First Impressions

Mr. QE Goes to Brussels; Mr. Gross Goes to Short-Date Maturities
Doug Ashburn – John Lothian News

Today’s top story highlights the growing divergence between the 10-year yield in the U.S. versus others in the developed world. Unless you are an active FX or global fixed income trader, you probably have not noticed that, at 2.78 percent, the U.S. 10 year is higher than equivalent maturity bonds in 14 developed countries. What do you know about that!

Now that the EU is dropping hints it may begin buying treasuries to stimulate commerce and stave off deflation, the spread between U.S. and German 10-years has widened to its highest level since May 2006. There is now a 118 basis point difference between the two.

Adding petrol to the flame is PIMCO’s Bill Gross, who has advocated a shift to the 1-5 year portion of the curve. The quote below says it all.

Quote of the Day

“The 1–5 year portion of the curve, beaten up recently due to Fed ‘blue dot’ forecasts and Yellen’s ‘six months after’ comments, should hold current levels if inflation stays low. But 5–30 year maturities are at risk.”

Bill Gross in the story, “Gross Says Stay in Shorter-Maturity Debt After Yellen Roils Bet”.

Lead Stories

Treasury Yield Tops Germany’s by Most Since 2006 as ECB Holds
Daniel Kruger and Neal Armstrong – Bloomberg
Treasury 10-year yields were almost the highest relative to their German counterparts in more than seven years as the European Central Bank kept policy accommodative while the Federal Reserve slows stimulus.

Moody’s Investors Service Is No-Show in Bond Deal Rating
When the sale of more than $1 billion in commercial-mortgage bonds went off without a hitch last week, one name was conspicuously missing from the prospectus: Moody’s Investors Service.

***DA: Is Moody’s pre-washing its hands ahead of the next crisis?

Gross Says Stay in Shorter-Maturity Debt After Yellen Roils Bet
Liz Capo McCormick – Bloomberg
Pacific Investment Management Co.’s Bill Gross recommends staying in bonds maturing in five years and less even after comments last month from Federal Reserve Chair Janet Yellen sent shorter-maturity yields surging.

***DA: Don’t argue; just do it!

Greece sees ‘trial and error’ bond foray, full return in 2016
Greece’s first foray into bond markets after a four-year exclusion will be on a “trial and error” basis but the nation expects to fund itself unaided in 2016, its finance minister told Reuters on Wednesday.

***DA: What kind of errors, and with whose money will these errors be made?

Blythe Masters quits JPMorgan after 27 years
Tom Braithwaite in New York –
Blythe Masters, a pioneer of credit derivatives, one of the products at the heart of the financial crisis, has resigned from JPMorgan Chase after more than two decades at the bank.

***DA: Blythe, we hardly knew ye.

Euroclear And TDCC Launch Ground-Breaking Offshore RMB Service
Euroclear Bank and the Taiwan Depository & Clearing Corporation (TDCC) have launched a new service allowing international investors to settle Taiwanese-issued RMB bonds (Formosa bonds) in TDCC. The service, the first of its kind, will allow settlement transactions to be routed from Euroclear Bank’s account with Citi to the local central securities depository, TDCC.

Bond Investors Should Be Anxious
Investors looking to Wall Street for early warning of the next recession have reason to feel jaded.

Long Bonds Lure BlackRock in Best Start Since 2009: Muni Credit
Michelle Kaske – Bloomberg
The longest-dated municipal bonds are rallying the most in five years, attracting investors such as BlackRock Inc. (BLK) and giving localities a chance to lock in lower borrowing costs for decades.
State and city debt due in 22 or more years has earned 6 percent in 2014 through April 1, the best annual start since 2009 and beating shorter maturities, Bank of America Merrill Lynch data show.

Euro-Zone Bonds Keep Rallying. But Why?
MoneyBeat – WSJ
With Greek bond yields now back to the lowest they’ve been since 2010 and the government diving back into the market, the European Central Bank can claim victory in its promise to secure the euro’s survival. But depending on how it reads the forces behind plunging yields across the region’s most bombed-out economies will determine how happy the ECB is about further declines.

Debt troubles within the Great Wall
Martin Wolf –
Is China different? Or must its borrowing binge, like most others, end in tears? “Neither” is my answer. China will not have a financial meltdown. But the end of its credit addiction will result in lower growth, properly measured.

Investors Clamor for Risky Debt Offerings
Risky debt is flying off the shelves. Investors are snapping up low-rated securities backed by companies, home mortgages and car loans at a clip rarely seen since the financial crisis, as fund managers and others tire of paltry yields on safer assets.

Asia corporates hesitate to hedge out interest rate risk
Blake Evans-Pritchard –
Banks are advising companies to protect themselves against an expected rise in interest rates. But with rates so low and the cost of swaps so high, does hedging really make sense?

Greater diversity of players on Asia repo markets
Aaron Woolner –
US regulatory capital requirements under Basel III are driving many US banks away from their domestic repo markets and towards Asia

China Leans Toward More Stimulus Measures
China’s leaders are issuing increasingly clear signals that they plan another round of economic stimulus programs, as evidence accumulates that the economy is slowing more than expected this year.

China Extends Tax Break Program to Spur Economy
The Chinese government on Wednesday announced a modest package of economic stimulus measures, the latest sign of concern by Beijing that growth may be slowing more than expected.

Central Banks

Credit bubble fears put central bankers on edge
Tracy Alloway, Michael Mackenzie and Arash Massoudi in New York –
On a mild spring day in New York, representatives from Citigroup set out to introduce investors to the bank’s new subprime securitisation platform.

Draghi Says Officials Debating QE to Fight Deflation Danger
Jeff Black and Catherine Bosley – Bloomberg
European Central Bank President Mario Draghi said policy makers debated large-scale asset purchases among a range of measures to head off the threat of deflation in the euro region.

Rajan: Global Banks Can Take the Carrot or Wait for the Stick
Shefali Anand – MoneyBeat – WSJ
International banks have yet to be enticed into setting up subsidiaries in India, but at some point the central bank may just have to push them, Reserve Bank of India governor Raghuram Rajan said Tuesday.

Until you get forex reserves to Chinese levels, it is probably not enough: Raghuram Rajan
Business Standard
Reserve Bank of India (RBI) Governor Raghuram Rajan says the central bank’s objective is to move to a stable monetary policy, adding it is important to look through transient factors to adopt a policy stance. Edited excerpts from an interaction with researchers and analysts:

Economic Recovery Far From Secure, Says Australia’s Central Bank
Australia’s central bank Gov. Glenn Stevens said it is too soon to be certain an economic recovery—engineered partly through record-low interest rates—is on track as a decadelong mining boom cools.


SEF teething problems frustrate FX market amid liquidity fears
Farah Khalique – Euromoney magazine
The CFTC is close to finalizing long-awaited rules for FX derivatives that will herald a seismic shift to trading these instruments on SEFs – but those already trading on SEFs are frustrated with teething problems and unintended consequences, including illiquidity and extraterritoriality concerns.

***DA: Grandma had a cure for that. She used to rub a little whiskey on the gums.

FX traders look to increase leverage for absolute returns as volatility falls
Simon Watkins – Euromoney magazine
With market volatility near all-time lows, and no single strategy consistently effective in generating outsized profits, investors and traders are looking to increase leverage to generate absolute returns.

Why America may be the future bastion of virtual currencies
The United States government has been more tempered than other nations in its approach to Bitcoin. Remarkably, the U.S. may ultimately be the savior of this much maligned currency.

***DA: Just what bitcoin needs – a savior.

Two Bitcoin Exchanges in China Suspend Yuan Deposits
Two small bitcoin exchanges in China are stopping customer deposits in yuan, suggesting that exchanges are starting to take action after reports that the central bank has ordered banks and payment companies to close bitcoin trading accounts.

Tax Plan May Hinder Bitcoin Use
The Internal Revenue Service’s plan to tax virtual currencies could crimp their use as an alternative to cash or credit for retail transactions. The IRS, in a ruling last week, said under existing law bitcoin and its brethren are property, not currency. That means anyone who spends bitcoin, even on a $2 cup of coffee, may have to pay taxes based on any “gain” over that bitcoin’s original value.

***DA: In fact, the IRS has agents embedded in every Starbucks to monitor the practice.

Molten Markets Fully Live With FX Trading Platform
Waters Technology
Molten Markets, which launched in April 2012, is now fully live with its multi-dealer FX platform, dubbed InstiFX.

***DA: My best friends in the FX world. I won an iPad mini in a contest run by Molten Markets at P&L’s Forex Network Chicago last September. I wish them all the best.

Indexes & Index Products

SIX Swiss Exchange is expanding its offering: investors can now trade in 11 active ETFs.
SIX Swiss Exchange has come up with a further innovation in the area of regulated on-exchange trading: with immediate effect, investors are able to trade in actively managed ETFs. The first product provider is Swiss & Global Asset Management, who has initially listed 11 active ETFs. The new products track four MSCI Indices and offer investors an additional option for investing in the emerging markets, Asia and Europe regions, and worldwide, in the trading currencies CHF, EUR and USD.


Who saw that coming?
FT Alphaville
So, havens were what worked in the first quarter, led by a niche precious metal.

Strengthen credit appraisal for gold metal loans: RBI to banks
Business Standard
The Reserve Bank of India (RBI) on Wednesday issued a set of instructions to banks offering gold metal loans (GML), directing them to strengthen their credit appraisal process in the wake of frauds committed by certain unscrupulous jewellers.

India gold premiums seen falling further on any ease in trade curbs
Gold premiums in India are expected to fall from current levels of about $30 an ounce after the central bank indicated it is considering removing some of the curbs to trade that have crippled imports.

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