PrefBlog

It was a nice day to own bonds:

Treasuries surged, with benchmark 10-year yields falling the most since March 2009, as a decline in retail sales prompted traders to reduce wagers the Federal Reserve will raise interest rates in 2015.

Rates on federal fund futures show traders betting that the Fed will raise interest rates in December 2015, with chances of an increase in September fading to 32 percent from 46 percent yesterday and 67 percent two months ago, according to data compiled by Bloomberg. The benchmark 10-year yield traded below 2 percent for the first time since June 2013 even as the Fed is forecast to end its quantitative easing this month. A market gauge of inflation expectations fell to the lowest in 15 months while crude oil tumbled in a bear market.
…
The benchmark 10-year yield fell 14 basis points, or 0.14 percentage points, to 2.06 percent as of 2:17 p.m. New York time and reached the lowest since May 2013. The 2.375 percent note due in August 2024 rose 1 1/4, or $12.50 per $1,000 face value, to 102 26/32. The yield fell as much as 34 basis points and reached 1.86 percent, the lowest level since May 2013.

The 30-year bond rose more than four points and the yield fell as much as 28 basis points to 2.67 percent, touching the lowest level since September 2012, before trading at 2.83 percent.
…
The 10-year break-even rate, derived from the difference between yields on Treasuries and inflation-linked debt of similar maturities, shrank to 1.86 percentage points, the least since June 2013.
…
Retail sales declined 0.3 percent after a 0.6 percent August gain that was the biggest in four months, Commerce Department figures showed. The median forecast of 81 economists surveyed by Bloomberg called for a 0.1 percent decline.

Four bucks on long Treasuries! Wow! Equities weren’t quite so happy, but it it could have been worse:

An afternoon rebound helped the Standard & Poor’s 500 Index pare its biggest intraday plunge since 2011 amid speculation the selloff was overdone.

The S&P 500 lost 0.8 percent to 1,862.49 at 4 p.m. in New York, trimming an earlier plunge of as much as 3 percent. The index pared its gain for the year to less than 0.8 percent and has tumbled 7.4 percent since a record on Sept. 18. The Dow Jones Industrial Average fell 173.45 points, or 1.1 percent, to 16,141.74 after dropping as much as 460 points. The Russell 2000 Index of smaller companies jumped 1 percent.

It was a poor day for the Canadian preferred share market, however, as it took its cue from equities, with PerpetualDiscounts down 19bp, FixedResets losing 21bp and DeemedRetractibles off 6bp. Volatility was high and dominated by losers – the only winner was PVS.PR.D, which had a bogus bid yesterday and, if we look at actual trades, was actually down significantly on the day. Volume was low.

PerpetualDiscounts now yield 5.18%, equivalent to 6.73% interest at the standard equivalency factor of 1.3x. Long corporates now yield about 4.05% (maybe a hair more), so the pre-tax interest equivalent spread is now about 270bp, a significant widening from the 250bp reported October 8.

This entry was posted on Wednesday, October 15th, 2014 at 7:30 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.