Check out 2y US Treasury Yield (Historical Low since Lehman and due to QE programs)
During the morning markets have been very focused on Portugal. At 3 PM was scheduled to be discussed in the Portuguese parliament the new adjustment plan submitted by the government, so far has been delayed until 6pm Portuguese time, although the new austerity budget is supported by Brussels, it may be rejected by the opposition which could lead to elections since the Prime Minister has threatened that he will resign if that happens.
With this uncertainty in the neighboring country, the market has chosen to sell Portuguese debt; (CDS in Portugal 5yrs break the previous highest and right now is at 539.5) this has extended to other periphery countries.
The domestic market started the day very weak in all references mainly because of this, with higher pressure on the 5 yrs benchmark this boost the yield of Spgb Abr-16 +6bps chg in the day before 10am. In the 10yr reference the spreads vs Germany started to widen massively until midday when it reached the 200bps, this was the turning point where we began to see buyers in Spain. This flow helped the Bonos to close better in the day and recover the losses of the day. Specially in the 10 yrs where 10yrs Spread vs Germany remained flat in the day at 194bps.
I believe that this recovery of Spain is due to two things:
First, people which were short in Spain, had to cover themselves after the delay on the discussion in Portuguese parliament about the measures that Jose Socrates wants to take to reduce the level of deficit in Portugal. Depending on what happens tonight the market will react tomorrow in one way or another.
Second, FED Member Fisher made very bullish comments on Spain, while he affirmed that
“Spain was doing "a very good job" in pushing through economic reforms to restore confidence in its finances” that “Markets are not taking Spanish reform steps sufficiently into consideration” and finally
"I think Spain will surprise people," stressing that it was important to distinguish Spain from other troubled euro zone countries like Greece and Portugal.
Change in yield today were as shown below:
|
| Germany | France | Nether | Austria | Belgium | Finland | Spain | Portugal | Italy | Ireland | Greece |
| 2y | -2.91 | -1.92 | -2.24 | -0.83 | -1.94 | -2.44 | 0.85 | 9.44 | 0.95 | 10.72 | -18.63 |
| 5y | -2.37 | -0.68 | -1.11 | -0.82 | -1.53 | -0.11 | -1.68 | 15.56 | 0.27 | 29.52 | 5.74 |
| 10y | -2.90 | -0.85 | -1.71 | -0.58 | -1.66 | -1.40 | -2.17 | 13.55 | -0.80 | 28.47 | 4.14 |
Incredible moment that we are witnessing these days on the market side.The main focus today was the ECB meeting undoubtedly, leaving aside the auctions in Spain and France which were highly paid.
With the announcement of a rise in interest rates next month, the Bund / Bobl & Schatz fell to the minimum 122.66 / 115.96 / 107.59. At that time the spread of Spain against Germany came to narrow 205 basis points, then went hand in hand with the drop of futures.
However, Spain, Belgium and Italy (Semi-Periphery) underperformed 2/3 less than the rest of EU countries:
-In the 2 yrs: 21bps Germany, Nether 21.4, Austria 19.7, France 19.5, Italy 15.8, Belgium 15.2 and Spain 12.6bps.
-5 yrs: Ger 17.2 / 15.1 NL / FR 15 / AT 15.5 / BG 9.8 / IT 13.3 / SPAIN 8bps only.
-10yrs: GER 10.3 / FR 8.6 / NL 9.5 / AT 10 / BG 5.4 / IT 9.1 / 5.9 SPAIN.
This is flattening all the market (Core, periphery, Swaps, etc)…
Take a look at the German yield curve.
Also, what we are seeing in the past week is a new positive correlation between Spain and Germany, when back in the days; the fall of the Bund used to help narrow the spread between Spain/Germany…Today this fact is less important as the correlation is starting to increase.
Check graph below between the 10 yrs benchmarks Spain/Germany.
Spanish auction went allright, placing €3.8bn (3-4bn target). Good demand and lower yield than previous times.
- The 3.25% Apr'16 was tapped for €2.65bn @ 4.389% (4.542% in Jan), obtaining a b/c of 2.17x times in the auction (2.1x in Jan). Marg rate @ 4.408% (vs 4.59% in Jan). According to my BBG, this reference closed yesterday at 4.40%, 15bp off February's yield highs (2.55% on 14 Feb); it had cheapened this morning 2bp before the auction (4.42%).
- The 4.75% Jul'14 was tapped for €1.15bn @ 3.592%, obtaining a b/c of 3.04x times in the auction. Marg rate @3.609%. This reference had not been tapped since May'09, so comparison with previous auction adds no value. According to my BBG, this reference closed yesterday at 3.63%, 13bp off February's yield highs (3.76% on 14 Feb); it had cheapened this morning 3bp before the auction (3.66%).
On the French very solid auction they delivered €8.9bn (in line with €8-9bn target). Paid above mid market.
-OAT 4.25 10/17: €2.1bn @3.08% average yield
-OAT 4.25 10/18: €1.4bn @3.27% (cheaper than last one @2.92%)
-OAT 2.5 10/20: €3.22bn @3.61% (at same level in last auction)
-OAT 3.5 4/26 €2.11bn @3.97% (last @3.76%)
As it was expected in the ECB meeting, rates remain unchanged for the moment although JCT said that interest rates could be raised at the next policy meeting in April (but not to expect BIG rate move), and Trichet warned on inflation “It is the duty of all central banks, including the ECB, to preserve the solid anchoring of inflation expectations.'' and blames “oil prices shock”.
"Reports from the 12 Federal Reserve districts indicated that the overall economic activity continued to expand at a moderate pace in January and early February," the Fed's Beige Book. Main conclusions are that the economy is slowly growing, improving the retail and manufacturing output without upward pressure on wages, the labor market remains weak and improved housing market. President of NY FED has repeated that rates are likely to stay low for an extend period. This is for sure one of the drivers today in the opening of the Bund which opened with a big gap below yesterday’s closing price.
Also in US employment initial claims have remained at 368.000 (395.000 expected).
Tomorrow very focus in the change of Nonfarm payrolls at 14:30 (Survey 195k).
EUR/USD continues to rises to 1.394 levels (highest in 2011).
I read a very interesting article at the February 22nd Financial Times. Mr. Alan Beattie wrote of how the “…Parties of the centre- left are in retreat. What should have been opportunity to reorder national and global economies seems to have left many ideologically adrift”.
After 2009 net profit it is obvious that Lehman acquisition had a big impact on Barclays´s business. As the CEO said on Tuesday the Deal has been "transformational for the bank" Not only this gave them more diversification (absorbing the loans losses in 2009) but also has made Barclays to become bigger in the US. The perspectives for the equities business of Barclays will arise strong after a 2009 year with most of revenues from fixed income business.
Another great news for Barclays is that they believed their loans-loss charges reached its highest in 2009. "We are past the worst and have now seen a turning point in impairments" the banks’ risk director said.
One of the oldest inventions of the world seems to be one of the pillars on which to support the future of United States economy. Or at least that is the vision that the investment `guru´ Warren Buffet has to make the largest purchase in his career, a $26.3 billion deal to buy Burlington Northern Santa Fe Corp (the largest US railroad operator), he called the acquisition an "all-in wager" on the U.S. economy.
Everybody knows that Mr. Buffet is not a speculator and that he bases his theories in a deep analysis of sectors. That´s why “I´m unsure about the immediate future but an efficient railroad system is vital to U.S. prosperity” Buffet says.
So...what does he see?
As the WSJ mentions in his article (Art.1) “Mr. Buffett is betting that in an era of high fuel costs, railroads will perform better than the trucking industry. More broadly, the investment is a wager on the long-term strength of the U.S. economy as it emerges from a prolonged recession.” This is how Buffett is confident that, after the recession, the world's largest economy will rebuild again and encourage the transportation of commodities and goods within its borders.
What´s behind this purchase?
There are two main reasons, first one is that oil prices will keep increasing and everyone is aware of the shortage of this good. It´s also proven than diesel trains are inherently more efficient than planes, trucks or cars. As we can see in the table below.
Another major reason for this huge investment it’s that the commodities market goes hand by hand with Burlington Northern on the index. We can see in the graph how the shares of Burlington replicate the movement of the commodities.
The coverage on the media about this news was very similar in every newspaper, for the New York Times the story was told in an objective perspective giving support to Buffett´s movement into the railroad industry to carry the U.S. economy “America’s best-known investor, Warren Buffett, is making his biggest bet yet on the nation’s economic future by buying, of all things, a railroad. They also ironically compared the new purchase with his childhood dream to get a train set form his father “His new toy will not come cheap”. Same in the Guardian where they also comment about his new toy “is buying himself an enormous train set by acquiring one of America's largest freight railway operators, Burlington Northern Santa Fe, in a deal worth $44bn (£27bn) that signals confidence in a long-term revival of the US economy.”
Warren Buffett's Legacy
To conclude this last entry it´s amazing how with 79 years and the second largest fortunes in the world, Buffett has no plans to retire, but want to be sure that the business of Berkshire will last for decades after he´s gone. He is betting that any new technology will not outdate the train and I think he may be right.
(Art.1)http://online.wsj.com/article/SB10001424052748703740004574513191915147218.html
(Art.2) http://www.nytimes.com/2009/11/04/business/04deal.html
(Art.3)http://www.guardian.co.uk/business/2009/nov/03/warren-buffett-buys-bnsf-railway
(Art.4)http://www.oilprice.net/en/articles/buffett_buys_railways_because_of_peak_oil.php
