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4 CREDIT BUBBLE
BULLETIN It's all Greek to
me Commentary and weekly watch
by Doug Noland
One-month Treasury bill
rates ended the week at 6 bps and three-month
bills closed at 9 bps. Two-year government yields
were down 3 bps to 0.23%. Five-year T-note yields
ended the week down 4 bps to 0.63%. Ten-year
yields sank 12 bps to 1.63%. Long bond yields
dropped 12 bps to 2.82%. Benchmark Fannie MBS
yields rose two bps to 1.84%. The spread between
benchmark MBS and 10-year Treasury yields widened
14 bps to 21 bps. The implied yield on December
2013 eurodollar futures declined 3 bps to 0.375%.
The two-year dollar swap spread was little changed
at 13 bps, while the 10-year dollar swap spread
jumped 5 to 7 bps. Corporate bond spreads widened.
An index of
investment grade bond
risk rose 3 to 99 bps. An index of junk bond risk
surged 46 to 504 bps.
Debt issuance
remained exceptionally strong. Investment grade
issuers this week included Watson Pharmaceuticals
$2.9bn, NBCUniversal Media $2.0bn, UPS $1.75bn,
Penske $1.5bn, MetLife $1.0bn, Hyundai Capital
$1.0bn, WEA Finance $500 million, and Commonwealth
Edison $350 million.
Junk bond funds saw
outflows of $310 million (from Lipper). Another
long list of junk issuers included Ryerson $900
million, Frontier Communications $850 million,
Regency Energy $700 million, Lender Process
Services $600 million, ADS Waste $550 million,
International Wire Group $500 million, Alpha
Natural Resources $500 million, Sinclair
Television Group $500 million, PDC Energy $500
million, TW Telecom $480 million, Bristow Group
$450 million, Breitburn Energy $450 million, CDRT
$450 million, RBS Citizens Financial Group $350
million, Wolverine World Wide $325 million, Atlas
Pipeline $325 million, Viasat $300 million, Gray
Television $300 million, Ply Gem Industries $160
million, and Casella Waste Systems $125 million.
Convertible debt issuers included GT
Advanced Technologies $205 million.
International dollar bond issuers included
KFW $3.0bn, Serbia $2.0bn, BBVA Bancomer $1.5bn,
Stadshypotek $1.5bn, Network Rail $1.25bn,
Newcrest Finance $1.25bn, Credit Agricole $1.0bn,
Swedbank $1.0bn, Canadian Imperial Bank $1.0bn,
Nufarm Australia $325 million, ENA Norte $600
million, Elan $600 million, Agrium $500 million,
Kommunekredit $500 million, Banco ABC-Brasil $400
million, Agrokor $300 million, Industrial Bank of
Korea $300 million, and Global Bank Corp $200
million.
Spain's 10-year yields jumped 17
bps to 5.87% (up 83bps y-t-d). Italian 10-yr
yields rose 4 bps to 5.07% (down 196bps). German
bund yields dropped 15 bps to 1.44% (down 38bps),
and French yields declined 9 bps to 2.17% (down
97bps). The French to German 10-year bond spread
widened 6 bps to 73 bps. Ten-year Portuguese
yields surged 49 bps to 8.75% (down 403bps). The
new Greek 10-year note yield dropped another 43
bps to 19.04%. U.K. 10-year gilt yields fell 11bps
to 1.72% (down 25bps). Irish yields were 12 bps
higher to 4.89% (down 337bps).
The German
DAX equities index was hit for 3.2% (up 22.3%
y-t-d). Spain's IBEX 35 equities index sank 6.3%
(down 10%), and Italy's FTSE MIB dropped 5.6%
(unchanged). Japanese 10-year "JGB" yields
declined 3 bps to 0.77% (down 22bps). Japan's
Nikkei fell 2.6% (up 4.9%). Emerging markets were
mixed. Brazil's Bovespa equities index dropped
3.5% (up 4.3%), while Mexico's Bolsa gained 1.3%
(up 10.2%). South Korea's Kospi index slipped 0.3%
(up 9.3%). India's Sensex equities index added
0.1% (up 21.4%). China's Shanghai Exchange rallied
2.9% (down 5.2%).
Freddie Mac 30-year
fixed mortgage rates dropped 9 bps to 3.40% (down
61bps y-o-y). Fifteen-year fixed rates declined 4
bps to 2.73% (down 55bps). One-year ARMs were down
a basis point to 2.60% (down 23bps). Bankrate's
survey of jumbo mortgage borrowing costs had 30-yr
fixed rates down 7 bps to 4.08% (down 73bps).
Federal Reserve Credit declined $10.8bn to
$2.797 TN. Fed Credit was down $42bn from a year
ago, or 1.5%. Elsewhere, Fed Foreign Holdings of
Treasury, Agency Debt this past week (ended 9/26)
rose $9.0bn to a record $3.593 TN. "Custody
holdings" were up $173bn y-t-d and $157bn
year-over-year, or 4.6%.
Global central
bank "international reserve assets" (excluding
gold) - as tallied by Bloomberg - were up $422bn
y-o-y, or 4.1% to a record $10.640 TN. Over two
years, reserves were $2.032 TN higher, for 24%
growth.
M2 (narrow) "money" supply
increased $13.8bn to a record $10.138 TN. "Narrow
money" has expanded 7.1% annualized year-to-date
and was up 6.9% from a year ago. For the week,
Currency increased $3.2bn. Demand and Checkable
Deposits sank $47bn, while Savings Deposits surged
$59.4bn. Small Denominated Deposits declined
$2.5bn. Retail Money Funds added about $1.0bn.
Total Money Fund assets rose $8.5bn to
$2.576 TN. Money Fund assets were down $119bn
y-t-d and $58bn over the past year, or down 2.2%
y-o-y.
Total Commercial Paper outstanding
dropped $18.1bn to a nine-week low $990 million CP
was up $31bn y-t-d, while having declined $18bn
from a year ago, or down 1.7%.
Currency
Watch September 27 - Wall Street Journal
(Aaron Back and In-Soo Nam): "Officials from the
central banks of China and South Korea sharply
criticized the US Federal Reserve's latest round
of quantitative easing… and advocated reducing
Asia's dependence on the US dollar. The comments,
aired at a joint seminar in Beijing held by the
two central banks, are the clearest indication yet
of a rising backlash in Asia against US monetary
policy, suggesting it could have the unintended
consequence of accelerating efforts to find
alternatives to the US dollar as the main global
currency. 'The rise in global liquidity could lead
to rapid capital inflows into emerging markets
including South Korea and China and push up global
raw-material prices,' said Bank of Korea Gov. Kim
Choong-soo. 'Therefore, Korea and China need to
make concerted efforts to minimize the negative
spillover effect arising from the monetary
policies of advanced nations.'"
The US
dollar index increased 0.7% to 79.885 (down 0.4%
y-t-d). For the week on the upside, the South
Korean won increased 0.7%, the Japanese yen 0.3%,
the Norwegian krone 0.3% and the Taiwanese dollar
0.1%. For the week on the downside, the euro
declined 0.9%, the Danish krone 0.9%, the
Australian dollar 0.8%, the Swiss franc 0.7%, the
Canadian dollar 0.7%, the South African rand 0.4%,
the British pound 0.4%, the Singapore dollar 0.2%,
the Brazilian real 0.2% and the Swedish krona
0.1%.
Commodities Watch The CRB
index added 0.1% this week (up 1.3% y-t-d). The
Goldman Sachs Commodities Index increased 0.3% (up
3.2%). Spot Gold was little changed at $1,772 (up
13.3%). Silver slipped 0.2% to $34.58 (up 24%).
November Crude declined 70 cents to $92.19 (down
7%). November Gasoline jumped 3.6% (up 10%), and
November Natural Gas jumped 8.1% (up 11%).
December Copper declined 0.8% (up 9%). December
Wheat added 0.6% (up 38%), and December Corn
gained 1.1% (up 17%).
Global Credit
Watch September 26 - Bloomberg (Emma
Ross-Thomas and David Tweed): "Spanish Prime
Minister Mariano Rajoy's dispute with the leader
of his country's richest region became the newest
front in Europe's effort to quell the debt crisis
while tension over street protests escalated in
Madrid. Spanish bond yields rose the most since
Aug. 31 after Catalan President Artur Mas called
early elections. His bid for greater autonomy came
five days after Rajoy rejected his demand for
increased control of the region's revenue. Mas
yesterday set the vote for Nov. 25, saying the
time has come to seek 'self- determination.' Mas's
gambit risks plunging Rajoy into a constitutional
crisis amid a recession that has sent unemployment
to 25%. He's struggling to persuade Spaniards to
accept the deepest austerity measures on record
and stoking frustration in Germany over his
foot-dragging on whether to seek a bailout. As
police clashed with protesters in Madrid
yesterday, Rajoy didn't respond to their demands
or to Mas's defiance. 'It's the very last thing
Rajoy needed right now, and the last thing Europe
needed,' said Ken Dubin, a political scientist who
teaches at Carlos III University ... "
September 25 - Bloomberg (Jana Randow and
Rainer Buergin): "European Central Bank President
Mario Draghi defended his bond-purchase plan and
took a swipe at Germany's Bundesbank, saying
choosing to do nothing would have been dangerous.
'Either you do nothing - nein zu Allem,' or no to
everything, and 'allow the singleness of monetary
policy to be undermined, or you take action,'
Draghi told an audience of German business people
... 'The greatest risk to stability is not action,
it's inaction.' The comments risk widening the
rift between the ECB and the Bundesbank, which
says bond purchases are tantamount to printing
money to finance profligate governments. Draghi on
Aug. 2 named Bundesbank President Jens Weidmann as
the only ECB policy maker to vote against his
bond-buying plan, breaching the established
practice of keeping ECB deliberations
confidential. Since then, Weidmann has sharpened
his criticism of ECB policy, warning that central
bank funding can 'become addictive like a drug'
and eventually hurt the currency through
inflation."
September 25 - Bloomberg
(Angeline Benoit and Ben Sills): "Spain said it
needs to know how much the European Central Bank
intends to spend buying its debt to decide if it
should seek outside help as its borrowing costs
rose at a bill auction in Madrid ... Prime
Minister Mariano Rajoy has held off seeking aid
since ECB President Mario Draghi last month said
he'll buy Spanish debt if Rajoy accepts
conditions. 'There are many fronts we have to
tackle,' Deputy Prime Minister Soraya Saenz de
Santamaria told radio station Cadena Ser ... 'We
need to know to what extent the ECB will intervene
in the secondary market. To take decisions you
need to have all the elements on the table.'"
September 26 - Bloomberg (James G.
Neuger): "European governments are still debating
the role of the planned permanent rescue fund in
recapitalizing banks, the European Commission
said. 'It will be for the member states to come to
an agreement on this future design,' commission
spokesman Olivier Bailly told reporters ... Bailly
said Germany, the Netherlands and Finland made a
'contribution' to the discussions yesterday by
calling for national governments to take care of
'legacy' debts of their banks before they come
under European oversight. 'Some elements" of the
bank-aid system were laid out by euro government
leaders in a June 29 statement and 'the rest is
indeed to be defined,' Bailly said. He called on
the governments to 'implement quickly" those
promises.'"
September 26 - Bloomberg (Jana
Randow and Stefan Riecher): "Bundesbank President
Jens Weidmann rejected European Central Bank
President Mario Draghi's jibe that he says 'no to
everything' on the ECB council. 'This is certainly
not my impression, that I'm saying no to
everything,' Weidmann said ... 'The central bank
has acted in the crisis' and 'taken a lot of
measures to prevent an escalation of the crisis
with the support of the Bundesbank ... I don't
relate this comment to me, despite it being said
in German.'"
September 28 - Dow Jones:
"It's too soon to judge Spain's raft of new
austerity measures announced Thursday in Madrid, a
European Union spokesman said ... 'We will not be
immediately commenting [on the Spanish budget],'
Simon O'Connor, spokesman for EU economics chief
Olli Rehn, told reporters ... 'We will be issuing
our forecasts on November 7 and in that context we
will assess the various budgetary measures in all
member states and in this case, Spain's too,' he
added ... But it will be the assessment of the new
Spanish budget that will determine whether the
country - increasingly under market pressure to
request a sovereign bailout after being granted a
banking-sector rescue package - can meet agree
deficit targets in 2013."
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