It is easy to get carried away with modern finance, diving into the immense flourishing of finance that has taken place. Conceptions have become far more complex, sometimes unnecessarily so, leading to impairments in distinguishing forest and trees. In credit markets, we focus narrowly on spreads and curves because that is where the “action” seemingly takes place. That leaves observation [...]
I have already written enough on a Friday before a long weekend about the growing pessimism in credit, but it bears reinforcing that such removal of central bank faith is not limited to Europe and Japan. US credit markets and dollar systems are equally partaking in the speed and depth of the bear flattening. Just this week, the UST curve [...]
The driving theme for credit markets for all of 2014 so far has been a rapid flattening in the treasury and funding curves that had not “wanted” to abate for any reason. Whether it was the short-lived infatuation with wage “inflation” or any of the contradictory and mushish assessments from any of the suits sitting at the FOMC, the curves [...]
Despite all the fireworks in the treasury market at the end of May, the gripping stasis in inflation trading remained undeterred by the round trip. We have passed into the eleventh consecutive month of such dearth, an absolutely astounding stretch unmatched by anything since TIPS were introduced in 2003. At this point it becomes a race to see how long [...]
The explanation given for the increase in participation at the reverse repo “window” in mid-April was taxes. In other words, the payment of quarterly and annual estimates and billings reduced the need for the federal government to borrow. Since the variability in borrowing amounts is taken up in t-bills, the relative scarcity of on-the-run t-bills has left the market somewhat [...]
The global dollar situation continues to get muddied by divergent and apparently unrelated factors of significant scale. The Chinese are still not buying UST with nearly the same vigor that was very evident prior to the dollar travails last year (which I still believe is dollar liquidity rather than PBOC intent), while Japan and Belgium have suddenly found themselves infatuated [...]
Even though the data is stale by the time of its eventual release, I think the TIC figures still maintain some relevance. If nothing else, even on a rear-facing basis, it provides more consistent data to confirm or deny previous narratives. To this point, that description includes central banks mobilizing dollar assets to deflect continuous dollar funding difficulties. The February [...]
In more typical climates you would come to believe that a decided lack of volatility in credit markets would be welcomed as an unmitigated positive. Credit is not supposed to be beset by whirlwinds from the political world, reflecting a more traditional paradigm when banks were simply custodial agents rather than proprietary hedge funds. The banking system was never supposed [...]
Though we have passed through the event horizon on taper finally, it is still difficult to understate how much the threat of it upset the various settled mannerisms of credit and dollar markets this past summer. Though there is a degree of calm in appearance now, there are certainly more than a few hints of markets still enthralled by some [...]
After the violent reaction to the idea of tapering QE this summer, the FOMC members went on a mission to convince skeptical dollar markets that tapering was not tightening. Where the FOMC sees an adjustment to the toolkit, or the tactical approach, the overall strategy of loose monetary “stimulation” is, in their estimation, unassailable. Obviously, the funding markets disagreed; vehemently. [...]
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