Under Fed Chairman Ben Bernanke, the Fed has been the great enabler of Washington’s fiscal excesses of the past few years. The Fed’s quantitative easing blurs the line between fiscal and monetary policies. The Fed may still be politically independent, but fiscal policy has become very dependent on the willingness of the Fed to purchase lots of government securities. A consolidated statement of the US Treasury and the Fed would show [...]
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From InvestmentNews: … Over the past 15 months, Gross shifted the fund’s net exposure to U.S. government securities from approximately 0% as of June 30, 2011, to a peak of 41% on January 31, 2012, and back down to 21% at the end of August. During the latter half of 2011, he increased the fund’s stake in high-quality (mostly Fannie Mae) mortgage-backed securities from 21% to 50% of the fund and has maintained [...] From Bloomberg: Price cuts on everything from iPhones to Folgers coffee show why investors in U.S. government bonds anticipate low inflation for the next decade even as the Federal Reserve considers injecting more cash into the economy.
A measure of price-increase predictions used by the Fed to set policy, the five-year, five-year forward break-even rate, has averaged 2.54 percent this year. That’s the lowest since 2001 for the measure, which gauges expectations [...] Goldman Sachs Group Inc. (GS), the fifth- biggest U.S. bank by assets, cut its holdings of Italian sovereign debt by 92 percent in the second quarter after boosting them in the first three months of the year. “Market exposure” to Italian government bonds fell to $191 million at the end of June from $2.51 billion at the end of March, the New York-based firm said in a quarterly regulatory filing today. Goldman Sachs also increased [...] Daily Ticker In June, the Congressional Budget Office (CBO) released its Alternative Fiscal Scenario (AFS) — the CBO’s projection of the government’s finances into the future. The projections are truly scary, but they received zero press coverage Brace yourself. It’s $222 trillion large! In comparison, official debt in the public’s hands is only $11 trillion.
Treasury Admits It Underestimated Debt Needs, Predicts Ceiling Breach In 2012; $600 Billion [...] Back on April 30, when the US Treasury, together with the TBAC chaired by Matt Zames (who as everyone knows is being groomed to take over JPMorgan after Jamie gracefully steps down) sat down put together its latest debt funding needs projection, we openly mocked the numbers when we said “Now obviously we are all for the US needing less debt, however we wonder: did the US discover some magical source of tax [...] Treasury raises quarterly borrowing estimate “The U.S. government expects to borrow $276 billion in the July-September quarter, an estimate about $11 billion more than previously forecasted, the Treasury Department said Monday. Treasury assumes an end-of-September cash balance of $60 billion. In April, Treasury projected third-quarter borrowing of $265 billion. The increase is partly due to projections of more spending and less receipts than expected. The Fed’s sales of short-term government securities [...] A changing trend? World Gold Council thinks so. Ruchika Shah / Mumbai May 17, 2012, 22:35 IST
Central banks across the world have started picking up gold as reserves, observed World Gold council in its first quarter gold demand review report released today. Although down from buying in the first quarter of 2011, central banks continued to purchase gold as a reserve. In Q1 2012, central banks gold reserve demand was at 80.8 [...] Citigroup, the third-largest US lender by assets, said a hypothetical two-level downgrade of its credit by all three ratings firms could compel the company to come up with $4.7 billion in cash. The funds would be needed to cover collateral for derivative triggers and exchange margin requirements, the New York-based company said yesterday in its quarterly filing with securities regulators. The sum would be $1.1 billion if only Moody’s Investors Service [...] By Wes Goodman - Mar 25, 2012 8:54 PM PT Bill Gross, who runs the world’s biggest bond fund at Pacific Investment Management Co., said the Federal Reserve will probably signal it plans to arrange a third round of debt purchases when policy makers meet in April. The end of tax breaks enacted by President George W. Bush and $1 trillion of mandatory federal budget cuts are raising concern that declining unemployment will give way to slower [...] by Simone Foxman In a complex editorial published in the Financial Times this morning, PIMCOfounder and co-CIO argues that the continued depression of interest rates on U.S. Treasury bills might not really be helping the economy. In fact, the indefinite extension of low rates could just be throwing the U.S. into a Japanese-style lost decade. His argument appears to focus on Operation Twist, a Fed program meant to push down yields on long-term government securities through sales [...] By James G. Neuger and Rebecca Christie - Jan 19, 2012 Europe’s planned permanent rescue fund may require clauses in new bond issues that would leave the door open for debt restructurings, while deeming writeoffs “exceptional” and subject to International Monetary Fund standards, according to a draft text. European Union finance ministers meet Jan. 23 to discuss the draft, which waters down earlier provisions on restructuring after EU-mandated losses for Greek bondholders helped exacerbate the [...] US government securities seized from Japanese nationals, not clear whether real or fake Japan Probes Report Two Seized With Undeclared Bonds Japan, Italy, and U.S., 134 Billion in US Bonds Smuggling Case - Ken Devine In his latest weekly letter, hedge fund manager John Taylor says that for all the experimentation and aggression that Ben Bernanke has exhibited, the risks to the Fed don’t hold a candle to the risks facing the ECB right now.
He writes: Even the name European Central Bank should catch in our throats as there is no Europe. There is no Intrinsic to any answer today must be a note that the context is Bernanke giving liquidity to banks ahead of dealing with these fundamental problems/questions. So we are lumbered with an extra consideration – what do you do now that banks HAVE vast pools of liquidity but that they will not/CANnot deploy? 1. Traditionally, it has been widely viewed that raising interest rates places pressure on inflation including on wage inflation. [...] By Amy Hoak, MarketWatch Terrence Horan/MarketWatch CHICAGO (MarketWatch) — Economists and bankers who follow mortgage rates religiously think that rates don’t have much farther to drop from record lows. They expect that rates can only go up. But they also know they’ve been wrong before. “It’s hard to imagine how long-term, 30-year fixed-rate mortgages could go lower than they are right now,” said Frank Nothaft, chief economist of Freddie [...] by JM Credit Spreads in the New Normal At its very core, to price something complicated, you lay the most similar liquid asset you can find next to it that has a liquid price. You deconstruct the liquid one by its risk premia, and then you reconstruct the one you are trying to price by applying suitable risk premia to it. The output is fair value. All the talk [...] The new Bundesbank president, Jens Weidmann, used to be one of Merkel’s closest advisers. Now, he is one of her staunchest critics over the euro rescue. He is strictly opposed to the European Central Bank’s policy of buying up bonds from debt-stricken countries — and is winning a growing number of allies for his cause. Nightmarish Idea What Geithner and the Obama administration view as a particularly [...] http://blogs.telegraph.co.uk/finance/ambroseevans-pritchard/100011987/ch… China to ‘liquidate’ US Treasuries, not dollars A key rate setter-for China’s central bank let slip – or was it a slip? – that Beijing aims to run down its portfolio of US debt as soon as safely possible. “The incremental parts of our of our foreign reserve holdings should be invested in physical assets,” said Li Daokui at the World Economic Forum in the very rainy city [...] By Greg Robb, MarketWatch WASHINGTON (MarketWatch) — The Federal Reserve will eventually try all three principal easing tools now on the table unless there is a dramatic improvement in the economic outlook, a former top central bank official told MarketWatch in an interview. The minutes of the Aug. 9 meeting show the Fed was mulling three policy steps beyond ultralow interest rates and the $2.6 trillion in [...] by ZH The pop media is reporting that Italian yields are falling relative to the last auction, but they are failing to mention that the relative yields on Italian debt as compared to the German Bund are already rising despite the ECB intervening and buying up Italian debt in the secondary markets in order to support its price. Historically, the ECB has failed to support bond [...] European & U.S. Bank Leverage Central bankers are in the business of “currency manipulation,” James Grant, editor of Grant’s Interest Rate Observer, told CNBC Thursday. He wants a “modernized, 21st century gold standard that checks [...] http://www.bloomberg.com/news/2011-0…n-johnson.html The U.S. has a fiscal crisis, but not the one that everyone is talking about. Standard and Poor’s proved beyond a reasonable doubt that the U.S. still has the world’s preeminent reserve currency. When shocks hit — and investors have no idea who or what might be next in line for a downgrade — they buy U.S. government securities. Downgrades don’t usually have this effect. For example, if S&P or other [...] Below is a succinct list of 15 bullet points courtesy of The Telegraph, which explains all there is to know about the country’s current predicament. In retrospect we certainly can not blame Tremonti for wanting to get the hell out of there. The truth about Italy: Morgan Stanley estimates net issuance should total 35 billion euros per year in 2012-2013, less than expect annual coupon payments of around [...] By HOLMAN W. JENKINS, JR.
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OUCH: Spanish Stocks Are Getting Gored, Down 2.4%
Market are selling off across Europe. But Spain is clearly seeing the worst of it. Borrowing costs are surging with the 10-year yield at around 5.9 percent.
Here’s the intraday chart of Spain’s IBEX market index.
businessinsider
Data released by the Bank of Spain showed gross borrowing hit 316.3 billion euros ($416.7 billion) in March, versus €169.86 billion in February.
But investors are now singing a different tune. Monthly data from the ECB and [...]