Timing the bond market is a mug’s game:
Analysts who spent the past year chasing the rally in Treasuries now risk getting caught flat-footed by a retreat.
For the first time in 2016, the yield on 10-year U.S. notes climbed above the weighted average of year-end estimates compiled by Bloomberg, after better-than-forecast labor data spurred traders to boost bets that the Federal Reserve will raise interest rates in 2016. The benchmark rate has jumped about 25 basis points since reaching a record-low 1.318 per cent on July 6, while the Bloomberg weighted average forecast, which places a greater emphasis on most recent projections, has fallen 20 basis points over the same period to 1.57 per cent.
The push and pull of global and domestic forces have caused both analysts and the Fed to recalibrate expectations in 2016. About $8.8-trillion (U.S.) of sovereign debt worldwide yields less than zero, which helps stem Treasuries selloffs by luring global investors. Yet within the U.S., a Bloomberg gauge of economic data surprises is at the highest level since December 2014, setting the stage for a possible Fed rate hike later this year.
…
A JPMorgan Chase & Co. survey showed the highest level of neutral Treasuries positions since July 11 among all clients. That’s likely in part because many analysts remain convinced the rise in U.S. yields will be short lived despite an improving economy and hawkish comments from some Fed policy makers.For interest-rate forecasters who chased the rally, all they can do is wait and see how the market reacts to the latest data, and what that might mean for the Fed’s moves in 2016. The problem they’ve found is it’s growing harder to find the link between the U.S. economy and the central bank’s actions.
“There’s no doubt: the Fed has been shifting the goalposts for at least two years, maybe more,” said Harm Bandholz, chief U.S. economist in New York at UniCredit. “That’s something that was not factored in for interest rates.”
We can always count on the Wall Street banks to scapegoat the closest warm body:
[Alberto] Statti, a trader with a taste for red wine and three-piece suits, had come from obscurity offering to buy hundreds of millions of dollars of bonds from Nomura. Yet his brokerage, Invexstar Capital Management Ltd., failed to come up with the cash for trades in May 2015, and the bank was now staring at its biggest-ever individual trading loss. Lombardo couldn’t get him on the phone.
“Resolve this thing today,” Lombardo said when he eventually contacted Statti by chat, according to a transcript included in the judgment of a lawsuit over the former’s firing. “Otherwise, we’ll both end up in the meat grinder.”
Statti never produced the cash, triggering a fallout that has been costly for Nomura. The Tokyo-based lender, whose London trading operations were already under pressure, lost more than $40 million on its dealings with Invexstar. The firm then blundered when it fired Lombardo after what a judge described Aug. 3 as a disciplinary process littered with “defects.”
…
Nomura fired Lombardo for failing to tell his bosses about Invexstar’s souring trades soon enough. Judge DA Pearl agreed that the salesman had been “negligent” and slashed the amount of compensation he can receive from the suit.Yet Lombardo’s supervisor, a managing director named Francesco Di Giura who was aware of the Invexstar trades, according to the judgment, received only a warning. This, along with a series of missteps in a process run by Mike Ward, the head of equity sales for Europe, the Middle East and Africa, and Morven Jones, head of debt capital markets for the same region, amounted to an unfair dismissal, the judgment shows.
The bank didn’t disclose key evidence to Lombardo during the internal probe, and its investigators didn’t compile a written report on the Invexstar losses, leading to confusion among Nomura executives running the process, according to the judgment. Jones, who oversaw Lombardo’s internal appeal, received “erroneous” information from Ward, who had approved the firing, all of which helped turn the process into “an overall muddle,” the judge wrote.
The whole process is amusing because:
Statti had accumulated failed trades worth $666 million when Lombardo contacted him under pressure from his Nomura bosses.
…
Nomura shouldn’t have taken Invexstar on as a client, a process known as “on-boarding,” Lombardo said. The company was given electronic trading access, extended trading and credit limits when it it had almost no assets, while Statti wasn’t registered with the Financial Conduct Authority, he said.Statti had run two trading firms before setting up Invexstar, Bloomberg reported in January. One, BLF Global Asset Management Ltd., collapsed in 2013 owing about 12 million pounds to creditors including JPMorgan Chase & Co. and Citigroup Inc. while the other, Bi-Elle Fund & Asset Management U.K. Ltd., ceased operations in 2008 with losses of 54 million pounds, U.K. Companies House filings show.
“I wasn’t made aware of Alberto Statti’s prior history by anyone,” Lombardo said in his statement, referring to Statti’s time at BLF. As a result, he “was handed a client to manage that I was led to believe was sound and had passed all required on-boarding checks,” he said.
So I don’t get it. Invexstar was able to put on trades with a gross value of $666-million despite having no assets and being run by a serial defaulter? And it’s the salesman who gets nailed for this? And the Chief Operating Officer and the Chief Risk Officer have both kept their jobs? I don’t get it.
We haven’t had any drone news for a while, but here’s a story about medical services in Madagascar:
A startup named Vayu late last week said its unmanned aerial vehicle had made the first long-range, fully independent flights carrying delicate blood and stool samples from remote villages to a lab. The basic technology isn’t new, but Vayu’s airborne experiment, over the mountainous terrain of Madagascar, could kick off a game-changing system of transport. UAVs could carry vaccines, medicines, and samples sensitive to temperature and pressure—to diagnose tapeworm, for example—for some of the one billion people who lack access to good roads.
…
Vayu, founded in 2014 and based in Michigan, works in Madagascar together with the Stony Brook University Global Health Institute and with the support of local governments and the United States Agency for International Development (USAID). It is working on a drone that can fly for 100 kilometers (62 miles) and plans to use the technology in Papua New Guinea, Malawi, the Philippines, and Nepal.
The video is great!
Speaking of drones, they’re going to be put to work in BC on wildfire spotting:
Drones are about to be added to the fire fighting arsenal of the B.C. Wildfire Service.
Spokeswoman Erin Catherall says the service has conducted two seasons of trials and is ready to put the remotely controlled aircraft to work.
She says drones have already been an important part of the battle against recent wildfires in northeastern British Columbia because they are cheaper and safer than piloted aircraft.
They can also be used at night, when most helicopters and planes are grounded.
Catherall says that allows firefighters to identify hot spots for immediate action as soon as the sun rises.
… and those with an interest in IT are presented with a new opportunity:
The commercial drone industry is exploding, allowing businesses and operators to rapidly and cost-effectively capture data that wasn’t readily available to them before. While this is opening up new opportunities for companies, it also comes with new complications.
…
There are cloud-based drone software providers like EagleView and DroneDeploy that make it easy for businesses to collect, process and analyze data by taking the information, storing it in the cloud, and sending back the results.But [Josh] Bernstein [vice president of the emerging technologies division at EMC] believes businesses should build their own services and datacenters in house to get a competitive advantage in the market. “For example, if you and I are competing for crop surveillance and we are both using DroneDeploy or some other service, we are going to get the same results. On the other hand, if one of us brings that capability in house, we can arguably have a competitive edge and return more value to our customers over time,” he said. In order to bring this capability in house, businesses will have to find experienced IT people who know how to bring that knowledge into a new emerging market.
| 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 | 0.6717 % | 1,713.2 |
| FixedFloater | 0.00 % | 0.00 % | 0 | 0.00 | 0 | 0.6717 % | 3,129.6 |
| Floater | 4.79 % | 4.49 % | 83,096 | 16.29 | 4 | 0.6717 % | 1,803.6 |
| OpRet | 4.84 % | 1.92 % | 50,544 | 0.08 | 1 | 0.0000 % | 2,847.0 |
| SplitShare | 5.06 % | 4.96 % | 102,441 | 4.54 | 5 | 0.0557 % | 3,402.3 |
| Interest-Bearing | 0.00 % | 0.00 % | 0 | 0.00 | 0 | 0.0557 % | 2,654.6 |
| Perpetual-Premium | 5.41 % | -17.61 % | 76,150 | 0.09 | 12 | -0.0544 % | 2,721.3 |
| Perpetual-Discount | 5.09 % | 4.90 % | 106,312 | 14.89 | 26 | -0.0346 % | 2,917.4 |
| FixedReset | 4.84 % | 4.08 % | 150,995 | 7.14 | 89 | 0.4299 % | 2,102.7 |
| Deemed-Retractible | 4.95 % | 2.90 % | 119,386 | 0.09 | 32 | -0.1979 % | 2,814.6 |
| FloatingReset | 2.88 % | 4.12 % | 33,659 | 5.11 | 11 | 0.0383 % | 2,198.5 |
| Performance Highlights | |||
| Issue | Index | Change | Notes |
| GWO.PR.M | Deemed-Retractible | -2.45 % | YTW SCENARIO Maturity Type : Call Maturity Date : 2016-09-08 Maturity Price : 25.75 Evaluated at bid price : 26.73 Bid-YTW : -29.92 % |
| TRP.PR.C | FixedReset | -1.42 % | YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2046-08-09 Maturity Price : 13.15 Evaluated at bid price : 13.15 Bid-YTW : 4.15 % |
| NA.PR.Q | FixedReset | -1.37 % | YTW SCENARIO Maturity Type : Hard Maturity Maturity Date : 2022-01-31 Maturity Price : 25.00 Evaluated at bid price : 24.41 Bid-YTW : 3.69 % |
| GWO.PR.L | Deemed-Retractible | -1.10 % | YTW SCENARIO Maturity Type : Call Maturity Date : 2016-12-31 Maturity Price : 25.50 Evaluated at bid price : 25.96 Bid-YTW : 2.47 % |
| SLF.PR.G | FixedReset | -1.07 % | YTW SCENARIO Maturity Type : Hard Maturity Maturity Date : 2025-01-31 Maturity Price : 25.00 Evaluated at bid price : 14.74 Bid-YTW : 9.33 % |
| GWO.PR.I | Deemed-Retractible | -1.07 % | YTW SCENARIO Maturity Type : Hard Maturity Maturity Date : 2025-01-31 Maturity Price : 25.00 Evaluated at bid price : 23.20 Bid-YTW : 5.69 % |
| BNS.PR.E | FixedReset | -1.03 % | YTW SCENARIO Maturity Type : Call Maturity Date : 2021-04-25 Maturity Price : 25.00 Evaluated at bid price : 26.82 Bid-YTW : 3.86 % |
| BAM.PF.G | FixedReset | 1.06 % | YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2046-08-09 Maturity Price : 21.64 Evaluated at bid price : 21.93 Bid-YTW : 4.19 % |
| PWF.PR.P | FixedReset | 1.08 % | YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2046-08-09 Maturity Price : 14.00 Evaluated at bid price : 14.00 Bid-YTW : 4.00 % |
| BAM.PF.F | FixedReset | 1.13 % | YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2046-08-09 Maturity Price : 21.24 Evaluated at bid price : 21.52 Bid-YTW : 4.25 % |
| MFC.PR.I | FixedReset | 1.21 % | YTW SCENARIO Maturity Type : Hard Maturity Maturity Date : 2025-01-31 Maturity Price : 25.00 Evaluated at bid price : 21.79 Bid-YTW : 5.63 % |
| BNS.PR.Z | FixedReset | 1.22 % | YTW SCENARIO Maturity Type : Hard Maturity Maturity Date : 2022-01-31 Maturity Price : 25.00 Evaluated at bid price : 20.82 Bid-YTW : 5.66 % |
| BAM.PF.E | FixedReset | 1.23 % | YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2046-08-09 Maturity Price : 20.50 Evaluated at bid price : 20.50 Bid-YTW : 4.20 % |
| IAG.PR.G | FixedReset | 1.26 % | YTW SCENARIO Maturity Type : Hard Maturity Maturity Date : 2025-01-31 Maturity Price : 25.00 Evaluated at bid price : 20.91 Bid-YTW : 6.14 % |
| MFC.PR.G | FixedReset | 1.32 % | YTW SCENARIO Maturity Type : Hard Maturity Maturity Date : 2025-01-31 Maturity Price : 25.00 Evaluated at bid price : 20.72 Bid-YTW : 6.28 % |
| TRP.PR.D | FixedReset | 1.34 % | YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2046-08-09 Maturity Price : 18.20 Evaluated at bid price : 18.20 Bid-YTW : 4.32 % |
| CU.PR.C | FixedReset | 1.36 % | YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2046-08-09 Maturity Price : 18.60 Evaluated at bid price : 18.60 Bid-YTW : 4.08 % |
| BAM.PR.T | FixedReset | 1.42 % | YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2046-08-09 Maturity Price : 16.40 Evaluated at bid price : 16.40 Bid-YTW : 4.61 % |
| BAM.PF.B | FixedReset | 1.42 % | YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2046-08-09 Maturity Price : 19.22 Evaluated at bid price : 19.22 Bid-YTW : 4.45 % |
| BAM.PR.B | Floater | 1.43 % | YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2046-08-09 Maturity Price : 10.64 Evaluated at bid price : 10.64 Bid-YTW : 4.49 % |
| BAM.PF.A | FixedReset | 1.60 % | YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2046-08-09 Maturity Price : 20.94 Evaluated at bid price : 20.94 Bid-YTW : 4.37 % |
| MFC.PR.K | FixedReset | 1.62 % | YTW SCENARIO Maturity Type : Hard Maturity Maturity Date : 2025-01-31 Maturity Price : 25.00 Evaluated at bid price : 18.85 Bid-YTW : 7.12 % |
| BAM.PR.C | Floater | 1.74 % | YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2046-08-09 Maturity Price : 10.50 Evaluated at bid price : 10.50 Bid-YTW : 4.55 % |
| MFC.PR.H | FixedReset | 1.85 % | YTW SCENARIO Maturity Type : Hard Maturity Maturity Date : 2025-01-31 Maturity Price : 25.00 Evaluated at bid price : 23.09 Bid-YTW : 5.02 % |
| GWO.PR.N | FixedReset | 2.04 % | YTW SCENARIO Maturity Type : Hard Maturity Maturity Date : 2025-01-31 Maturity Price : 25.00 Evaluated at bid price : 15.00 Bid-YTW : 8.97 % |
| HSE.PR.A | FixedReset | 2.13 % | YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2046-08-09 Maturity Price : 12.45 Evaluated at bid price : 12.45 Bid-YTW : 4.78 % |
| MFC.PR.M | FixedReset | 2.47 % | YTW SCENARIO Maturity Type : Hard Maturity Maturity Date : 2025-01-31 Maturity Price : 25.00 Evaluated at bid price : 19.90 Bid-YTW : 6.68 % |
| MFC.PR.N | FixedReset | 2.47 % | YTW SCENARIO Maturity Type : Hard Maturity Maturity Date : 2025-01-31 Maturity Price : 25.00 Evaluated at bid price : 19.89 Bid-YTW : 6.63 % |
| FTS.PR.M | FixedReset | 2.63 % | YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2046-08-09 Maturity Price : 20.70 Evaluated at bid price : 20.70 Bid-YTW : 4.00 % |
| MFC.PR.L | FixedReset | 2.83 % | YTW SCENARIO Maturity Type : Hard Maturity Maturity Date : 2025-01-31 Maturity Price : 25.00 Evaluated at bid price : 19.65 Bid-YTW : 6.64 % |
| FTS.PR.K | FixedReset | 3.16 % | YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2046-08-09 Maturity Price : 18.95 Evaluated at bid price : 18.95 Bid-YTW : 3.79 % |
| FTS.PR.G | FixedReset | 3.35 % | YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2046-08-09 Maturity Price : 18.82 Evaluated at bid price : 18.82 Bid-YTW : 3.85 % |
| Volume Highlights | |||
| Issue | Index | Shares Traded |
Notes |
| BIP.PR.C | FixedReset | 171,705 | YTW SCENARIO Maturity Type : Call Maturity Date : 2021-09-30 Maturity Price : 25.00 Evaluated at bid price : 25.35 Bid-YTW : 5.10 % |
| TRP.PR.J | FixedReset | 115,764 | YTW SCENARIO Maturity Type : Call Maturity Date : 2021-05-31 Maturity Price : 25.00 Evaluated at bid price : 26.71 Bid-YTW : 4.19 % |
| MFC.PR.J | FixedReset | 102,400 | YTW SCENARIO Maturity Type : Hard Maturity Maturity Date : 2025-01-31 Maturity Price : 25.00 Evaluated at bid price : 20.39 Bid-YTW : 6.33 % |
| TRP.PR.D | FixedReset | 88,338 | YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2046-08-09 Maturity Price : 18.20 Evaluated at bid price : 18.20 Bid-YTW : 4.32 % |
| HSB.PR.C | Deemed-Retractible | 66,600 | YTW SCENARIO Maturity Type : Call Maturity Date : 2016-09-08 Maturity Price : 25.00 Evaluated at bid price : 25.18 Bid-YTW : 3.13 % |
| PWF.PR.P | FixedReset | 65,464 | YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2046-08-09 Maturity Price : 14.00 Evaluated at bid price : 14.00 Bid-YTW : 4.00 % |
| There were 44 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: 26.73 – 27.36 Spot Rate : 0.6300 Average : 0.4399 YTW SCENARIO |
| IAG.PR.G | FixedReset | Quote: 20.91 – 21.49 Spot Rate : 0.5800 Average : 0.4431 YTW SCENARIO |
| NA.PR.S | FixedReset | Quote: 19.55 – 19.93 Spot Rate : 0.3800 Average : 0.2478 YTW SCENARIO |
| MFC.PR.J | FixedReset | Quote: 20.39 – 20.82 Spot Rate : 0.4300 Average : 0.2997 YTW SCENARIO |
| SLF.PR.H | FixedReset | Quote: 16.76 – 17.16 Spot Rate : 0.4000 Average : 0.2704 YTW SCENARIO |
| FTS.PR.G | FixedReset | Quote: 18.82 – 19.37 Spot Rate : 0.5500 Average : 0.4460 YTW SCENARIO |