PrefBlog

There was some commentary on Friday’s Treasury action:

Treasury five-year notes extended the longest losing streak this year as traders bet improving economic data will push the Federal Reserve to raise rates as early as July 2015.

The gap between five- and 30-year yields narrowed to almost the least in five years before the Federal Open Market Committee meets next week to discuss a stimulus-exit strategy. The chance of a rate increase to 0.5 percent or more by the end of next July is 58 percent, according to data compiled by Bloomberg based on federal fund futures, up from 43 percent at the end of last month. Long bonds rose as investors reached for higher yields amid U.S. data showing low inflation and unrest in Iraq.
…
A report yesterday showed a 0.2 percent decrease in the producer price index compared with the median estimate in a Bloomberg survey of 71 economists that called for a 0.1 percent gain. Over the past 12 months, costs climbed 2 percent, figures from the Labor Department showed.

The IMF had some more to say about the US economy:

The International Monetary Fund cut its growth forecast for the U.S. economy this year and said the Federal Reserve may have scope to keep interest rates at zero for longer than investors expect.

The Washington-based IMF now sees the world’s largest economy growing 2 percent this year, down from an April estimate of 2.8 percent. The IMF left a 2015 prediction unchanged at 3 percent, and said it doesn’t expect the U.S. to see full employment until the end of 2017, amid low inflation.

And it appears that even government bond markets are losing liquidity:

Dealers globally have slashed their bond inventories 75 percent since 2007. Five of the six biggest Wall Street firms reported declines in fixed-income trading revenue last quarter.

“That has to bite and prevent dealers from supplying the balance sheet they did in the old days,” Gregory Whiteley, who manages government debt at Los Angeles-based DoubleLine Capital LP, which oversees about $50 billion, said by telephone June 10. “It’s the sort of thing that rears its ugly head when it is least welcome — when it’s the greatest problem.”

Some cracks emerged in Europe last month, when investors dumped Italian, Spanish and Greek debt on speculation political parties opposed to the European Union would gain seats in parliamentary elections and derail the euro area’s recovery.

As the selloff intensified and liquidity decreased, the disparity in yields of 10-year Italian bonds between buyers and sellers based on bids and offers doubled to 6 basis points, or 0.06 percentage point, on May 23, the highest this year.

It was a positive day for the Canadian preferred share market, with PerpetualDiscounts winning 18bp, FixedResets up 6bp and DeemedRetractibles gaining 1bp. Volatility was reasonable. Volume was low.

This entry was posted on Monday, June 16th, 2014 at 11:00 pm and is filed under Market Action. You can follow any responses to this entry through the RSS 2.0 feed. You can leave a response, or trackback from your own site.