First Impressions

Trade Talk: What’s in the Basket?
Bill Campbell, Fixed Income Solutions Director, Trading Technologies
The March-June 2015 CBOT Treasury bond futures roll is generating a lot of buzz. Most people are used to trading the Treasury calendar spreads 1:1, and the current roll is trading 3:2. How is this possible? The 1:1 was so easy to calculate in your head, and now they say you have to trade it 3:2?

The five-year gap

Between early 2001 and early 2006, the U.S. Treasury did not issue any Treasury bonds. Nine years later, that gap comes into play because now there is a single issuance, stranded at the front-end of the delivery basket, that would have been eligible for delivery. In December 2013, CME Group announced that it would exclude the 5-? percent of February 2031 U.S. Treasury bond from the contract grade for the delivery months June 2015, September 2015 and December 2015.

So what does that have to do with the 1:1 calendar spread?

Read the rest of the post at TradeTalk, the official blog of Trading Technologies

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Rule Change Summary – Confirmations, Residual Interest, Corzine Rule
JohnLothianNews.com

After the twin scandals of MF Global and Peregrine Financial rocked the futures industry in 2011 and 2012, the National Futures Association, underwent a review, not only of its internal procedures, but also of its rules. In Part Two of this two-part John Lothian News exclusive, NFA CEO Dan Roth summarizes the changes made to the agency’s rules to restore customer confidence.
Watch the video »

Quote of the Day

“It seems to me that we are holding large corporations to higher standards than the military, the church or civil service. Can I know what every one of 257,000 people is doing? Clearly I can’t. If you want to ask the question could it ever happen again — that is not reasonable.”

Stuart Gulliver, HSBC’s chief executive in the story, “Bankers held to higher standards than bishops, claims HSBC chief”.

Lead Stories

Exclusive: BNY Mellon in forex settlement talks with U.S., N.Y.
Karen Freifeld and Nate Raymond – Reuters
Bank of New York Mellon Corp (BK.N) is in settlement talks with the U.S. Justice Department and New York attorney general over claims the bank defrauded clients in foreign exchange transactions, according to sources familiar with the matter.
BNY Mellon last week revealed that it would take a $598 million charge as it sought to resolve matters including “substantially all” foreign exchange litigation it faced, though it did not specify which cases.
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J.P. Morgan to Start Charging Big Clients Fees on Some Deposits; New deposit fees likely to reduce deposits by billions
By Emily Glazer, WSJ
J.P. Morgan Chase & Co. is preparing to charge large institutional customers for some deposits, citing new rules that make holding money for the clients too costly, according to a memo reviewed by The Wall Street Journal and people familiar with the plan.
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Bankers held to higher standards than bishops, claims HSBC chief
Martin Arnold and George Parker in London, FT
HSBC’s chief executive has complained that bankers are being held to a higher standard than bishops as the UK government promised a legal crackdown on banks that facilitate tax evasion.
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High costs warning for EU failed trade rules
Philip Stafford and Ralph Atkins, WSJ
Europe’s bond and repo markets could be hit with billions of euros in costs and be forced into a radical reshaping under proposed new rules intended to insure against a breakdown of market infrastructure.
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Stifel to Buy Sterne Agee for $150 Million; Deal would expand wealth-management segment
By Julie Steinberg And Katy Burne
Stifel Financial Corp. plans to buy century-old brokerage firm Sterne Agee for $150 million, extending an acquisition spree as it builds up a broker business that generates stable fees.
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Here’s a New, Cheaper Way to Invest With Bond King Jeffrey Gundlach; Actively managed exchange-traded funds have underwhelmed investors. Will DoubleLine’s star manager change that?
by Eric Balchunas, Bloomberg
The last of the rock star portfolio managers is about to see how big his name really is.
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Meet Wall Street Refugees Running Bonds at Freddie Mac
by Jody Shenn, Bloomberg
Way up in a Manhattan skyscraper, a band of Wall Street refugees is quietly staking billions of dollars on the American mortgage machine.
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Best Stock Pickers Say Easy Money Has Made Their Job Harder
by Charles Stein, Bloomberg
Robert D’Alelio has the kind of long-term record every mutual fund manager aspires to, beating 98 percent of his peers over the past 15 years with the $12.6 billion Neuberger Berman Genesis Fund and crushing his benchmark, the Russell 2000 Index.
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Swiss market regulator says unlikely to probe HSBC further
Reuters
Switzerland’s financial markets regulator FINMA is unlikely to look into possible wrongdoing at HSBC’s (HSBA.L) Swiss private bank in the light of leaked information that was published this month, FINMA’s head of enforcement said on Tuesday.
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RBS’s Sir Howard appointment stirs revolving door concerns
Harriet Agnew, City Correspondent, FT
The expected appointment of Sir Howard Davies as the chairman of Royal Bank of Scotland has reignited the debate about the syndrome of the revolving door between different branches of the UK government and the industries they supervise.
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Central Banks

Janet Yellen Says Fed Is in No Hurry to Raise Rates
Binyamin Appelbaum – NY Times
Janet L. Yellen, the Federal Reserve chairwoman, told Congress Tuesday that the Fed was pleased with recent economic growth, convinced there was room for improvement and still pondering when to start reaising interest rates. In testimony before the Senate Banking Committee, Ms. Yellen advanced the Fed’s slow -motion progress toward raising its benchmark interest rate, describing for the first time how the central bank plans to signal that the moment is approaching.
But she said that patience remained the central bank’s watchword.
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‘Audit the Fed’ is about power, not transparency
Chris Matthews – Fortune
Janet Yellen was on Capitol Hill Tuesday for the first of two hearings in front of the Senate and House, respectively, to defend Fed policy and advise Congress.
On Tuesday, the Fed chair faced grilling from the new Republican Senate. She came prepared first and foremost to dissuade lawmakers from supporting so-called “Audit the Fed” legislation proposed by Kentucky Senator and likely presidential hopeful Rand Paul and cosponsored by 30 other legislators. The bill would, among other things, increase Congress’ ability to oversee the Fed’s interest rate decisions.
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Central Banks Shouldn’t Be Penalized For Monetary Policies That Weaken Its Currency — Yellen
Forbes
Central banks should not be penalized in government trade agreements for adjusting monetary policies that would impact foreign exchange markets, says Fed Chair Janet Yellen, which she adds is not currency manipulation.
Yellen made the statement during the question and answer portion of her testimony before the Senate Committee on Banking Housing and Urban Affairs, Tuesday. However, her comments come at an interesting time as global central banks line up to loosen their monetary policies to stimulate growth.
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Now Versus Then: How the Economy Stacks Up to the Last Time the Fed Started Raising Interest Rates
Michelle Jamrisko – Bloomberg
“Room for further improvement remains.”
That’s how Federal Reserve Chair Janet Yellen capped her remarks on the labor market during her testimony to lawmakers on Capitol Hill, even as she cited “considerable progress” in some indicators.
Yellen’s latest comments have left monetary policy wonks everywhere clamoring to update their guesses on when the Fed’s economic assessment will be bright enough to raise interest rates.
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What 28 Central Banks Will Do This Year
A Catarina Saraiva and Andre Fonseca Tartar – Bloomberg
An already busy year for interest-rate cuts from central banks is likely to get busier. And you might even see some rate increases, too.
The countries poised to raise interest rates by the most this year include the U.S., Brazil, Mexico and Nigeria, according to median estimates in Bloomberg surveys of economists around the world. After keeping rates at a record low of zero to 0.25 percent since 2008, the Federal Reserve is expected to raise its benchmark interest rate to a range of 0.5 to 0.75 percentage point by the end of the year. It will be joined in such an increase by Brazil and Mexico and will be trumped by Nigeria, which will raise rates by 1 percentage point, based on the surveys conducted this year.
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Currencies

U.S. Fed chief warns against grafting currency rules onto trade deals
Reuters
U.S. Federal Reserve Chair Janet Yellen warned Congress on Tuesday against a bid to crack down on currency cheats and said adding currency rules to trade deals could hobble monetary policy.
Lawmakers have introduced legislation allowing firms to seek compensation for currency weakness overseas and some are also fighting to include a currency chapter in upcoming trade deals such as the 12-nation Trans-Pacific Partnership (TPP).
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Yellen Downplays Currency Wars by Defending Policy Changes
Lananh Nguyen and Rachel Evans – Bloomberg
Federal Reserve Chair Janet Yellen is downplaying the notion that central bankers around the world are engaging in what’s been labeled a currency war.
“Monetary policy oriented toward domestic goals like price stability, or in our case, price stability and maximum employment — this is a very valid use of a domestic tool for a domestic purpose,” Yellen said Tuesday in response to a question during testimony to Congress. “The use of that tool can have repercussions on exchange rates, but I really think it’s not right to call that currency manipulation and to put it in the same bucket as interventions in exchange markets that are really geared toward changing the competitive landscape to the advantage of a country.”
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Smart corporates beef up FX hedging
by Farah Khalique, Euromoney
FX volatility highlights the need for corporates to stick to long-term hedging programmes, so that they can protect profits and their credit ratings. Some firms are also positioning themselves for opportunistic trades and upgrading their treasury and FX management systems.
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Indexes & Index Products

Cattle Hides Replace Entrails as Dark Omens of Economy
by Luzi Ann Javier, Bloomberg
Two thousand years ago, the haruspices of ancient Rome peered at animal entrails to divine the future. Today’s seers have refined the technique, searching for clues to the fate of the global economy — and the modern omens aren’t promising.
A gauge of growth rates for raw materials including cattle hides, tallow, plywood and burlap has been signaling economic contraction since September. The last time the growth rate of the JoC-ECRI Industrial Materials Price Index was falling to these levels, the world was mired in recession. At the same time, the price-tracking Bloomberg Commodity Index is near a 12-year low, with bear markets for more than half of the 22 items it measures.
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Tauriga Sciences, Inc. Shares Included in The Marijuana Index
MarketWatch
Tauriga Sciences, Inc.announced today that it has been selected by The Marijuana Index for inclusion in its MJIC Reporting Company Index. The Marijuana Index is the leading equity tracking index featuring public companies involved in the cannabis industry. The Marijuana Index provides the most robust data set in the industry with a perpetually expanding assemblage of information available to brokers, analysts, investors and media.
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S&P Dow Jones Indices Announces Changes to the S&P/TSX Canadian Indices – MarketWatch
S&P Dow Jones Canadian Index Services will make two changes in the S&P/TSX Canadian Indices due to redemptions by Toronto Dominion Bank
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Hedgies all-in on stocks; here’s how to play it
Yahoo7 Finance Australia
Jumping on the equities bandwagon hasn’t helped turn around the group’s waning fortunes, however. The average fund has returned just one percent in 2015, lagging major indexes like the S&P 500 (INDEX: .SPX), which is up 2.4 percent so far, and the Russell 3000 (Exchange: .RUA), which has risen 2.6 percent. The reason is a “poorly timed” move that came as the index slid 3 percent in January, the analysis said.
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Rejigging of heavyweight indices like Nifty or MSCI India may serve as good investment opportunity
The Economic Times
Rejigging of heavyweight indices (Nifty or MSCI India) may serve as a good investment opportunity if one considers the past trend. Since 2008, it has been observed that investors which held stocks to be included in MSCI India index made higher returns than the ones which were added to CNX Nifty.
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Gold

The Justice Department Goes Hunting For A Gold Price Fix
Forbes Asia
Quaint or corrupt, that’s the question the U.S. Justice Department and the Commodity Futures Trading Commission have set themselves in their attempt to prize back the lid on the centuries-old world of trading metals in London.
Gold is the primary focus of the double-barreled inquiry with silver, platinum and palladium also on the agenda.
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Swiss watchdog says looking at possible gold market manipulation
Reuters
Switzerland’s competition commission WEKO is looking into possible manipulation of price fixing in the precious metals market, its spokesman said on Tuesday.
The gold and silver fixes, along with other commodity benchmarks, have come under increasing scrutiny by regulators in Europe and the United States since a London Interbank Offered Rate (Libor) manipulation case in 2012.
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Metal Manipulation and Negative Rates
By Matt Levine, Bloomberg
Metal manipulation.
You can distinguish two types of benchmarks, which are subject to two types of manipulation. There are benchmarks that are defined as observed prices at some instant or period of time in active markets — currency fixes, for instance — which you can manipulate only through actual risky trading behavior that moves prices. And then there are benchmarks where you just make up numbers — Libor, preeminently — which you can manipulate by just making up the wrong number. I’m no expert on precious-metals pricing, but the system where a small number of banks hop on the phone to hash out a benchmark price, while simultaneously trading in electronic markets with people who aren’t on the call, sounds uncomfortably close to the second category. It’s changing, of course:
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India seizes record haul of smuggled gold outside airport
By Meenakshi Sharma and Krishna N. Das, Reuters
Gujarat police said they had made the single biggest seizure of gold smuggled into India on Tuesday after arresting six people leaving an airport with 60 kg of the precious metal flown in from Dubai.
The arrest is likely to strengthen pressure on Finance Minister Arun Jaitley to cut the gold import duty from a record-high 10 percent in his budget on Saturday.
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Turkey cuts gold holdings for 2nd month, euro zone lifts – IMF
By Manolo Serapio Jr, Reuters
Turkey cut it gold holdings for a second straight month in January, a period when the price of the precious metal rose the most in three years, International Monetary Fund data showed on Tuesday.
Turkey, which has the 12th biggest gold reserves globally, slashed its holdings by 14.227 tonnes to 514.893 tonnes last month, the IMF said.
The euro zone, on the other hand, raised its gold holdings by 7.437 tonnes to 10,791.885 tonnes in January, the data showed.
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Gold CEOs Seek Productivity Pledge in South Africa Pay Talks
Kevin Crowley and Paul Burkhardt, Bloomberg
The four biggest gold miners in South Africa, the source of a third of all bullion the world has yet produced, say productivity must be included in the wage negotiations with employees due to begin in about April.
AngloGold Ashanti Ltd., Gold Fields Ltd., Sibanye Gold Ltd. and Harmony Gold Mining Co. have been trying for at least a decade to link pay increases to efficiency gains.
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