First Impressions

Today’s first impressions come from Alex Sedgewick, head of research for MarketAxess.

Taking the temperature of the bond markets

Over the last two months traders have been particularly focused on a series of potentially market moving news items. In September the Fed announced that it would delay tapering its monthly asset purchase program. More recently markets have been focused on the potential breaching of the debt ceiling, a possible US default and President Barack Obama’s nomination of Janet Yellen to become Federal Reserve Chairman. Looking at several indicators of the health of the market suggests that through all of the uncertainty of the past few months, the corporate bond market has been surprisingly resilient.
For the rest of his comments:

Quote of the Day:

“Some investors are clearly thinking about whether the dollar needs a political risk premium attached to it”.

Jens Nordvig, strategist at Nomura, in the FT’s piece: “Dollar pressured by Fed taper delay talk.”

Lead Stories

As U.S. averts default, Japan and China brace for next dollar drama
Deal or no deal, the U.S. Congress’ dance with default impressed policymakers and investors in China and Japan with just how vulnerable their own economic revival plans are to the next political tantrum on Capitol Hill.
**JK – What do you think they’d do to Republicans in China?

Goldman fixed income trading worst in class
Cut in bonus provision allows bank to hold earnings steady at $1.5bn, amid complaints poisonous US political climate has caused a lull in trading.
**JK – JD Power & Associates would have given them a favorable rating if they just put in financial crash airbags.

Timing Fed taper comes back into focus
It is hard to see the Fed cutting back support before seeing the effect of the shutdown and debt ceiling uncertainty – that means no taper this year
**JK – Want to know what the Fed will do on tapering? Watch KPMG’s Constance Hunter JLN interview from last month, pre-debt ceiling fiasco.

Investors Turn to Catastrophe Bonds to Boost Returns
Investors are buying bonds that bet against natural disasters such as earthquakes and storms at the fastest pace in six years, a sign that debtholders are seeking increasingly novel ways to boost returns amid the low-yield environment.
**JK – It’s not nice to bet on Mother Nature.

China Reports a Modest Acceleration in Growth
NY Times
Economists disagree over how robust the economic uptick is, with some arguing that a boost provided by a rise in bank credit could soon fade.
**JK – If you believe China’s numbers of course.

Journal Ordered Not to Divulge Libor Names
British prosecutors on Thursday obtained a court order prohibiting The Wall Street Journal from publishing names of individuals the government planned to implicate in a criminal-fraud case alleging a scheme to manipulate benchmark interest rates.
**JK – You won’t find much here. The full story, names and all, have been published in the US and Asia WSJ print editions. And if you’re really curious about the names in the print edition, you could click HERE, and read the International Business Times story “Wall Street Journal Prohibited From Naming LIBOR Defendants By UK Court.”

Barclays Executives Knew of Libor Lowballing, Guardian Claims
Kit Chellel – The Wall Street Journal
Current and former executives at Barclays Plc (BARC) knew that the bank submitted lower-than-accurate Libor rates as early as 2007, according to transcripts of conversations between executives cited in a U.K. court case.

Hedge Funds Surge to New Asset Record: $2.51 Trillion
Brendan Conway –  Barron’s
Say what you will about hedge funds’ 30% performance gap versus the S&P 500. Point out there are too many managers with too much money chasing too few opportunities.
Investors keep forking over the money. Hedge-fund assets surged to a fifth straight all-time record in the third quarter, at $2.51 trillion, Hedge Fund Research reports this morning.

Central Banks

European Central Bank to put banks, and itself, to the test
Business Standard
The European Central Bank (ECB) lays its credibility on the line next week when it outlines how it will test the health of top Euro zone banks, a crucial step in rebuilding confidence after two similar exercises flopped.

Europe mustn’t let interest rates decouple from wider world -Nowotny
European Central Bank Governing Council member Ewald Nowotny warned on Friday that euro zone interest rates must not become decoupled from those elsewhere because of the risk that a higher euro would choke off growth.

Fed official sees signs of U.S. housing bubble, warns on MBS buys
A top Federal Reserve official said on Thursday he is seeing signs of the United States re-entering a “housing bubble,” and warned about the U.S. central bank’s ongoing purchases of mortgage-based bonds.

Dollar pressured by Fed taper delay talk
A resolution of debt talks in Washington have only added to pressure on the dollar, as investors assess the economic impact of the government shutdown

BOJ deputy gov Iwata: ready to act if risks threaten 2 pct price goal
Bank of Japan Deputy Governor Kikuo Iwata said on Friday that the central bank is ready to take additional monetary policy steps if overseas risks threaten the achievement of its 2 percent inflation target.

BOJ gov Kuroda sees positive effects of QE on economy, prices
Bank of Japan Governor Haruhiko Kuroda said on Friday that effects of the central bank’s monetary stimulus are firmly emerging on economic activity and that the positive impact is spreading in the economy and prices.

Chilean Swap Rates Tumble on Central Bank’s Surprise Rate Cut
Sebastian Boyd – Bloomberg
Chilean swap rates fell the most in two years after the central bank unexpectedly cut the benchmark interest rate yesterday, citing the prospects that the Federal Reserve will keep U.S. borrowing costs low.


No alternative to dollar except chaos
US dollar and Treasuries provide the anchor for the global financial system, so we breathe a sigh of relief and hope that, next time, not too much blood will be spilt.

Clearing of physical FX in China and India a concern, says GFXD’s Ngai
Global FX division managing director David Ngai warns of the challenges associated with centrally clearing physically delivered FX products

Why Raghuram Rajan has to deliver a kick in UPA’s pants
R Jagannathan – Firstpost
Why has the rupee strengthened when its purchasing power continues to fall continuously and swiftly? At last count, both the wholesale and consumer price indices were moving firmly upwards, the former at 6.46 percent and the latter at 9.84 percent, just a whisker under double-digits.

Indexes & Index Products

Share dealing costs risk ‘investor harm’
Fidelity executive says costs at buyside firms to stay competitive with technological advances continue to soar, despite falls in trading volumes.

Structured Notes Tied to Credit Indexes Surge Amid Low Defaults
Alastair Marsh – Bloomberg
Structured notes tied to credit-default swap indexes are selling at a record pace as the corporate failure rate declines in Europe.


Russia”s First Gold ETF Begins Trading On Moscow Exchange
Shares in Russia”s first ETF on physical gold began trading on Moscow Exchange on 17 October. The fund tracks the London Gold Fixing Price, which is set in USD every trading day. The fund”s shares are denominated in USD, while trading on the Moscow Exchange will be in RUB.

Analysis: Lurching gold prices mystify traders, undermine confidence
While sudden swings in the price of gold are nothing new, the usual causes – a shock in economic data or a “fat finger” erroneous trade – don’t seem to fit. While the U.S. dollar had also tumbled on Thursday, bullion’s move was far more extreme. Some are pointing at spin offs from today’s predominantly 24-hour electronic trading, with a far smaller number of market makers on the trading floor to match orders and provide liquidity.


India Gears Up To Launch Interest Rate Futures
Archana Narayanan and Suvashree Dey Choudhury – Reuters
India plans to launch trading of government bond futures within the next two months as part of efforts to deepen its financial markets, according to several sources involved in the discussions with the central bank.

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