GLOBAL MARKET/OPINION: Multiple weekend wires covering the U.S. Treasury Department's decision Friday to place China, Japan, South Korea, Taiwan and Germany on a currency watch list, "for relying on policies it says threaten to damage the U.S. and the global economy," Saturday's Wall Street Journal reported. Nikkei speculated the "rise in the value of the yen and the fall in Japanese stock prices will accelerate on Monday." Saturday Financial Times wrote the U.S. Treasury warned the group could "faced extra scrutiny and potential retaliation by Washington as a result of concerns over growing imbalances in their trade relationship with the U.S." Under a new currency manipulation law "the US has to launch special currency talks with any country that has bilateral trade surpluses worth more than $20bn, current account surpluses above 3 per cent of GDP, and is making 'repeated' net foreign currency purchases equivalent to more than 2 per cent of GDP in any given year."
US TSYS: One trader said that "month-end was very, very busy" but Monday "will be very quiet, with the May Day" holiday. (The UK and much of Asia will be out). He was "looking forward the reading the Warren Buffet letter, given the Berkshire Hathaway (BRK/A) shareholder meeting this weekend." Fortune magazine said the meeting will be webcast, (streaming on Yahoo (YHOO)) for the first time ever, starting Saturday at 10am ET (9am CT); Warren Buffet and business partner Charlie Munger will talk until 4:30pm ET. Meanwhile, the S Tsy 10-year note in NY action hit a high-yield for the day of 1.872% early on at 8:34 a.m. ET, and hit a low yield for the day of 1.816% at 3:30pm ET.
AUSSIE SUMMARY: *Aussie US Open April 29 $0.7635, O/N $0.7623-0.7669, US $0.7587-0.7648 *Aussie-Yen Open April 29 Y81.76, O/N 81.58-82.52, US 80.82-82.01 *Aussie traded up to the intraday highs at $0.7669 late in the Asian session; Europe pushed prices lower to the overnight lows of $0.7624. *The US session opened trading at $0.7635 and the market traded mostly lower throughout the day making an intraday low at $0.7587 in late afternoon trading. Aussie did not trade with the Dollar like so many other currency pairs today, it traded with risk aversion, I.E. lower. Even with gold making yearly highs, Aussie could not gather itself to rally. *Dollar-Canada was a factor; after the making a triple bottom low at C$1.2499/1.2500 this pair rallied in late afternoon trading to an intraday high of C$1.2587. Support for Aussie is at the $0.7576 April 28 low, followed by the $0.7549 Apr 27 low. Watch, May 2 Aussie AI group manufacturing index, NAB business survey. May 3 RBA rates meeting the market expects the RBS to act after extremely soft CPI number.
US AGENCIES: Fannie Mae (FNMA) today released its monthly summary for March 2016, and among the highlights: Fannie Mae's Book of Business rose at a 1.6% rate in March vs a rise of 0.4% in Feb; the Effective Duration Gap on Fannie Mae's (FNMA) portfolio averaged zero months in March, unchanged since March 2015, per the report; the agency's Gross Mortgage Portfolio fell at a rate of 15.1 percent in March; the Conventional Single-Family Serious Delinquency Rate decreased 8 bps to 1.44% in March; the Multifamily Serious Delinquency Rate fell by 1 bp to 0.06% in March. For more, see: http://www.fanniemae.com/resources/file/ir/pdf/monthly-summary/033116.pdf
US TSYS: Commodity Futures Trading Commission/Commitment of Traders data for the period ending April 26 details: the latest report showed large speculative accounts added net shorts in Fed funds, 2- and 10-year notes and the Ultra-bond (new record) while paring back positions in Eurodollars, 5-year note and the 30-year Bond. In the short end, the group added to net shorts in Fed funds by -11,861 to -104,115 and pared net shorts in Eurodollars by +90,450 to finish -150,334. In notes, the group added net shorts in the 2-year note by -10,959 to -96,084, and pared net shorts in the 5-year note by +12,680 to finish -117,845. The group added net shorts in the 10-year note by -39,496 to finish -63,775. In the long end, the group pared net longs in the 30-year Bond by -4,800 to +48,175, while adding net shorts in the Ultra-bond by -76 to a new record short of -108,793*.
US TSYS SUMMARY: Pt II; 1) Tsys saw more Fri mo-end asset allocation (buy Tsys/vs sell stocks) but much done post-FOMC so earlier in wk 2) Japan Golden Wk starts Fri 3)Jpn's Sumitomo (SSUMF), Dai-Ichi, Nippon lifers to buy more foreign bds in Fyr; Jpn thought to buy US 5Y, 7Y Tsy sale which get paid for Mon 4)Mon:holiday in UK, much of Asia 5) MBS tight 6)Fed did $65.6B 3-day RRP amid mo-end bid; - Treasuries finished Friday 3pm ET vs Thursday 3pm ET: - The 2-year ended at 0.774% (99-30+) from 0.789% (99-29+) - The 3-year ended at 0.921% (99-276) from 0.939% (99-26) - The 5-year ended at 1.279% (100-146) from 1.301% (100-11+) - The 7-year ended at 1.599% (100-05+) from 1.613% (99-08+) - The 10-year ended at 1.817% (98-09) from 1.837% (98-03+) - The 30-year ended at 2.662% (96-21+) from 2.692% (96-02+) - The 2/5-year curve flattened to +50.5 bps from +51.2 bps - The 2/10-year curve flattened to +104.3 bps from +104.8 bps - The 2/30-year curve flattened to +188.8 bps from +190.3 bps - The 5/30-year curve flattened to +138.3 bps from +139.1 bps
US PIPELINE: A total $2.75Bn of new investment-grade corporate bonds priced (*) today on the docket: - $1.25B *FMCC (Baa2/BBB) 3Y fxd T+110 BNP/CS/DB/MIZ/MS/SMBC $1.0B *FMCC (Baa2/BBB) 7Y T+150 BNP/CS/DB/MIZ/MS/SMBC Ford Motor Credit Co $500M *Texas Instruments (TXN) (A1/A+) 6Y T+60 BAML/BAR/MIZ Sr unsec
EURO SUMMARY: *Euro US Open April 29 $1.1397, O/N $1.1348-1.1414, US $1.1382-1.1459 *The Euro traded at the intraday lows,$1.1348, early in the Asian session; Europe pushed prices up to the overnight highs of $1.1414. *The US market opened trading at $1.1397; the market traded higher, eventually making the intraday highs at $1.1459 by 11:20 AM. Today's high stopped just short of the $1.1465, April 12 yearly high. A daily close above that level and the market should push prices higher to the Oct15, 2015 highs of $1.1495. $1.1714 is the Aug24, 2015 high and the objective for this move. Cable was a factor today, as the Dollar got hit almost across the board today. This pair traded higher from the Asian lows of $1.4577 to make an intraday high of $1.4670, breaking the $1.4668 high made on Feb 4. The yearly high is $1.4816, made on Jan 4. *The weak Dollar carried over to gold as well; the metal has gained 4.5% against the Dollar in the last two trading days ($1,237-$1,298)to make new yearly highs. Watch, May 2 EU Markit Manu PMI, Draghi keynote Fft. conf. Last Euro $1.1450.
US TSYS SUMMARY: Treasuries end Fri higher after 1)Month-end index- tied duration buys in long end Tsys and also anticipatory buying too; 2) Futures sees brisk buying post-close: 4,000 contract bought at 109-10.25, June 5Y, June 10Y buying too in smaller 1,000-lots; 3) Tsys began NY lower with US$ weaker, global stocks down as Jpn closed for first day of Golden Week tho FX mkts still running; US$/yen now at Y106.725 by 3:12pm ET, vs. o/night range of Y108.20-Y106.91 3) Gold had large stop loss buying overnight partly on strong JPY; 4) Tsys saw early mixed flows: light sales as Dallas Fed Kaplan said if better data, would back rate hike; 5) Tsys then digests 0.4% Mar personal income, 0.1% nominal PCE, 0.6% 1Q employment cost index; 6) Stocks weak, S&P 500 -1.02% at 3:11pm ET (but European stocks much weaker;) &) Eurodollar futures: limited flows, 2way chop: better sellers, short end buyers add to late morning bear steepeners (buyer of 6,000 EDU'16 at 99.21, buyer of 2,000 EDZ'16 at 99.13); 7) Tsys then gained on softer MNI Chic Report, BBG/Michigan consumer sentiment, weak revised March retl sales 8)Back end Tsys/vs sales in intermeds, late morning profit- tkng outright and steepeners, lg end bid (More)
US TSY FUTURES CLOSE: Tsys closed higher amid flight to quality and month end demand for the bulk of the day. Jun Ultra bonds closed up 29/32 at 171-11 with 84K traded Jun 30Y bonds were better by 18/32 at 163-10 with 254K traded Jun 10Y notes were higher by 3.5/32 at 130-02 with 1.3M traded Jun 5Y note were higher by 3/32 at 120-29.25 with 621K traded Jun 2Y note were up 1/32 at 109-10 with 229K changing hands.
US TSYS/RESEARCH: And the Citi analysts said on the FDIC NSFR proposed rule, that it means that "each funding source is assigned ASF weights ranging from 0% to 100%, with increasing reliability/stability," as "stable retail deposits have an ASF weight of 95% whereas less-stable operational deposits get 50%. On the denominator side (RSF amount), each of a banks' assets that could be illiquid over a one year period are also given a RSF weight from 0% to 100% with decreasing liquidity." They add that US Treasury bonds "would get 5%, while wholesale lending that matures 6m-1y would receive 50% RSF weights." They add banks under NSFR "(with more than $250bn in assets) wld be required to keep the ratio (ASF amount/ RSF amount) above 1 on an ongoing basis from the beginning of 2018." They said the NSFR rule "is designed to reduce maturity transformation risks and curtail banks' reliance on short-term funding."
US TSYS/RESEARCH: Citi analysts eyed FDIC's NSFR (Net Stable Funding Ratio) rolled out by FDIC Tues, which Fed will meet to discuss Tues May 3; OCC and Fed approvals are needed for its adoption. The NSFR "captures the ratio of a reliable funding source (available stable funding amount, or ASF) to banks' assets that are deemed less liquid over a one year horizon (required stable funding amount, or RSF)," they said. They said that the "implication of the rule for the short-term investor, is that the stock of shorter-term financing instruments could decrease as banks seek longer-term funding."
OUTLOOK: DB "are not in the camp expecting an aggressive easing of either monetary or fiscal policy in emerging Asia. Weighing downside risks to growth against upside risks to inflation from commodity prices and Fed rate hikes (and therefore a stronger dollar) central banks seem constrained."
US PIPELINE: A total $2.75Bn of new investment-grade corporate bonds launched (#) or priced (*) today on the docket: - $500M *Texas Instruments (TXN) (A1/A+) 6Y T+60 BAML/BAR/MIZ Sr unsec $1.25B #FMCC (Baa2/BBB) 3Y fxd T+110 BNP/CS/DB/MIZ/MS/SMBC $1.0B #FMCC (Baa2/BBB) 7Y T+150 BNP/CS/DB/MIZ/MS/SMBC Ford Motor Credit Co
US TSYS/RESEARCH: Citi analyst Steve Kang added overnight Treasury tri-party and interdealer repo rates "also remained low this week, staying just 2bp and 9bp over RRP rates before month-end." He adds the "move lower last week was likely a result of GSE cash coming into the repo market. Typically, this temporary dip in repo rates alleviates around the 24-25th as excess cash leaves the market around then" but "repo rates fell further since, signaling that there are other forces in play." He cited the "large cash inflows arriving to the market due to large T-bill redemptions" as "this year's issuance was larger than usual, as the Treasury cut coupon issuances in February to make way for T-bills. Given that buy-and-hold short-end investors are facing lower yields now than at issuance, rolling over maturing T-bills would look unattractive," which "would push investors to use alternative short-end vehicles such as repos." He added tighter repo rates occur as there is less Treasuries "collateral availability" due to "particularly large paydowns this month. This April, we saw net paydown of -$92bn for bills and -$7bn for coupons, much larger than recent averages)."
US TSYS/RESEARCH: Citi analyst Steve Kang said that "large cash inflows from T-bill redemptions, less collateral stocks and a lack of better investible alternatives are likely to keep repo rates low over the next month."
US OUTLOOK/OPINION: DB says Q2 GDP rebound could disappoint, GDP is "softer than its post-recession trend." And retail accounts for 30% of job growth last qtr, while temps (a leading indicator) are -52k.
US TSYS: Treasuries improve amid late month-end buying, 10-year note is at 1.835%, 2-year note is at 0.782%. Next week, UK markets will be out Monday and so will much of Asia, with Japan Golden Week ongoing. Next Monday will also be the auction settlement for the 2Y, 5Y, 7Y auctions this week and for the 2Y FRN auction also.
OUTLOOK: Global Cal for Mon (GMT/ET) - 02-May 2330/0930 ** AU AI Group manufacturing index 02-May 0100/1100 ** AU Melbourne Institute monthly inflation gauge 02-May 0130/1130 ** AU NAB business survey 02-May 0630/1630 * AU RBA index of commodity prices 02-May 0700/0900 * FR car registrations 02-May 0715/0915 ** CH retail sales 02-May 0715/0315 ** ES Markit Manufacturing PMI (f) 02-May 0745/0945 ** IT Markit Manufacturing PMI (f) 02-May 0750/0950 ** FR Markit Manufacturing PMI (f) 02-May 0755/0955 ** DE Markit Manufacturing PMI (f) 02-May 0800/1000 ** EU Markit Manufacturing PMI (f) 02-May 0800/1000 * DE VDMA machine orders 02-May 0830/0930 ** UK Markit/CIPS Manufacturing PMI 02-May 1400/1600 EU ECB Pres Draghi keynote Fft conf 02-May 1630/1830 CH SNB Gov Jordan speech at the Europe Forum
US TSYS SUMMARY: Treasuries traded mixed midday Friday amid 1) Muted month-end trading, some long end buying on final day; 2) Treasuries early on saw mixed flows: some early light sales as Dallas Fed Kaplan said if better data, would back a rate hike; 3) Then Tsys digested the 0.4% March personal income, 0.1% nominal PCE and 0.6% 1Q Employment cost index; 4) US stocks weaker, but not as weak as the 1%-3%+ slides in European stocks indexes on the day; 5) Eurodollar futures saw limited flows, 2way chop with better sellers,m short end buyers adding to late morning bear steepeners (buyer of 6,000 EDU'16 at 99.21, buyer of 2,000 EDZ'16 at 99.13); 6) Tsys gained on softer MNI Chicago Report, BBG/Michigan consumer sentiment, weak March retail sales report revision; 7) Also dip buying, and buying in back end Tsys/vs. selling in Tsy intermeds 8)Tsys saw late morning profit-taking, and profit-taking on curve steepeners amid long end bid into month end; 9) MBS saw tightening in quiet 2-way flows 10)Fed did $65.6B 3-day reverse repo, 0.25%, 47 bids taken; was a month end flurry of interest
US PIPELINE: Sales of new investment-grade, US dollar debt again surpassed estimates this past week, amid higher prices of oil and other global commodities, still ultra-low US interest rates and supportive central bank policies. A total $27Bn billion of fresh, high-grade corporate, financial, supra and sovereign bonds priced, exceeding expectations for $20Bn, and about on par with last week's $28.30Bn tally. Issuers from the Financials and Energy sectors dominated supply, including deals from Citigroup (C), BoNY Mellon, Sinopec and BP Capital Markets. While industry sectors were somewhat more diverse than last week, credit quality selection was far more concentrated. Double-'A' rated offerings rose to 18.52% from just 1.35% last week, 'A'-rated sales increased to nearly 31.0% from 13.23%, and triple-B' rated deals climbed to 35.37% of issuance from 8.50% w/w. Floating-rate notes were also absent after 19.96% of total issuance priced last week. The plunge in FRNs this past week suggested waning optimism among bond investors that the FOMC will hike rates at its next meeting in June. Both Ford Motor Credit Co. and BP Capital Markets dropped their announced 3-year FRNs after sizing and launching their deals.
US TSYS: CRT "are holding to a bullish bias even with full cognizance that the week ahead is filled with proverbial land mines of data, Fedspeak, the Refunding announcement, what we hear is a wide corporate pipeline, and the simple fact that you've got various holidays for overseas players to constrain and restrict trading activity."
US OUTLOOK/OPINION: SocGen "continue to expect just one rate hike this year, in the second half, as the hurdle for June is still quite high ahead of the UK referendum. Recent improvements in China have reduced some of the downside risks. But the sustainability of this equilibrium will be a key determinant of policy actions. We expect 10y treasury yields to remain in the 1.60-1.90% range and the curve to continue to bear-steepen/bull-flatten, as the front end is likely to remain pegged."
US PIPELINE: A total $2.75Bn of new investment-grade corporate bonds launched (#) today on the docket: - $1.25B #FMCC (Baa2/BBB) 3Y fxd T+110 BNP/CS/DB/MIZ/MS/SMBC $1.0B #FMCC (Baa2/BBB) 7Y T+150 BNP/CS/DB/MIZ/MS/SMBC Ford Motor Credit Co $500M #Texas Instruments (A1/A+) 6Y T+60 BAML/BAR/MIZ Sr unsec
US TSYS: While prices off the best levels, market remains well bid and stocks continue under pressure. He says much of focus in last two days has been on month-end allocations and that has been evident in better Tsy prices and weaker stocks. That said, he notes that flows continue on the thin side as many retail accounts are sidelined. "Because of that, prices get exaggerated" in both directions, he said. "It is so thin, the market moves in a vacuum."
US TSYS: For all the gyrations on the day, interesting to note that prices are only slightly higher across the curve from the 3PM settles yesterday. 5Y note is best performer with yield lower by 1 bps on day. Range has been between 1.29% to 1.33%. Curves steeper on the day which is exactly what occurred yesterday and some continue to wonder why. Heavy buying yesterday was mostly due to surprise BOJ move. Today focus is more on month-end but the curve is still in steepening mode for the time being.
EGB SUMMARY: German government bonds are set to close lower Friday, with the belly of the yield curve underperforming, weighed by upcoming Euro gov supply. - German 2s/10s 0.7bp steeper, 10s/30s 1bp flatter, 10Y 2.5bp higher at 0.281% - June Bund future opened moderately higher. A surprise contraction in German March retail sales was offset up a larger than expected rise in French Q1 GDP. - Bunds reversed gains but saw short-covering ahead of Eurozone flash Apr HICP, Q1 GDP & unemployment data, with analysts seeing downside risk to HICP. - Eurozone flash CPI dropped to -0.2% y/y, however there was little reaction to Bunds as flash Q1 GDP data came in above expectations at +0.6% q/q and unemployment in March fell to 10.2%, near five-year low. - June bunds dropped back into negative territory once again, in light trade with many accounts seen positioned ahead of month-end and long bank holiday weekend in the UK. Further downside move in bunds was seen with traders citing Spanish supply announcement, where market "was caught off-guard" by inclusion of the 4.90% Jul 2040 Obli tap. This on top of French long-term OAT on Wed. - Newswires reports of official downside revision to German HICP adds late bid.
US TSYS: Price action has been extremely choppy from the get go with Tokyo close, holiday on Monday in Europe, Golden Week next week and a slew of US data today. Month end the prime issue right now and flows have clearly been two-way. 10Y note was around 1.84% on the cross to US trading, got to 1.87% after the 8:30am data, got to a low yield of 1.839% after the CAPM/UOM data. It then slipped back to 1.86% and is now taking another run to the 1.84%. Flows obviously coming in on an "as needed basis" as opposed to a unified theme.
US TSYS/RESEARCH: JPM analysts add "medium-term fiscal picture suggests Treasury can refrain from making further cuts to note and bond auction sizes for a few reasons" since "after running a $461bn deficit through the first six months of FY16, we think the federal government is on track for a $534bn deficit in the current fiscal year and a $550bn deficit in FY17," which would be "the first increase in the annual deficit since FY11." They add given that and "assuming the Fed continues to reinvest maturities in its SOMA portfolio, we find that Treasury would be underfunded by more than $200bn under the current auction schedule in FY17, excluding net bill issuance. Therefore, given this backdrop, we do not think Treasury needs to announce any further cuts to auction sizes at this time." They add "the current environment does not suggest there is a supply/demand gap in short-term assets that needs to be addressed imminently. Treasury has clearly telegraphed that it wants to increase Treasury bill issuance, and it has already increased the stock of outstanding T-bills by $192bn in FY16."
US TSYS/RESEARCH: JPM analysts noted the US Treasury will announce its quarterly financing estimates on Monday and the quarterly refunding auctions on Wednesday morning. "We expect net marketable borrowing needs of $21bn and $134bn in FY 3Q16 and 4Q16, respectively," they said. "Furthermore, we expect Treasury to make no changes to auction sizes on Wednesday, announcing $24bn 3-year notes, $23bn 10-year notes, and $15bn 30-year bonds for auction the following week." They reminded readers that at February refunding announcement, "Treasury cut monthly 5-, 7-, 10-, and 30-year nominal issue sizes by $1bn and cut TIPS auction sizes by $2bn through the end of the year, in part to accommodate increased T-bill issuance."
US DATA REACT: HFE says "The very volatile Chicago PMI fell to 50.4 in Apr from 53.6, below the 52.6 consensus." Regional data are more down than up, "we will likely forecast a small decline in the ISM index in April after it rose a sizable 2.3 points to 51.8."
US DATA REACT: Pantheon Macroecon says still hopes mfg ISM will rise in Apr. "We can't find any consistent evidence that Easter distortions depress the April Chicago PMI, but it is possible that seasonal adjustment problems explain some of this dip."
US TSYS: The cash 10-year note has held 97-29/32 support, now at 98-01+/32 price, which is well under the 98-06/32 resistance, said Odeon Capital's John Spinello. meanwhile the 2-year now is at 99-292/32, holding support at 99-28 and just under resistance at 99-30+. The 5-year now is at 100-10, near restance of 100-14-3/4, he said.
US TSYS: Treasuries march higher after softer MNI Chicago report, BBG/Michigan consumer sentiment and weaker March retail sales report revision. Tsys see saw dip buying on declines in 10Y, 30Y issues, and then also buying in the back end Tsys/vs. selling in US intermediates. US stocks indexes are midly weaker, while European stocks indexes hold much heavier losses; Euro-Stoxx off -2.63%, FTSE-100 off 1.03%. The TIPS had seen mild weakness in 5Y, 10Y and otherwise fairly steady action.
US TSYS/STOCKS: Wells Fargo (WFC) senior strategists Boris Rjavinski and Michael Schumacher eyed "modest month-end pension rebalancing" that could entail "selling in equities, buying of bonds." They expected "modest, but not insignificant, month-end pension rebalancing. Major domestic and international equity indices have clocked positive returns month-to-date, ranging from about 1% for EM to 3.3% for domestic small cap" (as of end-of-day Tuesday). "In the bond land, the negative effect of rising Treasury yields has overpowered positive contribution from tighter credit spreads in April, leading broad domestic bond indices to a negative return of about -0.2% at the moment," they said. So their model "estimates pension rebalancing needs of about $6 billion outflows from stocks versus roughly $5 billion inflows in bonds," they said. And they specifically said that "domestic large cap, small cap and international developed pension portfolios may generate about $2Bln of selling each. The $5 billion of rebalancing-related buying on the fixed income side may initially focus on Treasury futures contracts."
In general the bond market is volatile, and fixed income securities carry interest rate risk. (As interest rates rise, bond prices usually fall, and vice versa. This effect is usually more pronounced for longer-term securities.) Fixed income securities also carry inflation risk and credit and default risks for both issuers and counterparties. Unlike individual bonds, most bond funds do not have a maturity date, so avoiding losses caused by price volatility by holding them until maturity is not possible.
Lower-quality debt securities generally offer higher yields, but also involve greater risk of default or price changes due to potential changes in the credit quality of the issuer. Any fixed income security sold or redeemed prior to maturity may be subject to loss.
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