Friday, July 1, 2016

Today's Links

1--U.S. Yields Fall to Record

Yields on 10- and 30-year U.S. Treasuries fell to record lows, defying forecasters who for years have said they would rise, amid signs that Britain’s vote to leave the European Union will curb global economic growth and prevent the Federal Reserve from raising interest rates this year.

Just days before America’s 240th birthday, the U.S. 30-year bond yield dropped as much as 10 basis points to an unprecedented 2.1873 percent, while benchmark 10-year yields touched 1.3784 percent

The decline in yields on Treasuries, the world’s largest bond market at $13.4 trillion, will affect everything from U.S. mortgages and corporate bonds to borrowing costs for cities and governments around the globe. The rally extends a bull market for U.S. debt that began in the early 1980s, after 10-year and 30-year yields peaked above 15 percent. It comes as central banks abroad are experimenting with negative interest rates to spur their economies, pushing yields on almost $12 trillion of government bonds from Germany to Japan to Switzerland below zero and boosting the relative allure of Treasuries

2--Government bond yields fall to fresh record lows

The 10-year Treasury yield fell 12bp to 1.382 per cent, just above July 2012’s record low of 1.381 per cent, according to Reuters. Bond investors have ruled out the prospect of an interest rate rise this year by the Federal Reserve in the wake of Brexit.

3--"Panic buying"?  Here's who is causing the bond market to freak out

"This is buying coming from Europe. It started around 2 in the morning," said Andrew Brenner, head of international fixed income at National Alliance. "This is all about flight to quality, flight to quality in duration." The duration of choice for traders has been the longer end – the 10- and 30-year sector of the U.S. bond market.
"It was absolutely panic buying. Panic buying shows up more as a panic when you're at one of the more illiquid days of the year, when you're at a skeleton staff which is what you are today," said Brenner. "I don't use those words lightly. This thing at 2 a.m. shot up right off the bat." ...

This morning was the lowest yield we've ever seen in the 30-year," said Brenner. Bank of America Merrill Lynch, however, said the yield was the lowest since the 1950s, according to Reuters.

4--This economist thinks China is headed for a 1929-style depression

5--Liberal Pragmatism and the End of Political Possibility

Liberal Democrat Barack Obama entered office in the midst of the worst economic crisis since the Great Depression and immediately restored the institutions that were widely understood to have created the crisis— Wall Street, the corporate executive class and inherited wealth, while leaving millions of dispossessed to fend for themselves. Mr. Obama created a series of one-sided ‘solutions’ that empowered predatory bankers to set the terms of home foreclosures, that left the inbred, bailout-dependent ‘management’ of the U.S. auto industry to implement ‘tiered’ (poverty) wages and he imprisoned and deported two million human beings who had arrived in the U.S. from economies intentionally destroyed by the ‘free-trade’ agreements that he continues to support against all evidence of their socially destructive consequences

6--Bob Janjuah Explains All That Is Wrong With The Financial System (And Remains Bearish

The big driving forces we need to think about are globalisation, technological advancement, excessive indebtedness, stifling (but probably necessary) financial sector regulation and rapidly deteriorating demographics. These factors are largely deflationary and are here to stay, Brexit or no Brexit. Globalisation in particular has been wonderful at a global level as it has helped reduce global poverty greatly over the last two to three decades. But the price has been stagnant-to-falling real incomes and standards of living in the developed world, covered up by significant and still growing indebtedness. Fiscal policy options and flexibility have been severely hit by the choice policymakers took back in 2008 and the years that followed to bail out the financial sector – this fiscal spend has resulted in little, no or even negative multipliers in the last 5+ years. For sure, policymakers were faced with stark choices at the time, but I maintain the view I voiced at the time back in 2008-09, that the hit from the failure of the financial system should have been spread more among financial sector bond and equity investors rather than the policies of austerity and financial suppression which have sought to socialise the cost largely among the bottom 90% of the population. As such, fiscal policy has failed the real economy, particularly in developed markets, for nearly a decade. And by dumping the responsibility for the heavy lifting for growth on central banks, we have ended up with asset bubbles, rampant speculation, lack of investment in productivity and in the real economy, significant levels of financial engineering to artificially boost earnings, and merely the (now failed) hope that “trickle down” still works. The outcome has been almost unprecedented levels of rising inequality in the global economy. I suspect that it is this inequality that was behind a fair chunk of last week’s Brexit outcome and which has driven the rise of extremism across other important nations/blocs. History tells us that such trends can lead to adverse outcomes particularly where large numbers of the population feel disenfranchised from the political classes. Thus, Brexit!

7--Santelli: "maybe the Fed's the problem"?

Ya think?

8--Europe’s Corporate Bond Market Reopens Following Brexit Turmoil

Another boondoggle, feeding frenzy giveaway

9--U.S. Firms Expected to Issue More Debt in Europe, With ECB as Buyer

Want to know how you're getting fleeced?

10--The Brexit Bounce That Won’t Carry Investment Banks Far

Equity trading has been poor in most markets this year, although credit trading has recovered as investors reacted to the European Central Bank’s decision to start buying corporate debt. Global trading revenues are still forecast to shrink for all of 2016 compared with last year. Some predict a 10% decline across the board, while analysts at J.P. Morgan JPM -0.66 % think fixed-income trading will be down 15% and equity trading down 25%.

In investment banking—the business of advising on deals and equity or bond issues—the fall may be worse. Merger and acquisition activity has held up, but more deals by value are being pulled than in any year since 2007, according to Dealogic. Initial public offerings have seen the lowest first half volumes since 2009. The one bright area is new bond issuance, spurred on by ECB buying.

Investment banking revenues for the full year could be down 31% versus last year, forecasts J.P. Morgan, adding to fears that 2016 revenues could be worse even than 2008.

11--Bank of America, Citi Trade Stress for Higher Payouts

U.S. banks finally seem to have the hang of the Federal Reserve’s stress tests. That should prove a comfort to bank investors desperate for yield and unnerved by the U.K.’s vote to leave the European Union.
Overall, large banks participating in the test were approved to return capital to shareholders via dividends and buybacks equal to an average 83% of estimated earnings over the next year. That was up from 69% in last year’s stress test, according to Goldman Sachs Group Inc., GS 0.20 % and slightly ahead of Wall Street analysts’ expectations.

Per-share dividends approved posted a median 10% increase versus last year’s stress test, according to Morgan Stanley. MS -0.35 % The higher payouts are especially good news for investors given the 10-year Treasury note is yielding less than 1.5%.
Bank stocks rose Thursday, slightly outpacing the broader stock market. And the approvals signaled that a painful period for bank investors is winding down....

The one catch: For some banks now paying out close to all of, or in some cases more than, expected earnings, there may not be much more runway for big payout increases in coming years. Unless, that is, the banks manage to substantially boost profits, a task made more difficult by a fall in long-term interest rates in the wake of the Brexit vote and fears around how this could affect global growth and any future Fed rate increases.

12--Assad: The West Is Secretly Helping Syria Fight Rebels

"They don't want to upset the United States. Actually most of the Western officials, they only repeat what the United States want them to say. This is the reality," he said.

The claim comes after a source close to the Syrian government told AFP that the U.S. and Russia were jointly coordinating offensives in eastern Syria near with the regime out of an operations room in Baghdad. It also follows a report that the U.S. has proposed jointly attacking Islamist militants in Syria with Russia.

13--Taxpayers insure the riskiest subprime mortgages underwritten today


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