bloomberg (John Fraher and Shobhana Chandra): "The International
Monetary Fund signalled record low US interest rates are funding global 'carry
trades' and the dollar is still overvalued as concerns mount that new financial
imbalances are forming. 'There are indications that the US dollar is now
serving as the funding currency for carry trades,' the IMF said ... 'These
trades may be contributing to upward pressure on the euro and some
emerging-economy currencies.'"
November 11 - Bloomberg (Scott Lanman and Craig Torres): "The Federal Reserve
faces the biggest blows to its authority and independence in five decades under
legislation championed by its lead overseer in the US Senate. The
financial-regulation overhaul proposed yesterday by Senator Christopher Dodd
would strip the Fed of its role as a bank supervisor and give Congress a
greater voice in naming the officials who set interest rates. The measure opens
the door to interference from politicians who might disagree with any move by
the Fed to raise rates from record lows, former central bank officials said."
November 12 - Bloomberg (Alison Vekshin and Robert Schmidt): "Seven Wall Street
lobbyists trooped to Capitol Hill on Nov. 9, hoping to convince Representative
Paul Kanjorski's staff that his plan to dismantle large financial firms was a
bad idea. They walked out with a sobering conclusion, according to the accounts
of two attendees who requested anonymity because the meeting was private. Not
only was Kanjorski serious, he planned to offer the legislation as early as
next week - and it just might pass."
Global Government Finance Bubble Watch
November 12 - Bloomberg (Mike Gavin): "Germany's budget deficit will reach 5.1%
of gross domestic product in 2010, from 3% this year, according to a forecast
by the government's council of economic advisors…"
November 12 - Bloomberg (Dara Doyle and Ian Guider): "The biggest financial
gamble in modern Irish history is about to exit the realms of theory and enter
the real world. Lawmakers will today pass a bill creating a so-called bad bank
that will pay the country's biggest banks 54 billion euros ($81 billion), or
about a third of gross domestic product, for property loans to free up lending
... Real-estate prices have on average dropped 50% since peaking in 2007…"
Currency Watch
November 13 - Bloomberg (Oliver Biggadike and Matthew Brown): "Brazil, South
Korea, Russia and other developing nations are fighting a losing battle to mute
gains in their currencies as a falling dollar and economic recovery create more
demand for their assets than central banks can handle. South Korea Deputy
Finance Minister Shin Je Yoon said ... the country will leave the level of its
currency to market forces after adding about $63 billion to its foreign
exchange reserves this year ... Chile Finance Minister Andres Velasco said ...
that lawmakers approved an increase in local debt sales to finance spending, a
move that will allow the government to keep more of its dollar-based savings
overseas and slow the peso's rally. Governments are amassing record
foreign-exchange reserves as they direct central banks to buy dollars in an
attempt to stem the greenback's slide…"
November 10 - Bloomberg: "China, rejecting calls from Europe and Japan, will
keep the yuan from gaining against the dollar until exports revive, state
researchers said. Policy makers are unlikely to allow the currency to resume
its appreciation this year after keeping it almost unchanged since July 2008
... Zhu Baoliang, the chief economist at the State Information Center, said ...
China will stick with its 'tough stance' on the currency, Zhang Ming, a
researcher at the Chinese Academy of Social Sciences, said…"
November 11 - Bloomberg (Rebecca Christie): "US Treasury Secretary Timothy
Geithner said a strong dollar is in the nation's interest and the government
recognizes the importance it plays in the global financial system. 'I believe
deeply that it's very important to the United States, to the economic health of
the United States, that we maintain a strong dollar,' Geithner told reporters…"
The dollar index declined 0.7% to 75.25. For the week on the upside, the
Mexican peso increased 2.8%, the New Zealand dollar 2.5%, the Canadian dollar
2.3%, the Swedish krona 2.2%, the South African rand 1.6%, the Australian
dollar 1.5%, the Norwegian krone 1.4%, and the Taiwanese dollar 0.9%. On the
downside, the Brazilian real declined 0.1%.
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