AAA banking and finance rates, 5 year and 10 year respectively, are rising again to 6.53 and 7.43% respectively which are inline with the tendency of corporate bond rates.
3-month T-bill is still discounted at 0.150% like last week. It may affect the secondary price by dragging it down from a discount of 0.01% last week now back to 0.09%. Apparently there is profit-taking behavior due to both speculation as well as news like Citibank bailout by US government. On the other hand, 6-month was sold at 0.49% this week, a huge drop from 0.84% last week. This is a sign that capital rushes to bond market for shelter except that the close-to-zero rate of 3-month T-bill becomes unattractive. Such drop also widens the TED spread to 171pts though this time it is initiated by the drop on T-bill but not LIBOR. While short-term credit risk is not the issue, the confidence on the market is apparently lost and losing.
The discrepencies between TIPS and Bonds are:
5-year = -0.42%;
10-year = 0.28%;
30-year = 0.42%
From the above data, the market has extended the deflation period to 5-year.
Certificates of Deposit rates have decreased. It reflects the expectation on the coming decrease of target rate as well as deflation.
Combining the above phenonmena, liquidity issue is still alright but confidence on the equity market has lost to debt market. Even for debt market, corporate bond market is doomed as worse news has not all emerged yet. Investors become more and more risk adverse, and the expectation on deflation has extended. Judging from the way many banks announced their Q3 results as well as the financial statements last year/Q3, financial institutions will continue to have problems/bad news. Other companies will also face similar problems. However, as the market has dropped tremendously before, investors may attempt to do bottom fishing. Yet, it can only trigger rebound, not refuel the market.
Tuesday, November 25, 2008
Friday, November 21, 2008
怪圈：USA越減息越跌市
最近長息最終跟隨拆息回落：5 year AAA banking and finance rate = 5.94%; 10 year AAA banking and finance rate = 6.86%。但是這並非代表雨過天清：
- 美國政府已經改變救銀行的方向；各大銀行自求多福；季結和年結又將臨近，必然要"做靚盤數"：生意少做不打緊，最緊要沒有更多壞賬；短期多給大額存戶存款利息沒問題，但求他們的資金能"再坐一會"。
- 風險溢價仍然高企：5 year = 494點，比上月同比高11點；10 year = 586點，比上月同比低17點而已、比三個月前仍高出204點子之多。
- 公司債卷的贖回孳息上升：投資級至8%；高息級至24%；市場對公司的生存和還債能力的信心仍然不足。
- 樓按的風險溢價，除一年期浮息外，仍較比上月同比高16-50點不等，其中以豪宅樓按的升幅較高；在裁員潮下，貴價樓當然乏人問津。用次按買中小宅的已死得七七八八。危機源頭開始收縮，然而危機仍在擴散中，尚未穩定下來。
- 但是，另一方面，在需要大額的資金儘量存入銀行的情況下，各銀行出的存款證的息差由一個月的90點子，六個月的198點子、一年的248點子至五年的292點子不等。
- 各國的政府債卷的孳息均不斷下降，而其中結合相對歐羅和英鎊上升的美元來看，美債仍為"避難所"，因此資金湧入，進一步推高美債價格。
- 今年第四季季結方能顯示各企業最惡劣的成績。在市場如斯波動難明的情況下，所謂股市領先經濟六個月的說法未必適用。資金流向易受情緒的影響而變得極端。
- 在避難心態下，再加上預期美國再減兩次隔夜息，資金進一步湧入債市和貨幣市場，與股本市場競爭資金。結果是越減息資金反而越遠離股本市場而流向債市。
本港股市是否在10676已尋到底部與否仍非定數，端視下列因素而定：
- 美國樓市和各証卷市場是否在2009年上半年在穩定中。
- 中國的拯救經濟措施在2009年上半年是否已開始收效。
- 香港的救市措施能否現在開展(多數不成)。
- 下年農曆年前後的裁員潮和因而引起的斷供及消費進一步萎縮等的連鎖反應。
由於技術上看底部已近；終極一跌是否到來，還看以上各點。亦正因為市況還未明朗，狂做單邊倉易遭挾死是也。必欲做單邊倉，小注分價分段買賣為宜。
Tuesday, November 18, 2008
Money Rush Back to Bond
(For November 17, 2008 Bloomberg data)
3 month bill was auctioned yesterday. The yield was 0.150%. At the secondary market, the existing bill has already had its yield dropped by 6 pts to 0.09%, another new low. Spread from FED rate is -64pts. But if FED rate drops to 0.5%, then the spread will be -14pts. If it is 0%, then the spread will be 36pts. The market speculates strongly on a cut of interest rate in 3 months to zero.
6 month bill was auctioned yesterday. The yield was 0.840%. At the secondary market, the existing bill has already had its yield dropped by 8 pts to 0.76. Spread from FED rate is 52pts.
6 month UK bond yield is 1.71% (BOE rate is 3%); 6 month Germany bond yield is 2.05% (ECB rate is 3.25%). The spread is 42pts and 85pts respectively.
USD vs EUR is 1.2643; USD vs GBP is 1.4986; USD vs JPY is 96.395. The previously weak dollar has started to rally as all countries will compete for lowering interest rate to stimulate their economies.
On the other hand, Certificates of Deposits in US remains at relatively higher yield. 6 month CD is at 3.01%; JUMBO for the same period is 3.18%. Banks are on the one hand lusting for money and willing to offer higher rate for deposit. On the other hand, banks are unwilling to lend money that are both reflected on high mortgage rate (30 year fixed 6.08%; 15 year fixed 5.76%)and high AAA banking and finance rate (5 year 6.24%; 10 year 7.70%).
The above will reflect the harsh environment of banking and finance. The cost of capital from personal accounts, particularly large deposit, is high due to loss of confidence from the clients. But, the bank in turn does not trust the corporate and demands a high cost of capital on them. Hence, the "backbone" of the business, commercial loans, will greatly diminish, on both clients and profit margin (due to narrowing risk premium). The shrinking wealth management and investment bank business will only worsen the situation. Cost cut through layoff can only be first aid. It cannot cure the situation, nor can it even just stop the worsening.
With a declining banking business and the increasing government intervention (direct "investment" on various projects), SMEs may cease the dying wave for now but in the longer term the lack of "investors" will delay the recovery (and even encourage corruption).
3 month bill was auctioned yesterday. The yield was 0.150%. At the secondary market, the existing bill has already had its yield dropped by 6 pts to 0.09%, another new low. Spread from FED rate is -64pts. But if FED rate drops to 0.5%, then the spread will be -14pts. If it is 0%, then the spread will be 36pts. The market speculates strongly on a cut of interest rate in 3 months to zero.
6 month bill was auctioned yesterday. The yield was 0.840%. At the secondary market, the existing bill has already had its yield dropped by 8 pts to 0.76. Spread from FED rate is 52pts.
6 month UK bond yield is 1.71% (BOE rate is 3%); 6 month Germany bond yield is 2.05% (ECB rate is 3.25%). The spread is 42pts and 85pts respectively.
USD vs EUR is 1.2643; USD vs GBP is 1.4986; USD vs JPY is 96.395. The previously weak dollar has started to rally as all countries will compete for lowering interest rate to stimulate their economies.
On the other hand, Certificates of Deposits in US remains at relatively higher yield. 6 month CD is at 3.01%; JUMBO for the same period is 3.18%. Banks are on the one hand lusting for money and willing to offer higher rate for deposit. On the other hand, banks are unwilling to lend money that are both reflected on high mortgage rate (30 year fixed 6.08%; 15 year fixed 5.76%)and high AAA banking and finance rate (5 year 6.24%; 10 year 7.70%).
The above will reflect the harsh environment of banking and finance. The cost of capital from personal accounts, particularly large deposit, is high due to loss of confidence from the clients. But, the bank in turn does not trust the corporate and demands a high cost of capital on them. Hence, the "backbone" of the business, commercial loans, will greatly diminish, on both clients and profit margin (due to narrowing risk premium). The shrinking wealth management and investment bank business will only worsen the situation. Cost cut through layoff can only be first aid. It cannot cure the situation, nor can it even just stop the worsening.
With a declining banking business and the increasing government intervention (direct "investment" on various projects), SMEs may cease the dying wave for now but in the longer term the lack of "investors" will delay the recovery (and even encourage corruption).
Friday, November 14, 2008
Bottom is Coming Closer, But Not Yet
DJI, S&P500, and NASDAQ all rebounded by significant percentages last night after touched the day's low.
Oil companies along had led 317pts rose on DJI in accordance with the oil price rally, according to reports on bloomberg.
CB Richards raised capital from the market by issuing shares and walked them through the capital shortage for the moment.
Nevertheless, despite a drop on T-bill and Gov't Bond price, overall speaking the 3-month and 6-month T-bill remain at low level: 0.18 discount rate and 0.92 yield rate, respectively. So do 12-month and 2-year note, at 1.13% and 1.23% respectively. TED has increased to 197pts from 182pts 2 days ago. Spread between 10-year note and 2-year note is 261pts, comparing to 256pts 2 days ago. As USD is climbing against JPY and GBP again, money is continuously flowing back to US market. In US market, although equities price rose according to speculation on individual company's result, a bulk of money still chose relatively safer tool as shelter.
Another hint on company performance is that the AAA banking and finance rate, after a consecutive drop for about a week, rose back to 6.36% (5year) and 7.86% (10year) respectively. Ambigious plans from US treasuries have damaged the market confidence. The alternation on Paulson's plan reveals both the handicaps and the fierce internal struggles between the current and the elected presidential office. Republicans will hijack (or even sabotage) the government operation for last-time bargaining before Democrats can fully control the government by next year. Skeletons inside the box can be expected for the first and even second quarter of 2009.
Jobless claims hits 516k and is worse than the consensus 482k, according to bloomberg.
The economy of USA is still worsening. Bankrupcy will continue to surface as the capital environment has not really eased considering the widening risk premium of company loans and the steadily high spread between FED and Interbank rate. As USD rate is getting closer to JPY, USD becomes a competitor of JPY on carry trade. Demand on USD will increase while demand on JPY will retreat. USD obtained can be invested on carry trade market, bond market market, and equities market (while commodity market will be less likely as commodity demand is greatly decreased, and the portion taken up by actual commodity demand by USA does not match with emerging countries like China). With US government bonds as the back-up on the portfolio (thus yield stays low), investors can use smaller portion to speculate on other higher interest rate currency and on both ups and downs of equities market. Swinging back and forth from one market to another is expected. But as limited by the economy, as shown on increasing jobless claims, decreasing house orders, decreasing consumer spending, and high treasuries deficit, the overall trend is a dropping one.
Since Central Banks worldwide are mad on cutting rates to boost economies, carry trade will shrink and die most quickly. The sufficiency of currency, at a while, will boost first bond and equities markets in turn, depending on different periods of result announcements. After announcement and confirmation of various infra-structural projects from governments like USA and China, commodities and BDI may return to a certain level. Equities on related areas may also rise. However, such "artifical" increases cannot stay for long without supports from new inventions and innovations. Assume there is no such discovery being made, then thhe world economy after a flush of cash, will drop again, either by deflation (in USA) or by stagflation (in China).
Oil companies along had led 317pts rose on DJI in accordance with the oil price rally, according to reports on bloomberg.
CB Richards raised capital from the market by issuing shares and walked them through the capital shortage for the moment.
Nevertheless, despite a drop on T-bill and Gov't Bond price, overall speaking the 3-month and 6-month T-bill remain at low level: 0.18 discount rate and 0.92 yield rate, respectively. So do 12-month and 2-year note, at 1.13% and 1.23% respectively. TED has increased to 197pts from 182pts 2 days ago. Spread between 10-year note and 2-year note is 261pts, comparing to 256pts 2 days ago. As USD is climbing against JPY and GBP again, money is continuously flowing back to US market. In US market, although equities price rose according to speculation on individual company's result, a bulk of money still chose relatively safer tool as shelter.
Another hint on company performance is that the AAA banking and finance rate, after a consecutive drop for about a week, rose back to 6.36% (5year) and 7.86% (10year) respectively. Ambigious plans from US treasuries have damaged the market confidence. The alternation on Paulson's plan reveals both the handicaps and the fierce internal struggles between the current and the elected presidential office. Republicans will hijack (or even sabotage) the government operation for last-time bargaining before Democrats can fully control the government by next year. Skeletons inside the box can be expected for the first and even second quarter of 2009.
Jobless claims hits 516k and is worse than the consensus 482k, according to bloomberg.
The economy of USA is still worsening. Bankrupcy will continue to surface as the capital environment has not really eased considering the widening risk premium of company loans and the steadily high spread between FED and Interbank rate. As USD rate is getting closer to JPY, USD becomes a competitor of JPY on carry trade. Demand on USD will increase while demand on JPY will retreat. USD obtained can be invested on carry trade market, bond market market, and equities market (while commodity market will be less likely as commodity demand is greatly decreased, and the portion taken up by actual commodity demand by USA does not match with emerging countries like China). With US government bonds as the back-up on the portfolio (thus yield stays low), investors can use smaller portion to speculate on other higher interest rate currency and on both ups and downs of equities market. Swinging back and forth from one market to another is expected. But as limited by the economy, as shown on increasing jobless claims, decreasing house orders, decreasing consumer spending, and high treasuries deficit, the overall trend is a dropping one.
Since Central Banks worldwide are mad on cutting rates to boost economies, carry trade will shrink and die most quickly. The sufficiency of currency, at a while, will boost first bond and equities markets in turn, depending on different periods of result announcements. After announcement and confirmation of various infra-structural projects from governments like USA and China, commodities and BDI may return to a certain level. Equities on related areas may also rise. However, such "artifical" increases cannot stay for long without supports from new inventions and innovations. Assume there is no such discovery being made, then thhe world economy after a flush of cash, will drop again, either by deflation (in USA) or by stagflation (in China).
Wednesday, November 12, 2008
China Retail Rose by 22% - Decoupling or not?
Retail in China rose by 22%. Good news. A solid proof of decoupling, isn't it?
Wait. Question: By what percentage the wages has increased in China since last year?
20% at least. Middle management and professionals have even higher percentage as shortage is there.
But do we still have shortage this year? Or has the gap been narrowing? According to my little survey on headhunters, the answer is "YES', particularly on real-estate, finance, investment, and professional services related areas. These people belong to one of the groups who can spend most.
The decline of sales on telecommunication and electrical appliances and household related decorative and utilities materials, another part of the domestic consumption, which takes a big pie on manufacturing, tells another story. The decline on real-estates and investment has already started to affect on certain area. Another area that was not told in the statistics is restaurant. The middle-to-high class dining places have been closing ever since the lower half of the year.
Clothing rose. But please pay attention that the real famous brand name fashion companies all have significant loss, including China areas, in their income statements. Daily casual clothing is not much affected: afterall, you will not go naked on the street, aren't you?
One should never forget that the largest pie on GDP is still export. Yet, influence on the consumption due to weakening export takes time to effect. It has to walk through the supply chain, shut down the factories that solely rely on exports, laid off their labour, cause the remaining to focus on domestic market, initiate another round of survivors' games, kick out the unfit, cause another lay-off wave, cripple some stores, layoff the labour related to that sector, and eventually settle.
Won't the 4t RMB stimuli program bail China out from this miserable future? Government spending project can certainly prevent or at least delay the worsening. But it cannot simply reverse the trend and boost China economy to a new level. For details, please refer to my previous articles.
Afterall, this year China workers have salary risen. How about next year?
Wait. Question: By what percentage the wages has increased in China since last year?
20% at least. Middle management and professionals have even higher percentage as shortage is there.
But do we still have shortage this year? Or has the gap been narrowing? According to my little survey on headhunters, the answer is "YES', particularly on real-estate, finance, investment, and professional services related areas. These people belong to one of the groups who can spend most.
The decline of sales on telecommunication and electrical appliances and household related decorative and utilities materials, another part of the domestic consumption, which takes a big pie on manufacturing, tells another story. The decline on real-estates and investment has already started to affect on certain area. Another area that was not told in the statistics is restaurant. The middle-to-high class dining places have been closing ever since the lower half of the year.
Clothing rose. But please pay attention that the real famous brand name fashion companies all have significant loss, including China areas, in their income statements. Daily casual clothing is not much affected: afterall, you will not go naked on the street, aren't you?
One should never forget that the largest pie on GDP is still export. Yet, influence on the consumption due to weakening export takes time to effect. It has to walk through the supply chain, shut down the factories that solely rely on exports, laid off their labour, cause the remaining to focus on domestic market, initiate another round of survivors' games, kick out the unfit, cause another lay-off wave, cripple some stores, layoff the labour related to that sector, and eventually settle.
Won't the 4t RMB stimuli program bail China out from this miserable future? Government spending project can certainly prevent or at least delay the worsening. But it cannot simply reverse the trend and boost China economy to a new level. For details, please refer to my previous articles.
Afterall, this year China workers have salary risen. How about next year?
Tuesday, November 11, 2008
AAA drops; TED Spread Rises
Both 5 year and 10 year AAA banking and finance rates drop at a slower speed, and settle at 6.30% and 7.77% respectively. The risk premium of each is 530pts and 677pts respectively. One month prior, immediately after Oct 10 and interest rate cut by 50pts, the risk premium of each is 475pts and 600pts respectively. With massive bailout and expectation on new policies, banks are still unwilling to do longer term commercial loans. The figures are actually worsening. More bankrupcies in USA can be expected (that will further drive down the market).
Mortgage rates drop also slowdown and settle at the range of 5.93 to 7.31%. Property market will continue to go worse and trigger another wave of panic.
1 Month LIBOR is 1.54%. 3 month LIBOR is 2.24%.
The 3-month T-bill was auctioned yesterday at a discount of 0.355%. Today at ET2:00am the T-bill was quoted at the discount of 0.42%. Despite the drop which may be a hint of capital leaving risk-free market looking for short-term return, the TED remains at 182pts, some 150pts deviated from the normal range. Further observation on the 3-month T-bill at later period, after Asian market closing and European marketing opening, may show the trend of US market tonight.
Meanwhile, UK, Japan, Germany, and Australia have their government bond prices risen. Investors on OECD are shown to become more and more risk-adverse. Brazil bond prices dropped on the other hand. Lack of confidence on emerging countries economic and underlying political stability arises. Money continuously flows out from these countries.
Hong Kong, with the rather small pool, China factors, free capital flow, and lame government becomes a haven for speculators and risk-takers. By balancing a portfolio with risk-free assets, globalized investors can on the one hand borrow JPY to invest on comparatively safer asset in OECD countries; on the other hand, can put a part of the investment to make a fortune by speculating in Hong Kong. While overall speaking Hong Kong will not be immuned from the downturn by both USA and China, high magnitude of fluctuation on a downward long-term curve can be expected.
Mortgage rates drop also slowdown and settle at the range of 5.93 to 7.31%. Property market will continue to go worse and trigger another wave of panic.
1 Month LIBOR is 1.54%. 3 month LIBOR is 2.24%.
The 3-month T-bill was auctioned yesterday at a discount of 0.355%. Today at ET2:00am the T-bill was quoted at the discount of 0.42%. Despite the drop which may be a hint of capital leaving risk-free market looking for short-term return, the TED remains at 182pts, some 150pts deviated from the normal range. Further observation on the 3-month T-bill at later period, after Asian market closing and European marketing opening, may show the trend of US market tonight.
Meanwhile, UK, Japan, Germany, and Australia have their government bond prices risen. Investors on OECD are shown to become more and more risk-adverse. Brazil bond prices dropped on the other hand. Lack of confidence on emerging countries economic and underlying political stability arises. Money continuously flows out from these countries.
Hong Kong, with the rather small pool, China factors, free capital flow, and lame government becomes a haven for speculators and risk-takers. By balancing a portfolio with risk-free assets, globalized investors can on the one hand borrow JPY to invest on comparatively safer asset in OECD countries; on the other hand, can put a part of the investment to make a fortune by speculating in Hong Kong. While overall speaking Hong Kong will not be immuned from the downturn by both USA and China, high magnitude of fluctuation on a downward long-term curve can be expected.
Monday, November 10, 2008
Money Supply Drop on the Last Week of Oct
According to bloomberg, the M2 supply was recorded as -48.2billion at the last week of October, 2008.
Meanwhile, the secondary market 13wk (3month) T-bill yield at the same week were as follows:
Oct 27 - 31: 0.84, 0.76, 0.61, 0.40, 0.44
Despite the fact that the target rate was dropped from 1.5% to 1.0% at the same week, the drop on yield is still significant. We may compare with the same data for one week earlier.
Oct 20 - 24: 1.24, 1.09, 1.03, 0.96, 0.86
M2: 54.3b
It may be a coincedence. However, if US government becomes competitive with the bank on taking deposit, the efforts of US government on money injection to the banking system will go in vain.
Long-term AAA banking and finance rate premium over target rate maintains high:
5 year: 542pts;
10 year: 687pts
So are mortgage rates:
30 year fixed: 503pts;
15 year fixed: 470pts;
5/1 year ARM: 495pts;
1 year ARM: 469pts
Both corporate and property loan markets signal winter. Government bonds are welcomed despite its low yield rate (and even lowering coupon rate). Particularly under the expectation on further reduction on FED target rate will bring up the government bills, notes, and bonds prices. Goverment's abilities on fund raising is also weakened due to lack of creditibility in spite of the announced result of presidential election. Currency of USD will be expected to drop against EURO this week, neutral against JPY, and rise against AUD, NZD, etc.
China's 10 economic stimuli may have some encouargement on AUD rate. Yet, the declining economy plus the sliding interest rate will offset the favorable factors and further turn AUD downward.
This week USA equity market may also experience another slide (with fluctuation), with the knowledge that money is looking for shelter from volatility and grimmy hope. The rebound within this week may prove technical only.
Meanwhile, the secondary market 13wk (3month) T-bill yield at the same week were as follows:
Oct 27 - 31: 0.84, 0.76, 0.61, 0.40, 0.44
Despite the fact that the target rate was dropped from 1.5% to 1.0% at the same week, the drop on yield is still significant. We may compare with the same data for one week earlier.
Oct 20 - 24: 1.24, 1.09, 1.03, 0.96, 0.86
M2: 54.3b
It may be a coincedence. However, if US government becomes competitive with the bank on taking deposit, the efforts of US government on money injection to the banking system will go in vain.
Long-term AAA banking and finance rate premium over target rate maintains high:
5 year: 542pts;
10 year: 687pts
So are mortgage rates:
30 year fixed: 503pts;
15 year fixed: 470pts;
5/1 year ARM: 495pts;
1 year ARM: 469pts
Both corporate and property loan markets signal winter. Government bonds are welcomed despite its low yield rate (and even lowering coupon rate). Particularly under the expectation on further reduction on FED target rate will bring up the government bills, notes, and bonds prices. Goverment's abilities on fund raising is also weakened due to lack of creditibility in spite of the announced result of presidential election. Currency of USD will be expected to drop against EURO this week, neutral against JPY, and rise against AUD, NZD, etc.
China's 10 economic stimuli may have some encouargement on AUD rate. Yet, the declining economy plus the sliding interest rate will offset the favorable factors and further turn AUD downward.
This week USA equity market may also experience another slide (with fluctuation), with the knowledge that money is looking for shelter from volatility and grimmy hope. The rebound within this week may prove technical only.
Subscribe to:
Posts (Atom)
Posts
