First Impressions

The New Frontier: Born Technology’s Haworth Says Price Now Matters in Technology and HFT
JohnLothianNews.com

Today’s markets are often touted as “all about speed”, but that reach for low latency is only part of a successful strategy. Derek Haworth, president of Born Technology Solutions says that more firms are looking to cut costs on technology, such as exchange connectivity and order book solutions. For his clients, its about finding the balance between financial technology and expenses.

“What we’ve been seeing over the course of the past year, year and a half, is that people are moving toward what I would call smart latency,” Haworth said, “where there is an understanding that spending an extra $100,000 to shave off another 200 nano-seconds isn’t really commercially or economically feasible. So we’re seeing the pendulum swing a little away from the lowest latency trade.”

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Quote of the Day

“The bond overweights that emerged after the Lehman crisis have been eroded. This is perhaps one reason that bond markets have held up so well this year despite an overall hawkish Fed.”

JPMorgan strategists led by the London-based Nikolaos Panigirtzoglou in the story, “Bond Speculators Crowded Out in JPMorgan’s Bullish Signal”.

Lead Stories

Three’s company for bond trading venture
Tracy Alloway and Michael Mackenzie – New York – Financial Times
The battle being waged to reshape the way bonds are traded on Wall Street has gained intensity with the departure of three fixed income specialists from Goldman Sachs, Barclays and Citadel to create a new electronic platform.
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Bond Speculators Crowded Out in JPMorgan’s Bullish Signal
Liz Capo McCormick and Sridhar Natarajan – Bloomberg
Major central banks, large commercial lenders and currency reserve managers are poised to boost the share of the bond market they hold next year, helping support fixed-income assets even as the U.S. Federal Reserve pulls back on its stimulus.
That’s the conclusion of JPMorgan Chase & Co. (JPM), which estimates that the Group of Four central banks, along with the major lenders and reserve managers in their regions, are on pace to own $26 trillion of debt securities worldwide by the end of next year. The holdings would represent 52 percent of the tradeable bond universe, according to JPMorgan.
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Is The New ‘Bond King’ a Machine?
Tom Lauricella – MoneyBeat – WSJ
The new bond king is…an index fund. For years, that title belonged to Bill Gross, the high-profile, sometimes controversial manager of Pimco Total Return Fund, which grew to be the world’s largest bond fund.
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Houston, we don’t have a corporate bond liquidity problem
Izabella Kaminska – Financial Times
Gary Jenkins at LNG sets out his views about what might happen to the corporate bond market once the Fed begins pulling back liquidity seriously. It’s all down to the vanquished liquidity in the market already.
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We are trapped in a cycle of credit booms
Martin Wolf – Financial Times
Huge expansions in credit followed by crises and attempts to manage the aftermath have become a feature of the world economy. Today the US and UK may be escaping from the crises that hit seven years ago. But the eurozone is mired in post-crisis stagnation and China is struggling with the debt it built up in its attempt to offset the loss of export earnings after the crisis hit in 2008.
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Spain sells second inflation-linked bond to build market
Robin Wigglesworth and Elaine Moore – Financial Times
Spain has sold its second inflation-linked bond, as the country works to build an additional bond market to diversify its funding options in the wake of the eurozone crisis.
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Investors snap up Kazakhstan dollar bond
Jack Farchy in Astana and Elaine Moore in London – Financial Times
Investors flocked to Kazakhstan’s first dollar-denominated bond in more than a decade, the first sovereign bond deal to include terms created in response to Argentina’s acrimonious default.
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Central Banks

Dollar surge forces central banks to tap reserves
Anirban Nag and Sujata Rao – Reuters
The U.S. dollar’s recent surge to four-year highs has forced central banks across the world to intervene on open markets to prevent their currencies falling too sharply.
As the Fed ends its asset purchase program this month and investors brace for higher U.S. interest rates next year, yields on U.S. Treasury bonds have climbed relative to those of other governments. Dollar-funded ‘carry trades’ – where traders borrow in low interest currencies to buy higher yielding but riskier assets – are also being rapidly unwound.
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Irish central bank proposes mortgage lending restrictions
Padraic Halpin – Reuters
Ireland’s central bank proposed restrictions on how much banks can lend to home buyers on Tuesday in a bid to reduce the risk of a new property bubble forming as prices recover rapidly from a crash.
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Companies leaving forex exposure without hedging; RBI’s market interventions to blame?
MC Govardhana Rangan, ET Bureau – The Economic Times
Wockhardt, once a venerable name in the Indian drug industry, came close to extinction a few years ago. It was not that its business model failed, or that feuding family members were tearing it apart. It was the foreign exchange exposure that it left without hedging which nearly ruined it.
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Currencies

Abe Ally Says Yen Could Fall to 120 on BOJ Easing, Fed
Isabel Reynolds and Takashi Hirokawa – Bloomberg
Divergence between Japan and U.S. monetary policies could drive the yen, already near a six-year low, down further to 120 against the dollar, said an adviser to Japanese Prime Minister Shinzo Abe.
“It’s a matter of course that the yen will fall further with our monetary easing and the U.S. preparing to wind down its stimulus,” Kozo Yamamoto, 66, a lawmaker in the ruling Liberal Democratic Party, said in an interview in Tokyo yesterday. A decline to between 110 or 120 “wouldn’t be odd,” he said.
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More on the overvalued renminbi
Izabella Kaminska – Financial Times
For a couple of years now we’ve made the case that the Chinese currency isn’t undervalued as many people believe, but rather, overvalued — especially, once all the other fundamentals are considered.
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Euro weakness seen as foreign investors hedge
David Wigan – Euromoney Magazine
European bond and equity markets have been happy hunting grounds for foreign investors of late, and demand for European assets has helped support the euro, despite economic headwinds. However, bankers now report a shift to increased hedging of European exposures, leaving the region’s currency relatively unprotected against interest-rate differentials.
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Rabobank Suspends 2 London Traders in Currency Review
Chad Bray – Dealbook – NY Times
Two foreign exchange traders working in London for the Dutch lender Rabobank have been suspended after an internal review of the bank’s currency trading operations.
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Central bank support for rouble wears thin
Neil Dennis – Financial Times
Another wave of risk aversion swept over emerging market currencies and global equities on Wednesday, although the rouble was among the less severely hit after Russia’s central bank revealed it had carried out further intervention on foreign exchanges to slow its currency’s decline.
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Indexes & Index Products

ETF Provider Source Signs up Ashmore to Manage Two New Funds
Juliet Samuel – WSJ
ETF provider Source has signed up the emerging markets specialist Ashmore to manage two new funds that open to investors Tuesday.
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Gold

Gold Can’t Hit Bottom If the Gold Bugs Keep Buying the Dips
Paul Vigna – MoneyBeat – WSJ
The gold market has had a rough go of it lately, with prices for the yellow metal falling from near $1,400 in March to just under $1,200 last week. But despite that, the gold bugs have maintained their bullishness, and that was clearly evident when the last price drop actually increased sentiment, rather than sapping it.
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Comex Gold Futures Holding ‘Line In The Sand’ At Key $1,180 Chart Level
Forbes
Gold futures are holding a “line in the sand” at a major chart level that traders have been talking about for weeks now.
On Monday, December gold fell as far as $1,183.30 an ounce on the Comex division of the New York Mercantile Exchange. This brought the market near, but not below, the lows on a futures continuation chart of $1,181.40 on Dec. 31 and $1,179.40 back on June 28, 2013.
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