Sorry for the delay folks, just returned form quick trip. For those who enjoy reading some macro mumbo jumbo. Have a great and safe weekend.
: Lousy 7 Year Auction...Biden Stimulus...Awaken Bond Vigilantes to Double Down
We had another lousy 7 year auction , not the disaster of last month, but still not good... We saw massive selling of 10000 Ultra long futures contracts after the auction, which caused another 20000 contracts to be sold... The steepening is starting again... We thought the window to lower rates might have made it into quarter end next Wednesday, but it is not looking good for today... 10 years, are out to 1.67... All 10 years from Treasuries to Bunds to Oats and so on, are back 4 basis points overnight. 30 years in Europe are back 5-6 basis, with the treasury 30 year the better performer, only off 3.8 basis... The vigilantes are back... They are focusing on the 3 trillion Biden stimulus plan that Biden talked about in the press conference yesterday... Some say it was his doubling down of vaccines, we disagree... With 2.5 million vaccinations being done a day, that number will easily be reached... It is the stimulus and the new Yellen mantra as to how it will get paid... Yellen is focusing on the cost of debt payments and not the deficit... Partly the MMT mantra, part the fact that Central Banks are monetizing the debt globally... Either way, more supply is coming... And the Vigilante crowd wants to push rates higher until their is pain in the bond market to deter the fiscal spending... And that is a ways off... Our worry is that the risk premia for bonds will continue and bleed into the corporate credit space.
Overnight equities and bonds were better until about 2.45 am... That is when the Nasdaq futures went south by about 150 points and treasury yields gaped higher... Clearly it started with Asian trading, again waiting until the London crossover... Many expect the Japanese to start buying again when their year end comes to a close next Wednesday... That could happen, but historically the month of April is not a pretty one for bonds... So the jury is out...
Suez Canal and inflation... According to BB the Suez Canal blockage will last until at least Wednesday... And even before this blockage, a 40 foot container cost to ship from China has quadrupled in the last year... These numbers have to make it into the inflation data, even though we do not expect to see it in today's numbers...
Corporates continue to come to market and set records for issuance and demand... We worry that an increase in risk premia for treasuries will start to make it into the credit market and widen spreads dramatically. At this point it is not happening... Another 7 billion came in IG yesterday bringing the week to 40 billion, higher than our expectation... And Junk bond sales set a quarterly record, pushing issuance to 140 billion... 5 companies brought 3.15 billion yesterday... We will continue to focus on credit spreads as that is what Powell focuses on...
Speaking of Powell... We talked with our most senior DC insider yesterday who is always good for insights that we might miss... He points out to us that Powell has shifted his mantra from "whatever it takes" to "as long as it takes"...which is a slight change, which are the crumbs that Fed Chairs give... We see that as Powell's recognition that tapering is coming and that the Fed will not be increasing QE, doing an operation twist, or using any yield curve cap....
: Lousy 7 Year Auction...Biden Stimulus...Awaken Bond Vigilantes to Double Down
We had another lousy 7 year auction , not the disaster of last month, but still not good... We saw massive selling of 10000 Ultra long futures contracts after the auction, which caused another 20000 contracts to be sold... The steepening is starting again... We thought the window to lower rates might have made it into quarter end next Wednesday, but it is not looking good for today... 10 years, are out to 1.67... All 10 years from Treasuries to Bunds to Oats and so on, are back 4 basis points overnight. 30 years in Europe are back 5-6 basis, with the treasury 30 year the better performer, only off 3.8 basis... The vigilantes are back... They are focusing on the 3 trillion Biden stimulus plan that Biden talked about in the press conference yesterday... Some say it was his doubling down of vaccines, we disagree... With 2.5 million vaccinations being done a day, that number will easily be reached... It is the stimulus and the new Yellen mantra as to how it will get paid... Yellen is focusing on the cost of debt payments and not the deficit... Partly the MMT mantra, part the fact that Central Banks are monetizing the debt globally... Either way, more supply is coming... And the Vigilante crowd wants to push rates higher until their is pain in the bond market to deter the fiscal spending... And that is a ways off... Our worry is that the risk premia for bonds will continue and bleed into the corporate credit space.
Overnight equities and bonds were better until about 2.45 am... That is when the Nasdaq futures went south by about 150 points and treasury yields gaped higher... Clearly it started with Asian trading, again waiting until the London crossover... Many expect the Japanese to start buying again when their year end comes to a close next Wednesday... That could happen, but historically the month of April is not a pretty one for bonds... So the jury is out...
Suez Canal and inflation... According to BB the Suez Canal blockage will last until at least Wednesday... And even before this blockage, a 40 foot container cost to ship from China has quadrupled in the last year... These numbers have to make it into the inflation data, even though we do not expect to see it in today's numbers...
Corporates continue to come to market and set records for issuance and demand... We worry that an increase in risk premia for treasuries will start to make it into the credit market and widen spreads dramatically. At this point it is not happening... Another 7 billion came in IG yesterday bringing the week to 40 billion, higher than our expectation... And Junk bond sales set a quarterly record, pushing issuance to 140 billion... 5 companies brought 3.15 billion yesterday... We will continue to focus on credit spreads as that is what Powell focuses on...
Speaking of Powell... We talked with our most senior DC insider yesterday who is always good for insights that we might miss... He points out to us that Powell has shifted his mantra from "whatever it takes" to "as long as it takes"...which is a slight change, which are the crumbs that Fed Chairs give... We see that as Powell's recognition that tapering is coming and that the Fed will not be increasing QE, doing an operation twist, or using any yield curve cap....
