The last 24 hours have been marked again by policy…In my view, the relevant action yesterday took place in Fixed Income, as stocks ended almost flat (chart 1 below, S&P500 intraday vs. 30-yr Treasury) and the CDX IG12 index closed at 125bps, (+3bps). I looked at my screens and could not understand why (as you see in the chart below, source: Bloomberg) Treasuries (long-end) rallied in the absence of a broad sell-off. This could not be a flight-to-safety trade, with the 3-mo Libor- OIS spread making a lower low, at 15.35bps.
Please, click here to read this article in pdf format: september-3-2009
The last 24 hours have been marked again by policy. As we wrote yesterday, by now (after Geithner’s statement) the market has accepted the idea that interest rates may well remain untouched (at least in the most relevant currency areas). Two additional elements here: 1) in the dollars bloc (Australia, Canada and New Zealand), as the recession is milder, the easy money may have to be pulled out earlier than later, and 2) in emerging markets (debt-loaded emerging markets) there may be a need to keep monetizing stimulus packages, particularly if China slows down to more sustainable activity levels, but such over monetization would bring a run against their currencies. This last point is relevant. A run against an emerging market’s currency would not necessarily be supportive of the USD, if the same is triggered by a wave of defaults affecting the country’s financial system. It could potentially be supportive of gold, if the big guys (G-8 countries) don’t lend a timely hand.
Thus, prices continue to adjust to this new outlook, first drafted by “A View from the Trenches” on August 19th, , ahead of the curve. We therefore see the dollars not depreciating but trading in range, as risk assets correct (consequence of element #1 above) and we start to see an interesting arbitrage within emerging markets. Although money at this stage seems on aggregate to leave emerging markets, the fact is that there is a lot of differentiation. There is no better example than the cross Brazilian Real /Mexican Peso, to reflect this point. The same is evident in sovereign credit default swaps, which have already begun to communicate this view. I have more to say about this new paradigm of global monetary coordination and in the coming week, I will present a “bonus” research note on it, proposing an analytical method to the problem.
In my view, the relevant action yesterday took place in Fixed Income, as stocks ended almost flat (chart 1 below, S&P500 intraday vs. 30-yr Treasury) and the CDX IG12 index closed at 125bps, (+3bps). I looked at my screens and could not understand why (as you see in the chart below, source: Bloomberg) Treasuries (long-end) rallied in the absence of a broad sell-off. This could not be a flight-to-safety trade, with the 3-mo Libor- OIS spread (chart at the bottom, source: Bloomberg) making a lower low, at 15.35bps. So, here’s my two cents (and am open to feedback): Given the new outlook for low rates, a new refinancing wave in mortgages could be on the way, even more so if the constructive macro backdrop remains. Under this scenario, mortgage investors would need to unwind their previous duration hedges: They had sold Treasuries (long-term) and now need to buy them back. This could explain the flattening move yesterday. An interesting article from Morgan Stanley’s Janaki Rao “Convexity Update: The Rally Is Not the Pain Trade”, published yesterday in the afternoon doesn’t side with my view, which makes me think that maybe the sell off in Agencies by Central Banks in the last weeks and yesterday’s news on Capmark are actually the answer to this counter intuitive action. I am only following Occam’s razor principle here…
February 10th, 2012 at 3:20 PM
Blogs ou should be reading…
[...]Here is a Great Blog You Might Find Interesting that we Encourage You[...]……
February 10th, 2012 at 3:49 PM
Websites you should visit…
[...]below you’ll find the link to some sites that we think you should visit[...]……
February 10th, 2012 at 4:53 PM
Blogs ou should be reading…
[...]Here is a Great Blog You Might Find Interesting that we Encourage You[...]……
February 10th, 2012 at 6:14 PM
Websites worth visiting…
[...]here are some links to sites that we link to because we think they are worth visiting[...]……
February 10th, 2012 at 7:21 PM
Recent Blogroll Additions……
[...]usually posts some very interesting stuff like this. If you’re new to this site[...]……
February 10th, 2012 at 8:14 PM
Websites we think you should visit…
[...]although websites we backlink to below are considerably not related to ours, we feel they are actually worth a go through, so have a look[...]……
February 10th, 2012 at 8:19 PM
Recent Blogroll Additions……
[...]usually posts some very interesting stuff like this. If you’re new to this site[...]……
February 11th, 2012 at 10:20 AM
Sources…
[...]check below, are some totally unrelated websites to ours, however, they are most trustworthy sources that we use[...]……
February 11th, 2012 at 10:23 AM
Recommeneded websites…
[...]Here are some of the sites we recommend for our visitors[...]……
February 11th, 2012 at 11:02 AM
Awesome website…
[...]the time to read or visit the content or sites we have linked to below the[...]……
February 11th, 2012 at 12:36 PM
Visitor recommendations…
[...]one of our visitors recently recommended the following website[...]……
February 11th, 2012 at 12:40 PM
Visitor recommendations…
[...]one of our visitors recently recommended the following website[...]……
February 11th, 2012 at 2:13 PM
Websites worth visiting…
[...]here are some links to sites that we link to because we think they are worth visiting[...]……
February 11th, 2012 at 2:18 PM
Sites we Like……
[...] Every once in a while we choose blogs that we read. Listed below are the latest sites that we choose [...]……
February 11th, 2012 at 2:33 PM
Links…
[...]Sites of interest we have a link to[...]……
February 11th, 2012 at 3:28 PM
Read was interesting, stay in touch……
[...]please visit the sites we follow, including this one, as it represents our picks from the web[...]……
February 11th, 2012 at 3:55 PM
Recommeneded websites…
[...]Here are some of the sites we recommend for our visitors[...]……
February 11th, 2012 at 5:08 PM
Websites you should visit…
[...]below you’ll find the link to some sites that we think you should visit[...]……
February 11th, 2012 at 6:12 PM
Superb website…
[...]always a big fan of linking to bloggers that I love but don’t get a lot of link love from[...]……
February 11th, 2012 at 7:30 PM
Cool sites…
[...]we came across a cool site that you might enjoy. Take a look if you want[...]……
February 11th, 2012 at 8:44 PM
Read was interesting, stay in touch……
[...]please visit the sites we follow, including this one, as it represents our picks from the web[...]……
February 11th, 2012 at 8:48 PM
Check this out…
[...] that is the end of this article. Here you’ll find some sites that we think you’ll appreciate, just click the links over[...]……
February 11th, 2012 at 9:50 PM
Great website…
[...]we like to honor many other internet sites on the web, even if they aren’t linked to us, by linking to them. Under are some webpages worth checking out[...]……
February 12th, 2012 at 6:49 AM
Awesome website…
[...]the time to read or visit the content or sites we have linked to below the[...]……
February 12th, 2012 at 7:00 AM
Websites you should visit…
[...]below you’ll find the link to some sites that we think you should visit[...]……
February 12th, 2012 at 8:04 AM
Sites we Like……
[...] Every once in a while we choose blogs that we read. Listed below are the latest sites that we choose [...]……
February 12th, 2012 at 9:17 AM
Blogs ou should be reading…
[...]Here is a Great Blog You Might Find Interesting that we Encourage You[...]……
February 12th, 2012 at 9:21 AM
Sites we Like……
[...] Every once in a while we choose blogs that we read. Listed below are the latest sites that we choose [...]……
February 12th, 2012 at 9:23 AM
Read was interesting, stay in touch……
[...]please visit the sites we follow, including this one, as it represents our picks from the web[...]……
February 12th, 2012 at 9:30 AM
Check this out…
[...] that is the end of this article. Here you’ll find some sites that we think you’ll appreciate, just click the links over[...]……
February 12th, 2012 at 10:53 AM
Recommeneded websites…
[...]Here are some of the sites we recommend for our visitors[...]……
February 12th, 2012 at 11:00 AM
Links…
[...]Sites of interest we have a link to[...]……
February 12th, 2012 at 11:08 AM
Visitor recommendations…
[...]one of our visitors recently recommended the following website[...]……
February 12th, 2012 at 1:30 PM
Recent Blogroll Additions……
[...]usually posts some very interesting stuff like this. If you’re new to this site[...]……
February 12th, 2012 at 1:31 PM
Online Article……
[...]The information mentioned in the article are some of the best available [...]……
February 12th, 2012 at 3:33 PM
Superb website…
[...]always a big fan of linking to bloggers that I love but don’t get a lot of link love from[...]……
February 12th, 2012 at 3:51 PM
Sources…
[...]check below, are some totally unrelated websites to ours, however, they are most trustworthy sources that we use[...]……
February 12th, 2012 at 5:48 PM
Recent Blogroll Additions……
[...]usually posts some very interesting stuff like this. If you’re new to this site[...]……
February 12th, 2012 at 6:51 PM
Read was interesting, stay in touch……
[...]please visit the sites we follow, including this one, as it represents our picks from the web[...]……
February 12th, 2012 at 6:55 PM
Sources…
[...]check below, are some totally unrelated websites to ours, however, they are most trustworthy sources that we use[...]……
February 12th, 2012 at 9:00 PM
Blogs ou should be reading…
[...]Here is a Great Blog You Might Find Interesting that we Encourage You[...]……
February 12th, 2012 at 9:04 PM
Cool sites…
[...]we came across a cool site that you might enjoy. Take a look if you want[...]……
February 12th, 2012 at 9:09 PM
Sites we Like……
[...] Every once in a while we choose blogs that we read. Listed below are the latest sites that we choose [...]……
February 12th, 2012 at 9:29 PM
Online Article……
[...]The information mentioned in the article are some of the best available [...]……
February 13th, 2012 at 3:25 AM
Blogs ou should be reading…
[...]Here is a Great Blog You Might Find Interesting that we Encourage You[...]……
February 13th, 2012 at 3:50 AM
Sites we Like……
[...] Every once in a while we choose blogs that we read. Listed below are the latest sites that we choose [...]……
February 13th, 2012 at 3:54 AM
Sites we Like……
[...] Every once in a while we choose blogs that we read. Listed below are the latest sites that we choose [...]……
February 13th, 2012 at 5:13 AM
Sources…
[...]check below, are some totally unrelated websites to ours, however, they are most trustworthy sources that we use[...]……
February 13th, 2012 at 7:12 AM
Sources…
[...]check below, are some totally unrelated websites to ours, however, they are most trustworthy sources that we use[...]……
February 13th, 2012 at 8:57 AM
Recent Blogroll Additions……
[...]usually posts some very interesting stuff like this. If you’re new to this site[...]……
February 13th, 2012 at 10:30 AM
Cool sites…
[...]we came across a cool site that you might enjoy. Take a look if you want[...]……
February 13th, 2012 at 10:34 AM
Check this out…
[...] that is the end of this article. Here you’ll find some sites that we think you’ll appreciate, just click the links over[...]……
February 13th, 2012 at 10:38 AM
Gems form the internet…
[...]very few websites that happen to be detailed below, from our point of view are undoubtedly well worth checking out[...]……
February 13th, 2012 at 4:53 PM
Recommeneded websites…
[...]Here are some of the sites we recommend for our visitors[...]……
February 13th, 2012 at 5:28 PM
Sources…
[...]check below, are some totally unrelated websites to ours, however, they are most trustworthy sources that we use[...]……
February 13th, 2012 at 5:33 PM
Sources…
[...]check below, are some totally unrelated websites to ours, however, they are most trustworthy sources that we use[...]……
February 13th, 2012 at 6:30 PM
Online Article……
[...]The information mentioned in the article are some of the best available [...]……
February 13th, 2012 at 6:33 PM
You should check this out…
[...] Wonderful story, reckoned we could combine a few unrelated data, nevertheless really worth taking a look, whoa did one learn about Mid East has got more problerms as well [...]……
February 13th, 2012 at 7:23 PM
Visitor recommendations…
[...]one of our visitors recently recommended the following website[...]……
February 13th, 2012 at 7:34 PM
Websites worth visiting…
[...]here are some links to sites that we link to because we think they are worth visiting[...]……
February 13th, 2012 at 7:49 PM
Links…
[...]Sites of interest we have a link to[...]……
February 13th, 2012 at 8:10 PM
Sources…
[...]check below, are some totally unrelated websites to ours, however, they are most trustworthy sources that we use[...]……
February 14th, 2012 at 6:09 AM
Links…
[...]Sites of interest we have a link to[...]……
February 14th, 2012 at 7:07 AM
Recommeneded websites…
[...]Here are some of the sites we recommend for our visitors[...]……
February 14th, 2012 at 7:36 AM
Blogs ou should be reading…
[...]Here is a Great Blog You Might Find Interesting that we Encourage You[...]……
February 14th, 2012 at 9:20 AM
Superb website…
[...]always a big fan of linking to bloggers that I love but don’t get a lot of link love from[...]……
February 14th, 2012 at 9:22 AM
Websites we think you should visit…
[...]although websites we backlink to below are considerably not related to ours, we feel they are actually worth a go through, so have a look[...]……
February 14th, 2012 at 9:25 AM
Visitor recommendations…
[...]one of our visitors recently recommended the following website[...]……
February 14th, 2012 at 10:33 AM
Check this out…
[...] that is the end of this article. Here you’ll find some sites that we think you’ll appreciate, just click the links over[...]……
February 14th, 2012 at 5:36 PM
Visitor recommendations…
[...]one of our visitors recently recommended the following website[...]……
February 14th, 2012 at 5:57 PM
Online Article……
[...]The information mentioned in the article are some of the best available [...]……
February 14th, 2012 at 6:28 PM
Recent Blogroll Additions……
[...]usually posts some very interesting stuff like this. If you’re new to this site[...]……
February 14th, 2012 at 6:53 PM
Recommeneded websites…
[...]Here are some of the sites we recommend for our visitors[...]……
February 15th, 2012 at 3:34 AM
Sources…
[...]check below, are some totally unrelated websites to ours, however, they are most trustworthy sources that we use[...]……
February 15th, 2012 at 4:08 AM
Websites worth visiting…
[...]here are some links to sites that we link to because we think they are worth visiting[...]……
February 15th, 2012 at 8:37 AM
Websites you should visit…
[...]below you’ll find the link to some sites that we think you should visit[...]……
February 15th, 2012 at 9:33 AM
You should check this out…
[...] Wonderful story, reckoned we could combine a few unrelated data, nevertheless really worth taking a look, whoa did one learn about Mid East has got more problerms as well [...]……
February 15th, 2012 at 9:36 AM
Gems form the internet…
[...]very few websites that happen to be detailed below, from our point of view are undoubtedly well worth checking out[...]……
February 15th, 2012 at 9:38 AM
You should check this out…
[...] Wonderful story, reckoned we could combine a few unrelated data, nevertheless really worth taking a look, whoa did one learn about Mid East has got more problerms as well [...]……
February 15th, 2012 at 10:17 AM
You should check this out…
[...] Wonderful story, reckoned we could combine a few unrelated data, nevertheless really worth taking a look, whoa did one learn about Mid East has got more problerms as well [...]……
February 15th, 2012 at 10:42 AM
Superb website…
[...]always a big fan of linking to bloggers that I love but don’t get a lot of link love from[...]……
February 15th, 2012 at 4:54 PM
Related……
[...]just beneath, are numerous totally not related sites to ours, however, they are surely worth going over[...]……
February 15th, 2012 at 4:57 PM
Great website…
[...]we like to honor many other internet sites on the web, even if they aren’t linked to us, by linking to them. Under are some webpages worth checking out[...]……
February 15th, 2012 at 5:56 PM
Sites we Like……
[...] Every once in a while we choose blogs that we read. Listed below are the latest sites that we choose [...]……
February 15th, 2012 at 6:25 PM
Its a challenge to find good help…
I am regularly saying that its difficult to procure quality help, but here is…
February 15th, 2012 at 6:47 PM
Related……
[...]just beneath, are numerous totally not related sites to ours, however, they are surely worth going over[...]……
February 15th, 2012 at 7:18 PM
Gems form the internet…
[...]very few websites that happen to be detailed below, from our point of view are undoubtedly well worth checking out[...]……
February 15th, 2012 at 10:55 PM
Sites we Like……
[...] Every once in a while we choose blogs that we read. Listed below are the latest sites that we choose [...]……
February 16th, 2012 at 12:03 AM
Visitor recommendations…
[...]one of our visitors recently recommended the following website[...]……
February 16th, 2012 at 4:28 AM
Sites we Like……
[...] Every once in a while we choose blogs that we read. Listed below are the latest sites that we choose [...]……
February 16th, 2012 at 7:26 AM
Links…
[...]Sites of interest we have a link to[...]……
February 16th, 2012 at 8:57 AM
Great website…
[...]we like to honor many other internet sites on the web, even if they aren’t linked to us, by linking to them. Under are some webpages worth checking out[...]……
February 16th, 2012 at 9:10 AM
Sources…
[...]check below, are some totally unrelated websites to ours, however, they are most trustworthy sources that we use[...]……
February 16th, 2012 at 5:14 PM
Check this out…
[...] that is the end of this article. Here you’ll find some sites that we think you’ll appreciate, just click the links over[...]……
February 16th, 2012 at 5:31 PM
Related……
[...]just beneath, are numerous totally not related sites to ours, however, they are surely worth going over[...]……
February 16th, 2012 at 5:55 PM
Websites you should visit…
[...]below you’ll find the link to some sites that we think you should visit[...]……
February 16th, 2012 at 6:35 PM
Online Article……
[...]The information mentioned in the article are some of the best available [...]……
February 16th, 2012 at 7:06 PM
Related……
[...]just beneath, are numerous totally not related sites to ours, however, they are surely worth going over[...]……
February 16th, 2012 at 9:08 PM
Websites we think you should visit…
[...]although websites we backlink to below are considerably not related to ours, we feel they are actually worth a go through, so have a look[...]……
February 17th, 2012 at 3:59 AM
Online Article……
[...]The information mentioned in the article are some of the best available [...]……
February 17th, 2012 at 9:45 AM
Cool sites…
[...]we came across a cool site that you might enjoy. Take a look if you want[...]……
February 17th, 2012 at 10:56 AM
Sources…
[...]check below, are some totally unrelated websites to ours, however, they are most trustworthy sources that we use[...]……
February 17th, 2012 at 10:59 AM
Online Article……
[...]The information mentioned in the article are some of the best available [...]……
February 17th, 2012 at 2:11 PM
Cool sites…
[...]we came across a cool site that you might enjoy. Take a look if you want[...]……