Treasuries rose, with 10-year note yields dropping to almost the lowest level in a month, as the Federal Reserve’s labor-market-conditions index indicated slower U.S. jobs market improvement.
U.S. debt gained after the report showed the pace of change in the index slowed to 2.5 points, from 7.1 points in April. The drop leaves the third quarter’s average monthly change at the slowest pace since mid-2012. The Fed on Oct. 8 is scheduled to release minutes of its September policy meeting where the Fed increased its median estimate for the fed funds rate. The Treasury is scheduled to sell $61 billion in three-, 10- and 30-year securities on three consecutive days starting tomorrow.
“The buying started with the release of the Fed’s labor market conditions index,” said Guy LeBas, chief fixed-income strategist at Janney Montgomery Scott LLC in Philadelphia. “It’s positive territory, but a much slower pace. It suggests the Fed still has room to hold the policy rates at zero, which has given the market a bid.”
The U.S. 10-year note yield, a benchmark for global borrowing costs, dropped two basis points, or 0.02 percentage point, to 2.41 percent at 2:02 p.m. in New York, according to Bloomberg Bond Trader data. The 2.375 percent securities maturing in August 2024 rose 5/32, or $1.56 per $1,000 face amount, to 99 20/32. The yield touched 2.38 percent on Oct. 1, the lowest level since Sept. 4.
Debt Sales
The Treasury will sell $27 billion of three-year notes tomorrow, $21 billion of 10-year debt the next day and $13 billion of 30-year bonds on Oct. 9.
The current three-year note closed at the lowest repurchase rate of negative 1.2 percent today as traders were willing to pay to borrow the most actively traded security in exchange for loaning cash for the notes. This comes amid demand spurred by regulations set by the Bank for International Settlements in Basel, Switzerland, said Thomas Simons, a government-debt economist in New York at Jefferies Group LLC, one of 22 primary dealers that trade with the Fed. The regulations require institutions to hold more top-rated debt as a cushion against potential losses to ensure they can survive a crisis like the one that devastated the financial industry in 2008, he said.
“There is a shortage of collateral because of regulatory issues,” he said. “Banks are having to buy a lot more front-end paper. The regulatory issues are good for the front end.”
Jobs Data
The benchmark 10-year yield fell nine basis points last week, the biggest drop in yield since the five days ended July 11. Treasuries gained even as the Labor Department said Oct. 3 the U.S. added 248,000 jobs in September, compared with a forecast for a 215,000 increase in a Bloomberg News survey.
The unemployment rate fell to 5.9 percent, a six-year low, from 6.1 percent. Average hourly earnings were unchanged in September and up 2 percent during the past 12 months.
Traders see a 48 percent chance Fed officials will raise their benchmark rate by July 2015, fed funds futures data compiled by Bloomberg showed, down from 59.4 percent on Sept. 18, a day after Fed policy makers met. The target has been in a range of zero to 0.25 percent since December 2008. U.S. policy makers meeting on Sept. 16-17 raised their median estimate for the fed funds rate to 1.375 percent at the end of 2015, compared with a June forecast of 1.125 percent.
Ten-year yields will rise to 2.78 percent by Dec. 31, according to a Bloomberg survey of economists, with the most recent forecasts given the heaviest weightings.
Credit Swap Indexes Trade After $17 Trillion Market Overhaul
The biggest overhaul of the global credit derivatives market starts today with new benchmark index contracts addressing flaws that prevented some bondholders from being fully compensated for losses. The shakeup of the $17 trillion credit-default swap market increases the cost of insuring junior bank bonds and sovereign debt because new terms provide greater protection. The Markit iTraxx Crossover Index of swaps linked to high-yield borrowers is also being broadened to reflect the growth of the junk bond market.
Greece’s debt restructuring in 2012 and the Dutch government’s seizure of lender SNS Reaal NV’s bonds in February 2013 prompted changes to the contracts. The list of events triggering payouts has been expanded to include bail-ins, where investors are forced by regulators or governments to contribute to bank rescues.
“The changes make the CDS market more robust,” said Abel Elizalde, a credit strategist at Citigroup Inc. in London. “The new CDS are a better hedge for investors and the Crossover expansion makes it a better proxy for the high-yield market.”
An updated index of swaps on the junior debt of 25 European banks and insurers now costs more than previous series because of the added protection. New benchmarks are typically created, or rolled, every six months when entities are added or dropped depending on their ratings, price of protection and ease of trading.
Crossover Expansion
The Markit iTraxx Subordinated Financial Index costs 143 basis points today, compared with 86.5 basis points for the previous series on Oct. 3. A basis point on a credit-default swap protecting 10 million euros ($12.5 million) of debt from default for five years is equivalent to 1,000 euros a year. There’s also been a jump in the cost of the Crossover index of swaps on companies with high-yield credit ratings. The gauge is being enlarged for the second time this year, and now covers 75 borrowers compared with 60 in the previous series. The new benchmark cost 336 basis points today after the previous series closed at 245 basis points last week.
The International Swaps & Derivatives Association’s new definitions explicitly insure against debt writedowns, bond exchanges or conversions of debt into equity. They can also cover Tier 2 notes, a type of contingent capital bond or CoCo, which convert to equity or are written down after a bank breaches predetermined capital ratios.
Convert Trades
More than 1,400 investors agreed to automatically convert trades on most companies to the new terms today, according to a list of firms on ISDA’s website. Existing swaps tied to banks, governments and some companies won’t be changed and investors may choose to exit those trades and buy new ones with the improved terms.
Traders cut $1 trillion of outstanding swaps positions last month as they prepared for the market overhaul. The contracts pay the buyer face value in exchange for the underlying securities or the cash equivalent should a borrower fail to adhere to its debt agreements.
Updated versions of most corporate indexes in Asia and the Americas also start trading today, according to administrator Markit Group Ltd.
Banks Unite in Project Neptune to Boost Bond Trading
A group of banks and investors is working on a project to increase trading of corporate bonds in the U.S. and Europe amid a drop in dealer holdings because of new regulations.
The 12 lenders and 16 European money managers are working with ETrading Software Ltd. to create standardized language and a messaging system known as the Neptune project, said Sassan Danesh, a partner at the London-based technology consultancy. The Wall Street Journal reported the plans yesterday. Trading in the bond market has declined as banks, seeking to preserve capital, cut their holdings of securities. Project Neptune is designed to allow traders to advertise bonds without revealing buyers and sellers, according to Danesh.
“The bond market is changing, which is why these solutions are being developed,” said Robert McGrath, global head of trading at Schroders Plc, which manages 271.5 billion pounds ($434 billion). “We don’t know how things will look when the process is done but we want to be as involved as possible.”
BNP Paribas SA, Credit Suisse Group AG, Goldman Sachs Group Inc., HSBC Holdings Plc, JPMorgan Chase & Co. and Societe Generale SA are among 12 banks involved in the talks, according to the WSJ. Axa Investment Managers Ltd. and Schroders are also involved in the discussions, the WSJ reported.
Liquidity Slump
Spokesmen for BNP Paribas, Credit Suisse, Goldman, HSBC and JPMorgan declined to comment. An official at Societe Generale had no immediate comment on the program.
“The utopian result for the bond market is one big central pool where everybody lists their interests – but this is unrealistic,” Kevin McPartland, head of research for market structure and technology at Greenwich Associates, said in a telephone interview. “This isn’t the first talk of doing something like this, but you need a healthy quorum of dealers and investors to make any solution like this work.”
Liquidity has dropped by about 70 percent since the 2008 crisis in Europe and the U.S., according to strategists led by Alberto Gallo at Royal Bank of Scotland Group Plc in London. A corporate bond in Europe trades once a day on average, compared with almost five times a day a decade ago, according to RBS.
“Clients get easy access to multiple bank inventories in an easy manner, whilst still allowing each bank to compete on the quality of the inventory information they supply,” said ETrading’s Danesh in an e-mail. “Effectively the banks own their own ‘‘shops’’ and can compete in their own manner, whilst the ‘‘mall’’ simply provides convenient access.”
The initial phase of the project focuses on helping dealers inform investment managers what they hold in inventory, rather than linking investors to each other, he said. The banks are planning to pay $48,000 each for the first part of the consultancy work and blueprints for the proposal, which is initially planned for Europe, the WSJ reported, citing people it didn’t identify.
source: Bloomberg
U.S. debt gained after the report showed the pace of change in the index slowed to 2.5 points, from 7.1 points in April. The drop leaves the third quarter’s average monthly change at the slowest pace since mid-2012. The Fed on Oct. 8 is scheduled to release minutes of its September policy meeting where the Fed increased its median estimate for the fed funds rate. The Treasury is scheduled to sell $61 billion in three-, 10- and 30-year securities on three consecutive days starting tomorrow.
“The buying started with the release of the Fed’s labor market conditions index,” said Guy LeBas, chief fixed-income strategist at Janney Montgomery Scott LLC in Philadelphia. “It’s positive territory, but a much slower pace. It suggests the Fed still has room to hold the policy rates at zero, which has given the market a bid.”
The U.S. 10-year note yield, a benchmark for global borrowing costs, dropped two basis points, or 0.02 percentage point, to 2.41 percent at 2:02 p.m. in New York, according to Bloomberg Bond Trader data. The 2.375 percent securities maturing in August 2024 rose 5/32, or $1.56 per $1,000 face amount, to 99 20/32. The yield touched 2.38 percent on Oct. 1, the lowest level since Sept. 4.
Debt Sales
The Treasury will sell $27 billion of three-year notes tomorrow, $21 billion of 10-year debt the next day and $13 billion of 30-year bonds on Oct. 9.
The current three-year note closed at the lowest repurchase rate of negative 1.2 percent today as traders were willing to pay to borrow the most actively traded security in exchange for loaning cash for the notes. This comes amid demand spurred by regulations set by the Bank for International Settlements in Basel, Switzerland, said Thomas Simons, a government-debt economist in New York at Jefferies Group LLC, one of 22 primary dealers that trade with the Fed. The regulations require institutions to hold more top-rated debt as a cushion against potential losses to ensure they can survive a crisis like the one that devastated the financial industry in 2008, he said.
“There is a shortage of collateral because of regulatory issues,” he said. “Banks are having to buy a lot more front-end paper. The regulatory issues are good for the front end.”
Jobs Data
The benchmark 10-year yield fell nine basis points last week, the biggest drop in yield since the five days ended July 11. Treasuries gained even as the Labor Department said Oct. 3 the U.S. added 248,000 jobs in September, compared with a forecast for a 215,000 increase in a Bloomberg News survey.
The unemployment rate fell to 5.9 percent, a six-year low, from 6.1 percent. Average hourly earnings were unchanged in September and up 2 percent during the past 12 months.
Traders see a 48 percent chance Fed officials will raise their benchmark rate by July 2015, fed funds futures data compiled by Bloomberg showed, down from 59.4 percent on Sept. 18, a day after Fed policy makers met. The target has been in a range of zero to 0.25 percent since December 2008. U.S. policy makers meeting on Sept. 16-17 raised their median estimate for the fed funds rate to 1.375 percent at the end of 2015, compared with a June forecast of 1.125 percent.
Ten-year yields will rise to 2.78 percent by Dec. 31, according to a Bloomberg survey of economists, with the most recent forecasts given the heaviest weightings.
Credit Swap Indexes Trade After $17 Trillion Market Overhaul
The biggest overhaul of the global credit derivatives market starts today with new benchmark index contracts addressing flaws that prevented some bondholders from being fully compensated for losses. The shakeup of the $17 trillion credit-default swap market increases the cost of insuring junior bank bonds and sovereign debt because new terms provide greater protection. The Markit iTraxx Crossover Index of swaps linked to high-yield borrowers is also being broadened to reflect the growth of the junk bond market.
Greece’s debt restructuring in 2012 and the Dutch government’s seizure of lender SNS Reaal NV’s bonds in February 2013 prompted changes to the contracts. The list of events triggering payouts has been expanded to include bail-ins, where investors are forced by regulators or governments to contribute to bank rescues.
“The changes make the CDS market more robust,” said Abel Elizalde, a credit strategist at Citigroup Inc. in London. “The new CDS are a better hedge for investors and the Crossover expansion makes it a better proxy for the high-yield market.”
An updated index of swaps on the junior debt of 25 European banks and insurers now costs more than previous series because of the added protection. New benchmarks are typically created, or rolled, every six months when entities are added or dropped depending on their ratings, price of protection and ease of trading.
Crossover Expansion
The Markit iTraxx Subordinated Financial Index costs 143 basis points today, compared with 86.5 basis points for the previous series on Oct. 3. A basis point on a credit-default swap protecting 10 million euros ($12.5 million) of debt from default for five years is equivalent to 1,000 euros a year. There’s also been a jump in the cost of the Crossover index of swaps on companies with high-yield credit ratings. The gauge is being enlarged for the second time this year, and now covers 75 borrowers compared with 60 in the previous series. The new benchmark cost 336 basis points today after the previous series closed at 245 basis points last week.
The International Swaps & Derivatives Association’s new definitions explicitly insure against debt writedowns, bond exchanges or conversions of debt into equity. They can also cover Tier 2 notes, a type of contingent capital bond or CoCo, which convert to equity or are written down after a bank breaches predetermined capital ratios.
Convert Trades
More than 1,400 investors agreed to automatically convert trades on most companies to the new terms today, according to a list of firms on ISDA’s website. Existing swaps tied to banks, governments and some companies won’t be changed and investors may choose to exit those trades and buy new ones with the improved terms.
Traders cut $1 trillion of outstanding swaps positions last month as they prepared for the market overhaul. The contracts pay the buyer face value in exchange for the underlying securities or the cash equivalent should a borrower fail to adhere to its debt agreements.
Updated versions of most corporate indexes in Asia and the Americas also start trading today, according to administrator Markit Group Ltd.
Banks Unite in Project Neptune to Boost Bond Trading
A group of banks and investors is working on a project to increase trading of corporate bonds in the U.S. and Europe amid a drop in dealer holdings because of new regulations.
The 12 lenders and 16 European money managers are working with ETrading Software Ltd. to create standardized language and a messaging system known as the Neptune project, said Sassan Danesh, a partner at the London-based technology consultancy. The Wall Street Journal reported the plans yesterday. Trading in the bond market has declined as banks, seeking to preserve capital, cut their holdings of securities. Project Neptune is designed to allow traders to advertise bonds without revealing buyers and sellers, according to Danesh.
“The bond market is changing, which is why these solutions are being developed,” said Robert McGrath, global head of trading at Schroders Plc, which manages 271.5 billion pounds ($434 billion). “We don’t know how things will look when the process is done but we want to be as involved as possible.”
BNP Paribas SA, Credit Suisse Group AG, Goldman Sachs Group Inc., HSBC Holdings Plc, JPMorgan Chase & Co. and Societe Generale SA are among 12 banks involved in the talks, according to the WSJ. Axa Investment Managers Ltd. and Schroders are also involved in the discussions, the WSJ reported.
Liquidity Slump
Spokesmen for BNP Paribas, Credit Suisse, Goldman, HSBC and JPMorgan declined to comment. An official at Societe Generale had no immediate comment on the program.
“The utopian result for the bond market is one big central pool where everybody lists their interests – but this is unrealistic,” Kevin McPartland, head of research for market structure and technology at Greenwich Associates, said in a telephone interview. “This isn’t the first talk of doing something like this, but you need a healthy quorum of dealers and investors to make any solution like this work.”
Liquidity has dropped by about 70 percent since the 2008 crisis in Europe and the U.S., according to strategists led by Alberto Gallo at Royal Bank of Scotland Group Plc in London. A corporate bond in Europe trades once a day on average, compared with almost five times a day a decade ago, according to RBS.
“Clients get easy access to multiple bank inventories in an easy manner, whilst still allowing each bank to compete on the quality of the inventory information they supply,” said ETrading’s Danesh in an e-mail. “Effectively the banks own their own ‘‘shops’’ and can compete in their own manner, whilst the ‘‘mall’’ simply provides convenient access.”
The initial phase of the project focuses on helping dealers inform investment managers what they hold in inventory, rather than linking investors to each other, he said. The banks are planning to pay $48,000 each for the first part of the consultancy work and blueprints for the proposal, which is initially planned for Europe, the WSJ reported, citing people it didn’t identify.
source: Bloomberg