First Impressions

A Perfect Ten? CBOE’s Latest Vol Contract Could Be A Stunner
Sarah Rudolph – John Lothian Newsletter

The CBOE Futures Exchange announced it will launch futures on the CBOE/CBOT 10-year U.S. Treasury Note Volatility Index (ticker symbol: VXTYN) on November 13. It is calculated by applying the CBOE Volatility Index (VIX) methodology to futures options data from CME Group’s 10-year U.S. Treasury note contract — one of CME’s most actively traded interest rate options products. CBOE calculates and disseminates the VXTYN Index values as part of an agreement between CBOE and CME Group.

JLN’s Sarah Rudolph spoke with John Angelos, director of institutional marketing, U.S. and head of Asia Pacific at the Chicago Board Options Exchange (CBOE) in advance of the launch, to find out more details about the contract’s design, potential users, and what makes it unique.


Quote of the Day

“The exchanges who have a hand in this and seek to benefit from the onerous version of a trade-at basically put the screws to us.”

Michael Masone, legal counsel for equities at Citigroup in the story, “Brokers Attack SEC’s Plan as Trojan Horse”.

Lead Stories

Party mood eludes Europe’s debt bankers
Christopher Thompson – Financial Times
Every student knows that it’s time to party after exams. For debt bankers, however, there has been precious little to celebrate after the results of regulators’ long-awaited assessment of the eurozone’s biggest banks last month.

Andrew Balls’ rise at Pimco continues unabated despite bond giant’s strife
Andrew Pearce – Financial News
Pimco may have endured a rocky 12 months but the progress of its new chief investment officer for global fixed income at the bond giant has been impressive.

Brokers Attack SEC’s Plan as Trojan Horse
Dave Michaels and Sam Mamudi – Bloomberg
Wall Street brokers are in rebellion against a plan to test ways of encouraging more trading of the smallest U.S. stocks, saying the effort was hijacked by exchanges seeking an edge over their rivals.
The Securities and Exchange Commission’s pilot program is meant to spur trades in about 30 percent of publicly traded U.S. companies. One of its provisions — called a trade-at rule — is really a stealth attempt to hurt brokers that run private trading systems that compete with the likes of the New York Stock Exchange, representatives from JPMorgan Chase & Co. (JPM) and Citigroup Inc. (C) said yesterday at an industry conference.

RLAM to roll out absolute return government bond fund
Julia Rampen – Investment Week
Royal London Asset Management is to launch an absolute return fixed income fund by the end of the year as competition heats up in the space.

U.S. judge says Citigroup can process Argentina’s next bond payment
Nate Raymond and Daniel Bases – Reuters
A U.S. judge ruled on Monday that Citigroup Inc could process an $85 million interest payment by Argentina on bonds issued under its local laws following its 2002 default.

BlackRock Hires Yegenaga From Moody’s for European CMBS Research
Alastair Marsh – Bloomberg
BlackRock Inc. (BLK) said it hired Deniz Yegenaga from Moody’s Investors Service for its European asset-backed securities business.

Central Banks

Fed’s Rosengren says fight for higher inflation should be vigorous
Howard Schneider – Reuters
The Fed should fight low inflation as vigorously as it would a too rapid run-up in prices or risk the same sort of prolonged slow growth plaguing Japan and Europe, Boston Federal Reserve bank president Eric Rosengren said on Monday.

The Last Argument of Central Banks
John Mauldin – Forbes
For a central banker, deflation is one of the Four Horsemen of the Apocalypse: Death, Famine, Disease, and Deflation. (We will address later in this letter why War, in the form of a currency war, is not in a central banker’s Apocalypse mix.) It is helpful to understand that, before a person is allowed to join the staff or board of a central bank, he or she is taken into a back room and given DNA replacement therapy, inserting a gene that is viscerally opposed to deflation. Of course, in fairness, it must be noted that central bankers don’t like high inflation, either (although, looking around the world, we see that the definition of high inflation can vary). In the developed world, 2% inflation seems to be the common goal. You wouldn’t think that 2% a year is a significant change in the overall price structure, but the panic among economists that would ensue with a 2% price deflation would border on hysteria.

Emerging Market Central Banks Beat Richer Rivals to Divergence
Simon Kennedy – Bloomberg
Just as central banks in the developed world show signs of diverging after years of embracing stimulus, monetary authorities in emerging markets are taking differing approaches as inflation varies.
Throw in gyrating currencies coupled with tumbling commodity prices and the result is that such economies should no longer be traded — or treated — as a single bloc as they were in the wake of the financial crisis.


FX Volumes Remain Robust in October
Profit & Loss
Foreign exchange volumes on the major trading venues remained robust in October after they rose sharply in September on the back of increased volatility following a series of significant macroeconomic events

Banks Said Poised to Settle With CFTC in FX-Rigging Cases
Silla Brush – Bloomberg
Banks suspected of rigging the $5.3 trillion-a-day currency market are preparing to reach settlements as early as this week with the main U.S. derivatives regulator, according to a person with knowledge of the cases.
The Commodity Futures Trading Commission may levy fines of about $300 million against each firm, depending on the level of their involvement, said the person, who spoke on condition of anonymity because deals haven’t been announced. It’s unclear how many firms may settle with the CFTC as U.K. and U.S. bank regulators prepare to levy related penalties this week, the person said.

Ruble ‘Not Out Of The Woods’
Chiara Albanese and Josie Cox – MoneyBeat – WSJ
Is the Russian ruble getting a reprieve? The currency has clearly not been having a good year.

Swissie Close to Crunch Point in Runup to Gold Referendum
Chiara Albanese – MoneyBeat – WSJ
You know what they say: Don’t fight the SNB. Well, it seems some traders are ignoring that rule by buying Swiss francs, albeit modestly, three weeks ahead of a referendum that could force the Swiss National Bank to rip up its monetary policy rules.

Currency Traders Stick With Their Mantra: Buy Dollars, Sell Euros
Chiara Albanese – MoneyBeat – WSJ
Buy dollars, sell euros. For several months now, that’s been a mantra for investors, and the so-far-winning formula seems as if it continues to convince currency traders.

How Krone Strength Could Force a Danish Rate Cut
Emese Bartha – MoneyBeat – WSJ
With its currency, the krone, pegged to the euro, it generally tracks the European Central Bank, raising or cutting interest rates whenever its larger cousin makes a move.

Indexes & Index Products

BlackRock Plans Saudi Arabia ETF Ahead of Foreign Access in 2015
Arif Sharif – Bloomberg
BlackRock Inc. (BLK) plans to start an exchange-traded fund for Saudi Arabian shares as the biggest Arab bourse prepares to open its market to foreigners.

Currency hedged ETFs outperform, pick up inflows as dollar gains
Ashley Lau – Reuters
U.S. investors who believe the dollar’s 2014 surge will continue are pouring money into exchange-traded funds that invest in foreign markets but hedge the currency part of the bet.

ETFs break annual inflows record…with two months to spare
Anna Fedorova – Investment Week
European exchange traded funds (ETFs) have enjoyed a record year for net inflows, taking in $56.2bn by the end of October, according to consultancy ETFGI.


Gold Futures Decline in N.Y. With ‘Nothing’ to Lure Bulls
Luzi Ann Javier – Bloomberg
Gold futures fell for a ninth time in 10 sessions as investors seek higher-yielding assets amid a rout that wiped out the metal’s gains this year.
Assets in the SPDR Gold Trust, the world’s biggest exchange-traded product backed by the metal, dropped for five straight sessions, the longest slump in almost a year. The holdings are at the lowest since September 2008. The Standard & Poor’s 500 Index of shares rose to a record today before trading little changed, and the dollar traded near a five-year high against a basket of 10 currencies.

Exclusive: Russian central bank buys up domestic gold output as sanctions bite
Clara Denina – Reuters
Russia’s central bank has been forced to step up its gold buying this year to absorb domestic production that Western sanctions are making it hard for miners to sell abroad, and to boost liquidity in its foreign reserves, sources said.
Most Russian gold mine production is sold to domestic commercial banks, such as Sberbank or VTB, which can then sell the metal on to either the central bank or to foreign banks.

For Gold Miners, Another Terrible Run
Nathan Vardi – Forbes
For years, the gold mining sector has been the worst investment sector imaginable. There was a while in 2014 when it seemed like the gold mining sector might avoid another disastrous 12-month stretch, but that seems unlikely after what has taken place in financial markets in the last few weeks.
With gold trading down to $1,149 an ounce, the companies that try to extract the yellow metal from the ground got hit hard yet again on Monday. The Market Vectors Gold Miners ETF fell by 6.3% and is now down by 17% in 2014. The gold mining sector has pretty much been the worst investment sector for the last three years.

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