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Government Bonds \ Corporate Bonds \ CDS Watch

Tadhg Gaelach

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#1
Much as I detest the fact that we are vassals of the Anglo-Zionist Empire, and much as I admire and commend the DPRK for making the tremendous sacrifices needed to stay independent of this Empire of Evil, that sad fact is that we in Ireland are vassals of the empire - indeed, the free state is totally dependent on money laundering for this empire. And as one of the most indebted populations in the world, imperial interest rates have the power to kill us very quickly.

All of that being the case, what happens in the US bond markets is of the highest importance us.


I'd be interested to hear Youngdan's views on the US 10 Year Treasury note. Money has been pouring into these bonds since the start of June - but where is it being taken out of? Doesn't look like it's stocks, as the S&P, Nasdaq etc. have been breaking new highs in that time. Is the smart money getting ready for a pull back in equities? We are certainly due one.

US Generic Govt 10 Year Yield Analysis - USGG10YR
 
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Tadhg Gaelach

Tadhg Gaelach

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#2
NEW YORK (Reuters) - The Federal Reserve's plan for shrinking its massive balance sheet envisions a future with no holdings of mortgage bonds, a prospect that could present a significant headwind for an $8 trillion market the U.S. central bank now dominates.

Mortgages have modestly underperformed a slow-moving bond market this year, and the sector has seen a steady trickle of outflows of investor dollars, but no stampede for the exits. Investors in the sector by and large remain sanguine, and big players are confident the Fed's glacial pace of portfolio normalization - and willingness to resume bond purchases if needed - will limit their downside.


"For now, it simply means that MBS investors should not be concerned about a sudden or drastic change to the Fed's willingness and ability to hold a sizable position of MBS for the foreseeable future and beyond," Walt Schmidt, manager of mortgage research at FTN Financial in Chicago.

Fed officials have signaled they plan soon to begin reducing the bank's $4.24 trillion portfolio of Treasuries and MBS, and market participants expect the process to begin this fall.
Fed officials, including Chair Janet Yellen, have stated a preference for holding only Treasuries in the future, in part to escape criticism that MBS ownership equates to picking winners and losers in markets and the economy.


That means that nearly $1.8 trillion of mortgage bonds, roughly 30 percent of the $6 trillion of securities backed by government-sponsored mortgage companies Fannie Mae, Freddie Mac and Ginnie Mae, could run off the Fed's portfolio over the next decade. It is a delicate maneuver that the Fed intends to ease into at a snail's pace.

Abandoning MBS altogether might send mortgage rates soaring and roil the housing market, a critical plank in the economy. So far, though, plans telegraphed by the Fed have produced no sign of disruption even as mortgage interest rates have edged up.

Mortgage investors unfazed as Fed balance sheet plan looms
 
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Tadhg Gaelach

Tadhg Gaelach

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#3
Bank of Canada’s hawkish shift helps narrow yield gap with U.S. Treasuries


A hawkish shift from the Bank of Canada is fuelling a rout in the country’s short-term bonds, narrowing the yield spread with similar-maturity Treasuries to the lowest level since September, 2016.
The yield on Canada’s two-year government bond has risen 44 basis points since June 12, when central bank officials first signalled plans to tighten policy, while the yield on similar-maturity U.S. Treasuries climbed a mere basis point in the same period.


That shrunk the spread between the two to as little as 15 basis points last week, triggering questions about whether the market hasn’t gone too far in pricing in the optimism over the state of the Canadian economy and too much gloom in its outlook for its southern neighbour.

“While not in any way denying the hawkish aspirations of the Bank of Canada, maybe the Canadian markets are priced for perfection right now,” said Eric Lascelles, chief economist at Canada’s largest fund manager RBC Global Asset Management Inc. “There’s been a lot of very strong data and a very hawkish central bank, and some of that is legitimate, but I would budget for some of that to dwindle away perhaps over the next six months or a year and as such my suspicion is that we could see that spread widening again.”

Canadian bonds extended their sell-off last week after the Bank of Canada raised interest rates, surprising investors with an outlook assuming the country’s output gap will close earlier than previously forecast and calling a recent downturn in inflation “mostly temporary.” While U.S. Federal Reserve chair Janet Yellen stuck to the Fed’s outlook for gradually rising inflation that would support additional hikes in their policy rate, a U.S. consumer price index report on Friday showed continued weak pricing power in June.

Investors are more eager to price in tightening from the Bank of Canada than the Fed, even as the U.S. economy is at a more advanced stage of the economic cycle with lower unemployment, higher inflation and higher wage growth, according to Andrew Kelvin, a senior fixed-income strategist at Toronto-Dominion Bank.

“Markets are either too pessimistic on the Fed, or too optimistic about the Bank of Canada,” Mr. Kelvin wrote in a note on Friday. “And either way, it implies that the front-end of the Canadian curve will outperform versus Treasuries over the medium-term.”

Bank of Canada’s hawkish shift helps narrow yield gap with U.S. Treasuries
 
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#4
Taedgh the buying up in bonds means that investors are expecting interest rates to fall. This means:

a) it will decrease the cost of borrowing therefore there will be more investment in the economy
b) decrease the cost of mortgage repayments which will result in people spending more money on goods and services
c)it will decrease the value of the currency making exports more competitive
d) decrease payments in government debt. This will lead to a decrease in taxes on people.

Therefore lower west interest rates lead to an increase in consumer spending and investment which leads to an an increase in aggregate demand. If aggregate demand increases it will:

a) higher economic growth
b) lower unemployment - if firms are producing more then they need to employ more people

Remember high interest rates led to the property bubble in the States therefore the economic outlook is good
 
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Tadhg Gaelach

Tadhg Gaelach

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#5
Taedgh the buying up in bonds means that investors are expecting interest rates to fall. This means:

a) it will decrease the cost of borrowing therefore there will be more investment in the economy
b) decrease the cost of mortgage repayments which will result in people spending more money on goods and services
c)it will decrease the value of the currency making exports more competitive
d) decrease payments in government debt. This will lead to a decrease in taxes on people.

Therefore lower west interest rates lead to an increase in consumer spending and investment which leads to an an increase in aggregate demand. If aggregate demand increases it will:

a) higher economic growth
b) lower unemployment - if firms are producing more then they need to employ more people

Remember high interest rates led to the property bubble in the States therefore the economic outlook is good

That's wonderful information a chara. I'm certainly glad to have read that. Go raibh maith agat.
 
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Tadhg Gaelach

Tadhg Gaelach

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#6
LONDON (Reuters) - Demand for long-dated bonds and the extra yield they offer has boomed over the past decade in an era of ultra-low interest rates. Yet now, even as central banks tighten policy, investors show little sign of retreating from the riskier debt.

Portugal last week sold 315 million euros ($365 million) of 28-year bonds at yields well below secondary market rates - indicative of strong demand - while Argentina sold $2.75 billion of a 100-year bond last month.

Britain drew record demand from investors at a 40-year gilt sale in May, while the United States is considering issuing ultra-long debt of beyond 30 years for the first time.


Such bullish interest in the longer bonds, which offer both higher risks and returns than shorter debt, appears counter-intuitive at present.

Major central banks, including the U.S. Federal Reserve and the European Central Bank, are looking to end the stimulus programs that have seen them buy up huge quantities of long bonds, and also to raise interest rates - thus undermining big draws for the so-called duration trade.

The reason for the persistently robust demand for long debt, according to some investors, is because inflation - which erodes the value of bonds, with longer dated hardest hit - remains below target in the United States and euro zone.

President Donald Trump's promise of a multi-trillion-dollar spending programs, which had fueled expectations of global "Trumpflation", has failed to materialize amid political deadlock in Washington.
Oil prices, a key driver of inflation, also remain weak.


Duration trades in the long term will also continue to draw support from what fixed-income industry experts describe as a "new paradigm" - where the possibility of structurally low inflation, and a burgeoning pension industry due to an aging Western population, supports demand for long-dated securities.

Jan von Gerich, chief strategist at Nordea bank, reckons average bond duration will continue to rise, noting the impressive demand for long debt at auctions.

"An increasing amount of investors are venturing out further along the curve," von Gerich said. "A swing in bond yields would hurt this but that's likely to be a temporary step back more than anything else at the moment."

Duration is a measure of how long it takes to recoup the original investment in a bond. While it is expressed in years, duration is usually different from the bond's tenor and is a useful gauge to compare debt with different maturities and coupons.

It helps explain why serial defaulter Argentina was able to place a century bond, drawing huge interest. The bond's 7.125 percent coupon means most of the cash flow will come from interest payments, rather than the principal which will be repaid 100 years later.

By that measure, buyers of the Argentine bond will recoup their outlay after just 13 years, investors calculated. That makes the bond attractive compared with Argentina's existing 30-year issue which repays investors after 12 years.

Hawk Talk

For years, longer-dated bonds have been in demand as investors scrambled for the extra yield they provide - Merrill Lynch's index of G7 debt with maturities of over 10 years has returned over 10 percent in the past two years .MERW9G7 versus 1.4 percent gains for its index for 1-5 year bonds .MERWVG7.

Central bank comments over the past three weeks have fanned a view that monetary policy in major economies is at a turning point after years of remaining ultra-loose to shore up growth and inflation in the wake of the financial crisis.

ECB chief Mario Draghi highlighted a recovering euro zone economy in comments that were seen opening the door to policy tweaks, while Bank of England Governor Mark Carney said his central bank was likely to debate a rate rise in coming months.

The Bank of Canada, meanwhile, hiked rates last week for the first time in almost seven years.


This hawkish central bank talk and action seemed to have had only a temporary impact on longer-dated bonds.

Over the past three weeks, the Merrill Lynch long bond index lost as much 2.5 percent in the at period but has recovered more than a quarter of those losses, and now appears to be back on an upward trajectory.

"On one hand you have got central banks telling you they want to ease back on purchases and they have been the largest buyers on that part of the curve," says Hinesh Patel, portfolio manager in the multi-asset team at Old Mutual Global Investments.


"But for the longer term, I really like long duration."

New Paradigm

Patel argues Fed rate rises are likely to further flatten the Treasury yield curve as they did during previous tightening episodes in 1994 and early-2000s. That's because higher interest rates may raise short-dated yields while tame inflation means yields on longer maturities stay stable or fall further.

Full article,


Lure of long bonds to survive end of easy money
 
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Tadhg Gaelach

Tadhg Gaelach

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#8
Thanks to Dublin 4 on the Brendan's Keenan's Bleak Omens for Europe thread for bringing this to our notice.

Hot - Brendan Keenan's "Bleak Omens" for Europe!

High yield bonds are bundles of debt issued by private companies and developing nations that have a tendency to default. They pay a higher yield, i.e. interest rate, to entice investors to take a risk on them. But, because of the central banks buying all the bonds they can lay their hands on as part of their Quantitative Easing programs, the yields \ interest rates on these riskier projects have fallen to the same rate, or less, than what the US government pays on its own ten year treasury bond - which is said to be risk free. The only way it would default is if the USA stopped being the world hegemon - and the US régime has the biggest military in the world to stop that happening. So, we have a situation where high risk debt is being priced as risk free debt - and yet, banks and hedge funds are so desperate to have anywhere to put their money that they will accept this insane deal. The last time this happened was 2008 - and we all know how that turned out.....

Full article,

Euro High-Yield Looks Frothy
 
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Tadhg Gaelach

Tadhg Gaelach

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#9
I see that European banks have poured 1.2 trillion euro into the bonds of overseas governments like Turkey and South Africa, as the European Central Bank bond buying program made it too unprofitable to buy European bonds. The trouble now for these banks is that the euro is increasing in value, while the returns they get on their overseas bonds remains the same. To repatriate their returns to Europe, they have to change the South African Rands, or whatever, back to Euro - which they have to buy at a higher price. That's wiping out their profits. So it looks like no respite for Deutsche Bank et al. The Euro nightmare can only get worse.
 
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