PrefBlog

The first quarter in the US was worse than we thought:

The U.S. economy contracted in the first quarter by the most since the depths of the last recession as consumer spending cooled.

Gross domestic product fell at a 2.9 percent annualized rate, more than forecast and the worst reading since the same three months in 2009, after a previously reported 1 percent drop, the Commerce Department said today in Washington. It marked the biggest downward revision from the agency’s second GDP estimate since records began in 1976. The revision reflected a slowdown in health care spending.
…
The revision reflected a drop in spending tied to health care services. The Bureau of Economic Analysis had estimated that major provisions of President Obama’s signature health care law would boost outlays. A quarterly services survey released this month showed the assumptions were too optimistic. Outlays for health spending actually slowed in the first quarter, subtracting 0.16 percentage point from GDP. The Commerce Department previously estimated those outlays added 1 percentage point to GDP.

Naturally, the US government wants Treasury debt to be unaffected by corporate-like inventory constraints:

• •The Volcker Rule bars banks from “proprietary trading” in credit.
• •But it allows proprietary trading in rates products such as Treasury and agency bonds.
• •So Citi set up a prop desk to trade agency bonds, managing over $1 billion of Citi’s money.
• •It’s run by a woman named Anna Raytcheva, who lost billions of dollars trading agency bonds during the financial crisis.

Obviously, some people are scandalized because people are scandalized by everything related to the Volcker Rule. And because the Volcker Rule is light on coherence. For instance, why does the Volcker Rule allow prop trading in rates? Well:

Lawmakers sought the flexibility to finance government spending and didn’t see the trading as particularly risky, said Barney Frank, who as a Massachusetts congressman helped draft the 2010 Dodd-Frank Act that mandated the Volcker Rule.

“To the extent the instruments being traded are completely secure, some of the rationale for the rule disappears,” Frank, a Democrat, said in a phone interview.

It was a good day for the Canadian preferred share market, with PerpetualDiscounts up 9bp, FixedResets winning 12bp and DeemedRetractibles gaining 6bp. Volatility was well above average and dominated by winning FixedResets. Volume was above average, with the highlights dominated by RY issues for some reason; the top two are both extremely likely to be called in August, for what that’s worth.

This entry was posted on Wednesday, June 25th, 2014 at 8:29 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.