Wednesday, May 27, 2009
Latest US news
Mortgage News Daily: MBS SUPER MEGA ALERT: End Of The World As We Know It?
Ever been to a public pool when someone notices something floating in the water that shouldn't be? Basically, Bill Gross dropped one of the aforementioned last week with AAA credit concerns. This has sparked a now 4 day selling spree that is kicking into high gear before our eyes. EVERYONE, servicers, originators, banks, insurance funds, hedge funds, sovereign wealth is getting out of the pool for a water change and decontamination.
Posted by devo @ 08:29 PM (1163 views) Add Comment
6 Comments
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1. devo said...
Rising Treasury yields threaten recovery
Financial Times
By Michael Mackenzie in New York
Published: May 27 2009 19:28
US Treasury yields rose to their highest level in six months on Wednesday, raising more worries that rising mortgage rates could damp a nascent recovery in the economy.
The yield on the benchmark 10-year Treasury note reached 3.58 per cent on Wednesday, a level last seen in mid-November. The 10-year note has climbed from 2.9 per cent during the past month and from lows of 2.1 per cent in December.
Traders say that while short-term yields remain stable and low thanks to intervention from the US Federal Reserve, the real action is in longer-term paper. Long-term yields are expected to move higher as the market prices in evidence of “green shoots” in the economy, the increasing US debt burden, the risk of a revival in inflation and a flood of new issuance.
Tuesday’s sale of $40bn two-year notes attracted solid buying and the issue remains anchored below 1 per cent. The sale of $35bn in five-year notes also saw good demand on Wednesday ahead of the issuance of $26bn in seven-year notes on Thursday.
But traders say it is difficult for the Fed to contain the longer-term upward trend.
This week’s sale of $101bn in new debt far outweighs the Fed’s buying of $7.55bn to support the market and keep yields lower. For this financial year, $2,000bn in new debt is expected and already this year the Treasury has sold $800bn in Treasury coupon issuance, which almost matches the $922bn sold last year.
“A $2,000bn deficit and $2,000bn in Treasury supply far outweighs the Fed’s planned purchases of $300bn,” said Gerald Lucas, senior investment advisor at Deutsche Bank.
Harry Harrison, head of rates trading at Barclays Capital, said: “At some stage, if yields keep rising, it will undo the Fed’s good work in reducing mortgage rates.” He said the bank did not rule out the Fed needing to buy more than $1,000bn in Treasuries in order to keep rates low.
Meanwhile, Moody’s reaffirmed the US government’s triple A rating in spite of a rising debt burden.
2. devo said...
Thanks to FreeTrader for the following:
These are dramatic days in bond markets. Think of one of those 'Black Monday'' days when equities markets plunge.
The U.S. Federal Reserve, like the Bank of England, is doing its best to keep interest rates under control. The Bank Rate that the MPC sets is currently 0.5%, but this is a short-term interest rate that influences other short-term rates such as overnight money market rates. The MPC has much less influence over medium and longer-term rates, and it's these rates that often determine corporate borrowing costs and fixed-rate mortgage costs.
In order to keep a lid on these rates, the U.S. Federal Reserve, just like the BoE over here, has implemented Quantitative Easing (QE). It 'prints' money and buys bonds. This should cause the price of bonds to rise, and because yields on bonds are inversely proportional to price, then yields fall. This keeps interest rates contained and allows households and companies to borrow more cheaply, with the aim of keeping demand in the economy up and alleviating the burden of high debt.
However, over the past few days, this has all been going wrong. The amount of money that governments are spending is so great that they are having to borrow huge sums in bond markets. But the holders of bonds are suspicious of central banks printing money. Once they start, who's to say when they will stop? So bond investors are selling medium and longer-term bonds, and instead they're buying short-term bonds where there is less risk due to movements in interest rates.
This sell-off in the bond market is causing interest rates to rise – exactly the opposite of what the Federal Reserve is trying to achieve. So what does the Fed do now? Does it print more money? Or does it accept that its money-printing policies may actually be causing investors to sell their bond holdings?
Fascinating times...
Yes, it does have implications for the BoE's QE programme. Hopefully it will emphasise to them how quickly bond markets can move, and how suddenly their plans could fall apart. So far though we've not seen much humility from central bankers. They seem very confident that they can control markets.
3. landofconfusion said...
I'm just glad I don't have $ denominated assets.
Also so much for deflation...
4. crunchy said...
You can't just print money like it's going out of fashion and not get a backlash.
Some here will say if the money is not used it will not matter. lol
Why are they printing it then? D'oh. 3. landofconfusion I agree!
Dollar down over 10% against most currencies since March.
Throw China into the mix and it could go very badly for the dollar.
The Golden Dragon!
5. general congreve said...
YES, YES, YES!!! Bond market collapse ahoy! GOT GOLD???
6. inbreda said...
@5
No - I hung on to my Gordon.