30 August 2011

Who´s right?


Comparing the S&P 500 vs the Yield of the 2year Treasury Note I was wondering...

Who´s right Bonds or the Equities?

I believe, equities are always one step ahead of debt (2y US Treasury at Historical Low) could correct.Check out 2y US Treasury Yield (Historical Low since Lehman and due to QE programs)



23 March 2011

Portugal´s on the spot

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

15 March 2011

Japan? ECB? Bonds?

We do not know if it will be Japan’s earthquake & nuclear panic, the new measures from the ECB or the increase of reliance on bonds, but what it is clear it’s that we are witnessing a great performance during last week. As the change in yield graph below shows (Yellow: Spain, Italy:Blue, Belgium: Purple, France: light blue and Germany in grey. In dots the yields one week ago).

The Spanish downgrade, seems to haven’t affected the Kingdom which continues with a great performance in the last days. Today Spain opened its 10yrs Benchmarks pay 31 cents more expensive than yesterday's close (to 102.20 crossed the first orders in the Spgb 5/05 4/21).
Great Rally today from Germany (The main up performer) which pull the rest of European countries (Apart from Ireland and Greece). Portugal ran 5 bps.

Futures also breaking yesterday´ s closings by 20 ticks.

Incredible moment that we are witnessing these days on the market side.
Have a good one.
BdG

3 March 2011

ECB meeting March 3rd

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).