Japan is considering issuing 50-year bonds:
Japan’s finance ministry is considering issuing 50-year bonds but says it will first concentrate on deepening and broadening the nascent market for existing 30-year bonds, according to a senior ministry official.
Chikahisa Sumi, director of the market division at the Ministry of Finance, told the Financial Times that the MoF might issue a 50-year bond. His department is in charge of Japan’s large debt issuance.
The UK and France have issued 50-year bonds this year, becoming the first European governments to do so for many years. Super-long bonds are viewed as a useful instrument in ageing societies where they can help pension funds match liabilities and assets over a longer period.
Such desperate measures are necessary if they wish to have any bonds at all with positive yields!
Japanese government bond prices rose to lifetime highs on Wednesday [July 6] as negative yields spread to 20-year bonds, with the Brexit vote exacerbating a flight-to-safety bid that has crunched incomes of banks, pension funds and other Japanese investors.
The 20-year yield fell to as low as minus 0.005 percent , having declined more than 0.9 percentage point since the Bank of Japan made a historic shift to negative rates in late January, in addition to its massive bond buying programme.
With 40-year government bonds, the longest tenure on offer, also yielding just above zero percent, Japan is in line to becoming the only country after Switzerland to have all government bonds yield at negative levels.
On Tuesday [July 5], the 50-year Swiss government bond yield fell below zero percent.
The big news of the day was the July FOMC release:
Consistent with its statutory mandate, the Committee seeks to foster maximum employment and price stability. The Committee currently expects that, with gradual adjustments in the stance of monetary policy, economic activity will expand at a moderate pace and labor market indicators will strengthen. Inflation is expected to remain low in the near term, in part because of earlier declines in energy prices, but to rise to 2 percent over the medium term as the transitory effects of past declines in energy and import prices dissipate and the labor market strengthens further. Near-term risks to the economic outlook have diminished. The Committee continues to closely monitor inflation indicators and global economic and financial developments.
Against this backdrop, the Committee decided to maintain the target range for the federal funds rate at 1/4 to 1/2 percent. The stance of monetary policy remains accommodative, thereby supporting further improvement in labor market conditions and a return to 2 percent inflation.
…
Voting against the action was Esther L. George, who preferred at this meeting to raise the target range for the federal funds rate to 1/2 to 3/4 percent.
Bloomberg comments:
All but two of 94 analysts surveyed by Bloomberg News expected the Fed to leave interest rates unchanged at the meeting. Federal funds futures ahead of Wednesday’s statement suggested that traders see close to a 50-50 chance of a rate hike at or before the FOMC’s final meeting this year, in December.
Yellen will speak at the Kansas City Fed’s Jackson Hole, Wyoming, symposium on Aug. 26. That will provide her with an opportunity to discuss the committee’s sense of the economy’s progress.
“The market is going to pay a lot of attention to that speech,” [partner at Cornerstone Macro LLC Roberto] Perli said.
The bond market seems to have read it as dovish:
Treasuries rose, the dollar fell versus the euro and U.S. stocks ended mixed as the Federal Reserve reiterated its intention to tighten gradually even as the economy shows signs of improvement. Gold rallied.
The yield on 30-year Treasury notes fell six basis points, while two-year yields slipped three basis points. The greenback erased gains against a basket of 10 of its major peers after officials repeated that “economic conditions will evolve in a manner that will warrant only gradual increases in the federal funds rate.” The S&P 500 Index slipped as crude’s plunge weighed on energy producers. Apple Inc.’s best rally since April 2014 led the Nasdaq 100 Index higher. Gold futures jumped.
I’m certainly not going to attempt to estimate the timing for a vigorous series of Fed moves – or even whether the next hike will be the first of a long series or just a one-off – but I will bet a nickel that when the Fed does start hiking in earnest, it’s going to make the first half of 1994 look like a hiccup.
Is past performance an indicator of future performance for those who take risky bets? Today we learned of one guy who couldn’t resist trying to snowball his windfall:
In 2015, [Ronnie] Music [Jr.] won $3,000,000 in a Georgia scratch-off lottery game. As part of the case, investigating agents seized over $1 million worth of methamphetamine, a large cache of firearms, thousands of rounds of ammunition, multiple vehicles, and over $600,000 in cash.
United States Attorney Ed Tarver stated, “Defendant Music decided to test his luck by sinking millions of dollars of lottery winnings into the purchase and sale of crystal meth. As a result of his unsound investment strategy, Music now faces decades in a federal prison.”
PerpetualDiscounts now yield 5.12%, equivalent to 6.66% at the standard equivalency factor of 1.3x. Long corporates now yield about 3.75%, so the pre-tax interest-equivalent spread (in this context, the “Seniority Spread”) is now about 290bp, a significant narrowing from the 305bp reported July 13.
| HIMIPref™ Preferred Indices These values reflect the December 2008 revision of the HIMIPref™ Indices Values are provisional and are finalized monthly |
|||||||
| Index | Mean Current Yield (at bid) |
Median YTW |
Median Average Trading Value |
Median Mod Dur (YTW) |
Issues | Day’s Perf. | Index Value |
| Ratchet | 0.00 % | 0.00 % | 0 | 0.00 | 0 | 0.5748 % | 1,684.3 |
| FixedFloater | 0.00 % | 0.00 % | 0 | 0.00 | 0 | 0.5748 % | 3,076.8 |
| Floater | 4.88 % | 4.59 % | 86,991 | 16.13 | 4 | 0.5748 % | 1,773.2 |
| OpRet | 4.83 % | -1.84 % | 46,052 | 0.10 | 1 | -0.0788 % | 2,853.8 |
| SplitShare | 5.11 % | 5.43 % | 101,291 | 4.56 | 5 | 0.0241 % | 3,366.6 |
| Interest-Bearing | 0.00 % | 0.00 % | 0 | 0.00 | 0 | 0.0241 % | 2,626.8 |
| Perpetual-Premium | 5.48 % | -15.21 % | 79,914 | 0.09 | 12 | 0.0591 % | 2,687.0 |
| Perpetual-Discount | 5.19 % | 5.12 % | 104,665 | 14.79 | 26 | 0.2617 % | 2,856.4 |
| FixedReset | 4.99 % | 4.27 % | 148,899 | 7.12 | 88 | 0.1629 % | 2,039.2 |
| Deemed-Retractible | 5.00 % | 4.48 % | 121,696 | 0.42 | 33 | 0.0604 % | 2,779.9 |
| FloatingReset | 2.96 % | 4.62 % | 31,668 | 5.14 | 11 | 0.0046 % | 2,138.3 |
| Performance Highlights | |||
| Issue | Index | Change | Notes |
| VNR.PR.A | FixedReset | -3.45 % | YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2046-07-27 Maturity Price : 17.62 Evaluated at bid price : 17.62 Bid-YTW : 5.03 % |
| MFC.PR.F | FixedReset | -1.58 % | YTW SCENARIO Maturity Type : Hard Maturity Maturity Date : 2025-01-31 Maturity Price : 25.00 Evaluated at bid price : 14.32 Bid-YTW : 9.68 % |
| BAM.PR.S | FloatingReset | -1.38 % | YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2046-07-27 Maturity Price : 14.30 Evaluated at bid price : 14.30 Bid-YTW : 4.96 % |
| CM.PR.Q | FixedReset | 1.13 % | YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2046-07-27 Maturity Price : 20.58 Evaluated at bid price : 20.58 Bid-YTW : 4.24 % |
| NA.PR.W | FixedReset | 1.57 % | YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2046-07-27 Maturity Price : 18.09 Evaluated at bid price : 18.09 Bid-YTW : 4.27 % |
| BNS.PR.D | FloatingReset | 1.72 % | YTW SCENARIO Maturity Type : Hard Maturity Maturity Date : 2022-01-31 Maturity Price : 25.00 Evaluated at bid price : 18.92 Bid-YTW : 6.83 % |
| NA.PR.S | FixedReset | 1.79 % | YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2046-07-27 Maturity Price : 18.78 Evaluated at bid price : 18.78 Bid-YTW : 4.27 % |
| TRP.PR.B | FixedReset | 1.91 % | YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2046-07-27 Maturity Price : 12.25 Evaluated at bid price : 12.25 Bid-YTW : 4.07 % |
| TRP.PR.H | FloatingReset | 1.95 % | YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2046-07-27 Maturity Price : 10.45 Evaluated at bid price : 10.45 Bid-YTW : 4.32 % |
| Volume Highlights | |||
| Issue | Index | Shares Traded |
Notes |
| TRP.PR.D | FixedReset | 100,105 | YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2046-07-27 Maturity Price : 18.05 Evaluated at bid price : 18.05 Bid-YTW : 4.41 % |
| TD.PF.G | FixedReset | 52,125 | YTW SCENARIO Maturity Type : Call Maturity Date : 2021-04-30 Maturity Price : 25.00 Evaluated at bid price : 26.80 Bid-YTW : 3.84 % |
| TD.PF.D | FixedReset | 51,375 | YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2046-07-27 Maturity Price : 20.55 Evaluated at bid price : 20.55 Bid-YTW : 4.24 % |
| TRP.PR.G | FixedReset | 46,325 | YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2046-07-27 Maturity Price : 19.69 Evaluated at bid price : 19.69 Bid-YTW : 4.71 % |
| BAM.PF.D | Perpetual-Discount | 42,530 | YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2046-07-27 Maturity Price : 22.52 Evaluated at bid price : 22.81 Bid-YTW : 5.42 % |
| RY.PR.W | Perpetual-Discount | 35,200 | YTW SCENARIO Maturity Type : Call Maturity Date : 2016-08-26 Maturity Price : 25.00 Evaluated at bid price : 25.00 Bid-YTW : 0.33 % |
| There were 30 other index-included issues trading in excess of 10,000 shares. | |||
| Wide Spread Highlights | ||
| Issue | Index | Quote Data and Yield Notes |
| GWO.PR.M | Deemed-Retractible | Quote: 26.21 – 27.00 Spot Rate : 0.7900 Average : 0.5466 YTW SCENARIO |
| W.PR.K | FixedReset | Quote: 25.82 – 26.32 Spot Rate : 0.5000 Average : 0.3557 YTW SCENARIO |
| CU.PR.I | FixedReset | Quote: 26.36 – 26.67 Spot Rate : 0.3100 Average : 0.1946 YTW SCENARIO |
| BMO.PR.R | FloatingReset | Quote: 21.90 – 22.25 Spot Rate : 0.3500 Average : 0.2554 YTW SCENARIO |
| GWO.PR.F | Deemed-Retractible | Quote: 25.76 – 26.10 Spot Rate : 0.3400 Average : 0.2501 YTW SCENARIO |
| VNR.PR.A | FixedReset | Quote: 17.62 – 18.07 Spot Rate : 0.4500 Average : 0.3650 YTW SCENARIO |
i remember 1994… fun times. you’re right. absolutely nobody expects rates to rise … it will certainly be a bit of a shocker when they finally do go up. everyone is far more leveraged this time than 20 years ago.
Well it is the best time to reflect on the role of prefs in tax sheltered accounts. The upside down interest rates make deflation a lock.