First Impressions

JLN Heads to London
JLN Staff
Jim Kharouf is off to London today, and John Lothian, Doug Ashburn and intern Colin Ashburn head there on Saturday night.

This is gearing up to be a great conference. Much of the industry conversation has moved to Europe, as evidenced by today’s newsletter. Big changes at NLX, an overhaul of all things regulatory as the industry prepares for MiFID II, and the lingering cross-border disputes are but a few of the stories making headlines today and on the docket for IDX

We will see if John’s newly partially replaced right shoulder can handle the flight and trip, schlepping his luggage around the airport and London.

We will be conducting video interviews at IDX, with Colin Ashburn and Alison Fay manning the cameras. We also will be shooting some video for a John Lothian Productions contract. Since the production work requires the schlepping of extra gear – multiple cameras, lights and such, at least one staffer suggested the shoulder surgery was a hoax meant to exempt John from portage duty.

The next edition of JLN will be coming to you from London. See you then.

Quote of the Day

“Just when all the Fed speakers were sounding more and more cautious, in comes a strong labor market report and puts thoughts of tighter policy back on the agenda.”

Rob Carnell, Chief International Economist at ING Commercial Banking, in the story “‘This is what a good jobs report looks like’: payrolls reactions”

Lead Stories

Apple Is the New Pimco, and Tim Cook Is the New King of Bonds
By Nabila Ahmed and Mary Childs – Bloomberg Business
There’s a new whale in the corporate-bond market.
Apple Inc., Oracle Corp. and the other tech giants hoarding half a trillion dollars in cash have joined the ranks of the biggest buyers of the debt, often snapping up as much as half of some bond issues, according to five people with knowledge of the transactions.
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‘This is what a good jobs report looks like’: payrolls reactions
By Robert Schroeder – MarketWatch
Here’s a roundup of comments from economists about the May U.S. jobs report, showing 280,000 jobs were created in the month. The unemployment rate edged up to 5.5% from 5.4%.
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Bond Traders to Lagarde: You’re Wrong, the Fed Will Hike in 2015
By Lisa Abramowicz – Bloomberg Business
U.S. bond traders had a very clear message for Christine Lagarde on Friday morning: Your advice to the Federal Reserve is wrong.
Lagarde, managing director of the International Monetary Fund, advised the Fed on Thursday to wait until 2016 before hiking interest rates.
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Tsipras tells lenders not to humiliate Greece over debt
BBC News
Greece’s prime minister has warned international creditors not to impose humiliating terms on his country as it seeks urgently needed bailout funds.
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Gross Says Jobs Report Implies Long-Term Bond ‘Bear Market’
By Mary Childs – Bloomberg Business
Bill Gross, manager of the $1.5 billion Janus Global Unconstrained Bond Fund, said a bigger-than-expected jump in U.S. payroll data implies a “bear market for long-term bonds.”
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Investors fear summer market storms loom
By David Oakley – Financial Times
Another turbulent week in the markets has investors fearful of larger storms arriving this summer.
German government bonds sold off, equities whipsawed while foreign-exchange markets experienced large swings as investors scrambled to position themselves against a backdrop of uncertainty in Greece, worries over US rate policy and fears of Chinese credit bubble.
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Ukraine’s Creditors Say Disappointed After Debt Talks This Week
By Natasha Doff and Marton Eder – Bloomberg Business
Ukraine’s creditors said they were disappointed with progress in a $19 billion debt restructuring, signaling the biggest weekly rally in the nation’s bonds in 14 months may be shortlived.
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A Fundamental Approach to Emerging Markets Bonds
By Todd Shriber – ETF Trends
Despite the stronger dollar, long believed to be problematic for developing world debt issuers, some emerging markets bond exchange traded funds have been sturdy this year.
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Taper Tantrum Looms Larger While Losses Pile Up: Reality Check
By Alexandra Scaggs – Bloomberg Business
The latest selloff in bonds still looks mild next to the market tumult from 2013.
Even before Friday’s stronger-than-forecast U.S. jobs report sent prices tumbling again, the rout in fixed income since April 17 had wiped out about $800 billion in market value worldwide. That’s only about half the $1.5 trillion of losses registered in just two weeks in 2013 on speculation the Federal Reserve would taper its securities buying, according to a Bank of America Merrill Lynch index.
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Bund volatility questions safe havens, turns risk on its head
By Jamie McGeever – Reuters
It isn’t supposed to be like this. Holders of German government bonds, among the world’s safest financial assets, have seen their investments plunge in value this week as ECB President Mario Draghi added fuel to the recent explosion of volatility.
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Deals Gone Bad Push Muni Borrowers to Dump Interest-Rate Hedges
By Darrell Preston – Bloomberg Business
With borrowing costs about to rise, why are U.S. municipal-bond issuers paying to dump interest-rate hedges?
Because they’re hoping to avoid the fate of Chicago, by simplifying their finances and controlling the timing of when they unwind floating-rate bond deals. Last month, the city tried to refinance debt tied to derivatives that went awry while it still had investment grades from the three biggest rating companies. Moody’s Investors Service cut Chicago to junk before it could sell the securities, driving up borrowing costs.
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Moody’s strikes again, lowering Cook County debt a notch
By Greg Hinz – Crain’s Chicago Business
Pension woes further ensnared local government today as a major credit rating agency, Moody’s Investors Service, lowered its view of Cook County debt another notch but kept it above the junk level the city of Chicago has achieved.
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Libor-rigging trial reveals concerns of bankers’ body and Bank of England
By Estelle Shirbon – Reuters
Evidence disclosed on Friday at the trial of a former trader accused of rigging Libor interest rates showed the trade body in charge of the benchmark rates and Bank of England officials were concerned about the integrity of the system as far back as 2007.
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When Will Bond Markets Join the 21st Century?
By Larry Harris – WSJ
Bond-market gyrations are giving investors and regulators the jitters. Much of the volatility is due to concerns about the potential for rising interest rates and a slowing economy. But it is also due to decreasing liquidity in the bond markets, thanks in part to traders who have migrated to the credit-default-swap markets where essentially the same credit risks trade. And some illiquidity is due to fundamental problems with the structure of bond-market trading.
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Central Banks

Dudley Says Fed Still Likely to Raise Interest Rates This Year
By Matthew Boesler – Bloomberg Business
U.S. central bankers are still likely to start raising interest rates this year if the labor market improves further, though the jobs outlook has become more uncertain, said William C. Dudley, president of the Federal Reserve Bank of New York.
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The Federal Reserve and inequality
The Washington Post’s Editorial Board
The Federal Reserve deserves credit for helping stem an epic financial panic in 2008 and, subsequently, mitigating the worst downturn since the Great Depression. To do this, the central bank necessarily resorted to new and unconventional methods — principally zero interest rates and the asset-purchasing program known as quantitative easing, or QE. The jury is still out, though, about the program’s full effects, intended and unintended, short-term and long-term. In particular, the Fed stands accused of exacerbating economic inequality. The argument is that quantitative easing boosts the price of financial assets, disproportionately benefiting holders of such assets — disproportionately the wealthy.
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How the Fed’s East Coast Tilt Warps Monetary Policy
By Kevin Brady – WSJ
In 1913 President Woodrow Wilson favored the creation of a central bank, but the legacy of President Andrew Jackson—who vetoed a bill to renew the charter of the Second Bank of the United States in 1832—still stood firm in some parts of the country. So to get Congress to pass the Federal Reserve Act, Wilson had to retain the support of pro-central bank northeastern lawmakers while convincing southern and western Democrats that legislation would not, in fact, create a central bank. Wilson’s ingenious solution was federalism: a Federal Reserve composed of 12 district banks under the supervision of a board in Washington.
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Fed Deflects Outside Aid to Investigate Data Leaks
By Binyamin Applebaum – The New York Times
A review of the Federal Reserve’s response to recent leaks about its bond-buying plans raises new questions about the central bank’s efforts to police interactions with investors who can profit handsomely from inside information.
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Yellen: Fed Was Advised Against Fully Complying With Subpoena on Leak Probe
By Pedro Nicolaci Da Costa – WSJ
Federal Reserve Chairwoman Janet Yellen said the central bank didn’t provide most of the information requested by members of Congress about an internal investigation because of an ongoing criminal probe into the matter.
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Russian finance minister defends tight monetary policy
By Alexander Winning, Oksana Kobzeva and Elena Fabrichnaya – Reuters
Russian Finance Minister Anton Siluanov said on Friday that the country’s tight monetary policy was needed to combat high inflation and that he expected the policy to continue in the “coming years”.
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Currencies

400 Billion Reasons Why Ebbing Currency Reserves Threaten Bonds
By Simon Kennedy – Bloomberg Business
There’s a $400 billion reason to worry if you’re a bond investor.
That’s how much global currency reserves have shrunk since reaching a record $12 trillion last August, according to data compiled by Bloomberg.
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India regulator mulls launch of offshore rupee market
By Blake Evans-Pritchard – Risk.net
The idea of a fully convertible offshore INR market is met with scepticism from market participants. The Reserve Bank of India (RBI) has been consulting with banks about the possibility of setting up a fully convertible offshore foreign exchange market in a move analogous to China’s currency liberalisation but many are sceptical that this will get off the ground.
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The Internet is Changing the Very Definition of Money
By Kyle Torpey – Inside Bitcoins
In a recent blog post, Truthcoin (not an altcoin) Creator Paul Sztorc made an interesting point about how the Internet is changing the traditional definition of money. In the past, an asset needed to serve as a medium exchange, unit of account, and store of value to be useful as money; however, the Internet is quickly removing two parts of this equation.
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Jefferies Updates Plans for Continued Expansion of Foreign Exchange Brokerage Business
Press Release
Jefferies Group LLC announced today that it is continuing to implement plans for expansion of its foreign exchange business as the Faros Trading business it acquired from FXCM in April has now been fully integrated with Jefferies FX business.
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Indexes & Index Products

MSCI could catch global investors off guard if it adds China
By Michelle Price – Reuters
U.S. index provider MSCI could catch many global investors unprepared if it decides next week to add Chinese-listed yuan-denominated shares to one of its key benchmarks. For funds with little experience investing in China’s volatile $9 trillion stock market such a move could be disruptive and costly, as they may become vulnerable to liquidity squeezes leading to a rise in tracking error and underperformance, investment experts said.
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S&P rebalance sees Domino’s take a slice of ASX 100 Index
Proactiveinvestors (AU)
S&P Dow Jones Indices quarterly re-balance is in, with movement quite moderate with only three changes to the S&P/ASX 200 Index. At the blue chip end of town, South32 has been removed from the S&P/ASX 20 Index.
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New E.T.F.s Appeal to Those With Bigger Appetites for Risk
By Landon Thomas Jr. – NY Times
Imagine a fund that offers exposure to the strategies of the world’s sharpest hedge fund investors. Or one that tracks the steady dividends paid by companies like Apple, instead of their more volatile shares.
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Gold

8 Reasons to Take a New Shine to Gold
By Kopin Tan – Barron’s
Gold should be ashamed of calling itself a precious metal these days. Since it peaked near $1,889 a troy ounce in August 2011, the price of gold has fallen almost 40% into a perennial bear market. This year alone, gold has underperformed stocks in China, Japan, Hong Kong, Taiwan, Korea, Australia, the U.S., Russia, Switzerland, Italy, Portugal, Ireland, Germany, Poland and Israel; government bonds of countries from China to Russia; the dollar, Swiss Francs, Picassos, Warhols, Rothkos, Manhattan real estate, cocoa, eggs, cotton, silver and – gasp – even lead! Like frankincense and myrrh, gold has been relegated to the heap of has-beens, overlooked by fast money chasing momentarily hotter assets.
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