Steve Massocca’s Things I Saw Today 2/8/18

Things I Saw Today

Another rough day driven by concerns over inflation and higher rates, by the way the 10 year ended the day flat. Here are some comments that might want to lead investors to believe it won’t be all that bad…

This Fed governor (voting member of the FOMC) doesn’t see anything all that drastic…

SF Fed’s Williams says steady rate increases to continue, downplays volatility – Reuters

  • Reuters cites San Francisco Fed President Williams (voter) who told reporters that the Fed will continue with steady and gradual rate increases. He said the Fed would not overreact or undermine good news on the economy, adding that he did not see signs of the economy going into overdrive or a bubble that is about to burst.
  • Another Reuters article also picked up on Williams’ comments, in which he stated that this week’s market volatility had no changed his outlook fundamentally. He further noted that he was not worried about downside risks of the economy slowing too much.

The BOJ is full steam ahead on providing liquidity…

BOJ Governor Kuroda reaffirms quantitative easing policy for price stability – Reuters

  • Reuters cites BOJ Governor Haruhiko Kuroda, who told a parliamentary committee that he intended to stick with the central bank’s strong quantitative easing program to achieve price stability.
  • Kuroda adds it is too early to discuss when or how to exit from quantitative easing because consumer prices are still distant from the central bank’s 2% inflation target.

ECB continues to leave rates as is…

ECB economic bulletin reiterates that ample degree of stimulus remains necessary

  • In line with its policy statement, the ECB’s regular economic bulletin says interest rates are expected to remain at their present levels for an extended period of time, and well past the horizon of net asset purchases.
  • It adds underlying measures of inflation remain subdued and are yet to show a convincing sign of an upward trend, but inflation is expected to rise gradually over time, support by the ECB’s monetary policy and the continuing economic expansion.

And probably for good reasons as “problem members” are finding an ability to tap debt markets…

  • Spain:
    • Spain sheds periphery tag as borrowing costs fall: The FT reported that Spain has shaken off its label as a “peripheral” European country in the eyes of the international financial markets, according to its treasury head Emma Navarro. The article noted that yields on Eurozone periphery countries’ debt are at or near multiyear lows, as are the spreads of those yields over the German equivalent — effectively the Eurozone’s risk-free rate. It highlighted that Spanish bond yields this week hit their narrowest gap over the equivalent German debt since 2010 and as a comparison the spread between Italian and German debt also hit its lowest level since September 2016.
  • Greece:
    • Greece launches sales of seven-year bond: The FT said Greece kicked off its long-awaited sale of a seven-year bond, announcing that it will place the new debt later on Thursday, after delaying the debt sale earlier this week on the back of market volatility. It noted that Greece begun marketing the bond at around 3.75%, but is yet to indicate the size of the deal. When Greece last tapped the debt markets through a syndicated bond sale in July last year it raised €3B.

We live in a global economy and all of this liquidity flows across many shores including ours.

However there is definitely a confidence problem currently…

Confluence of worst fears for bond traders coming together at same time – Bloomberg

  • Bloomberg says bond traders are getting rattled by some of their worst fears coming together at the same time. It notes one is the unknown of Fed Chair Powell, as unlike former heads of the central bank, he has not yet established a “put” – as in, to essentially limit how far prices can fall in financial markets.
  • It adds nothing seems to be going right for bond markets with auctions of 10- and 30-year US debt this week seeing tepid demand; Japan dumped US debt in December, making 2017 the largest exodus from Treasuries in a decade; and, as the BoE reminded markets on Thursday, the global economy is humming.

It notes bond traders are bracing for volatility across the curve, pointing to a sign of middling demand when the Treasury’s $16B 30-year bond sale drew a below-average bid-to-cover ratio, with indirect bidders taking the smallest share since September. It notes yields rose from near session lows after the sale.

Steve Massocca |
Wedbush Securities | 2 Embarcadero Center, 6th Floor | San Francisco | CA | 94111 | | Member: NYSE / FINRA / SIPC


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