Page 2 of 5 CREDIT BUBBLE BULLETIN Periphery rising
Commentary and weekly watch by Doug Noland
There is also increased talk of the Chinese government providing global vendor
financing for its major industries, a potentially huge development from both
China and global perspectives. Clearly, if Chinese industrial policy seeks to
elevate the status of key domestic industries, current global tumult provides
quite a rare opportunity to press decidedly ahead. Moreover, if China moves to
develop its northern region as it has developed the south, there is really no
bounds to the amount of "money" that could be spent.
On a short-term basis, the Chinese are (as always) fixated on maintaining
social stability. As an analyst, I have to presume this is constructive to
reflationary policymaking, especially considering
the extraordinary nature of today's global financial and economic risks. To
what extent longer-term ambitions of global power and influence also work to
spur near-term Chinese stimulus is more difficult to gauge.
But until I see something to convince me otherwise, I will assume that today's
global backdrop provides China an opportunity to focus on - and move forward
with - its long-term objectives. In the age of synchronized global stimulus, I
don't see why China wouldn't "compete" fiercely in such endeavors as well. And
I believe this dynamic could very well prove a powerful force in spurring
global reflation.
History may look back at this week's G-20 meeting in London as a key inflection
point. The core is in shambles, yet the surprising development may turn out to
be the periphery rising (inflating).
WEEKLY WATCH
The S&P500 rose 3.3% (down 6.7% y-t-d), and the Dow increased 3.1% (down
8.6%). The broader market was much stronger. The S&P400 Mid-Caps surged
5.1% (down 2.6%), and the small cap Russell 2000 jumped 6.3% (down 6.7%). The
Morgan Stanley Retail index rose 7.6%, increasing y-t-d gains to a noteworthy
18.6%. The Morgan Stanley Cyclicals jumped 8.3% (down 8.7%), and the Morgan
Stanley Consumer index gained 2.5% (down 6.4%). The Transports gained 7.2%
(down 15.8%), and the Utilities increased 1.7% (down 10.5%). The Nasdaq100
jumped 5.2%, increasing y-t-d gains to 8.6%. The Morgan Stanley High Tech index
surged 7.4% (up 16.4%), the Semiconductors rose 4.6% (up 18.3%), and the
InteractiveWeek Internet index jumped 7.9% (up 21.9%). The Biotechs declined
3.9% (down 3.5%). The Broker/Dealers rose 5.3% (up 8.9%), and the Banks rallied
5.6% (down 30.5%). With Bullion dropping $31, the HUI Gold index sank 5.5% (up
1.7%).
One-month Treasury bill rates ended the week at 15 bps, and three-month bills
closed at 22 bps. Two-year government yields increased 5 bps to 0.91%. Five
year T-note yields jumped 9 bps to 1.81%. Ten-year yields rose 13 bps to 2.86%.
The long-bond saw yields rise 6 bps to 3.73%. The implied yield on 3-month
December '09 Eurodollars jumped 7.5 bps to 1.38%. Benchmark Fannie MBS yields
rose 15 bps to 4.085%. The spread between benchmark MBS and 10-year T-notes
widened 2 to 118 bps. Agency 10-yr debt spreads narrowed a notable 14.5 to 70
bps. The 2-year dollar swap spread increased 2 to 57.25 bps; the 10-year dollar
swap spread declined 0.75 to 18 bps; and the 30-year swap spread increased 1.75
to negative 29.25 bps. Corporate bond spreads were mostly narrower. An index of
investment grade bond spreads widened 12 to 260 bps, while an index of junk
spreads narrowed 41 to a 6-wk low 1,181 bps.
It was a decent week of corporate debt sales. Investment grade issuance
included PNC Funding $1.0bn, Ingersoll-Rand $655 million, Dell $500 million,
and TJX Cos. $375 million.
Junk issuers included Energy Transfer Partners $1.0bn, Plains Exploration $565
million, AES Corporation $535 million, Black & Decker $350 million,
National Fuel Gas $250 million, Bway $230 million and Coca-Cola Bottling.
International debt issues this week included European Investment Bank $3.5bn,
Qatar $3.0bn, Anglo American $2.0bn, Hana Bank $1.0bn and Odebrecht Finance
$200 million.
UK 10-year gilt yields jumped 14 bps to a 5-wk high 3.42%, and German bund
yields rose 13 bps to 3.22%. The German DAX equities index rallied 4.3% (down
8.8%). Japanese 10-year "JGB" yields jumped 9 bps to 1.415% (high since
12/15/08). The Nikkei 225 gained 1.4% (down 1.2%). The emerging market rally
continued. Brazil's benchmark dollar bond yields sank 11 bps to a 3-month low
6.41%. Brazil's Bovespa equities index surged 5.8% (up 18.0% y-t-d). The
Mexican Bolsa rallied 3.0% (down 6.5% y-t-d). Mexico's 10-year $ yields
collapsed 46 bps to 5.91%. Russia's RTS equities index gained 3.4% (up 18.1%).
India's Sensex equities index rose 3.5% (up 7.3%). China's Shanghai Exchange
added 1.9% (up 32.9%).
April 3 - Bloomberg (Laura Cochrane): "Emerging-market governments and
companies borrowed more in international bond markets this week than at any
time in the past two years as interest costs plunged on optimism the worst of
the global recession may be over. Abu Dhabi, the oil-rich emirate with the
world's largest sovereign wealth fund, and nearby Qatar raised a record $3
billion each, pushing sales by developing-nation borrowers to $9.5 billion, the
most since June 2007, according to data compiled by Bloomberg. South Africa is
considering approaching international bondholders for the first time in nearly
two years along with Turkey and Bahrain."
Freddie Mac 30-year fixed mortgage rates dropped 8 bps to a record low 4.78%
(down 110 bps y-o-y). Fifteen-year fixed rates declined 6 bps to 4.52% (down
90bps y-o-y). One-year ARMs fell 10 bps to 4.75% (down 44 bps y-o-y).
Bankrate's survey of jumbo mortgage borrowing costs had 30-yr fixed jumbo rates
up 4 bps this week to 6.46% (down 59bps y-o-y).
Federal Reserve Credit slipped $2.3bn last week to $2.049 TN. Fed Credit has
dropped $198bn y-t-d, although it expanded $1.173 TN over the past 52 weeks
(135%). Elsewhere, Fed Foreign Holdings of Treasury, Agency Debt last week
(ended 4/1) jumped $14.6bn to a record $2.609 TN. "Custody holdings" have been
expanding at a 14.8% rate y-t-d, and were up $403bn over the past year, or
18.3%.
Bank Credit dropped $21.6bn to $9.699 TN (week of 3/25). Bank Credit was up
$163bn year-over-year, or 1.7%. Bank Credit increased $307bn over the past 29
weeks. For the week, Securities Credit added $1.9bn. Loans & Leases sank
$23.5bn to $7.022 TN (52-wk gain of $90bn, or 1.3%). C&I loans fell $6.7bn,
with one-year growth of 2.9%. Real Estate loans gained $8.6bn (up 3.8% y-o-y).
Consumer loans dropped $9.2bn, and Securities loans fell $24.9bn. Other loans
expanded $8.6bn.
M2 (narrow) "money" supply slipped $2.9bn to $8.372 TN (week of 3/23). Narrow
"money" has now inflated at a 16.7% rate over the past 27 weeks and $753bn over
the past year, or 9.9%. For the week, Currency added $1.3bn, while Demand &
Checkable Deposits dropped $14.2bn. Savings Deposits jumped $22.9bn (11-wk gain
of $303bn), while Small Denominated Deposits declined $2.5bn. Retail Money
Funds fell $10.2bn.
Total Money Market Fund assets (from Invest Co Inst) dropped $22.2bn to $3.834
TN. The 52-wk expansion was reduced to $336bn, or 9.6%. Money Funds have
expanded at a 0.4% rate y-t-d.
Asset-Backed Securities (ABS) issuance remained slow this week. Year-to-date
total US ABS issuance of $18bn (tallied by JPMorgan's Christopher Flanagan) is
a fraction of the $47.7bn from comparable 2008.
Total Commercial Paper outstanding fell $14.8bn this past week to $1.477 TN. CP
has declined $205bn y-t-d (49% annualized) and $351bn over the past year
(19.2%). Asset-backed CP dipped $1.1bn last week to $701bn, with a 52-wk drop
of $109bn (13.5%).
International reserve assets (excluding gold) - as accumulated by Bloomberg's
Alex Tanzi - were up $184bn y-o-y, or 2.8%, to $6.660 TN. Reserves have
declined $386bn over the past 24 weeks. Global Credit Market Dislocation Watch
April 1 - Bloomberg (Gonzalo Vina): "UK Prime Minister Gordon Brown said Group
of 20 nations has already agreed the biggest fiscal stimulus in history and
will tomorrow show how their combined effort top $2 trillion. 'We are in the
midst of the biggest fiscal boost that the world has ever had," Brown said ...
'The combination of all of this is the most substantial fiscal stimulus,
something on the order of $2 trillion. It is remarkable this is happening. We
want to push it forward tomorrow and I think we will.'"
April 3 - Bloomberg (Gonzalo Vina): "The International Monetary Fund, dismissed
as increasingly irrelevant when the world economy was booming, will now wield
more than $1 trillion to help bring it back to life. Leaders from the world's
most powerful nations, meeting in London yesterday, agreed to triple the money
the IMF can lend to rescue crisis-stricken nations, to $750 billion. The agency
will also get another $250 billion in Special Drawing Rights, an overdraft
facility for its 185 members."
March 30 - MarketWatch (Lisa Twaronite): "Corporate investment-grade bond
volume reached a record $824.4 billion in the first quarter of 2009, more than
double the volume of the same quarter a year ago ... Debt capital markets
around the world raised a total $1.53 trillion in 3,370 deals - a 26% on-year
increase, despite a 44% drop in deal activity ... said the report from Dealogic
... Government-guaranteed debt reached $367.6 billion in the quarter,
Head
Office: Unit B, 16/F, Li Dong Building, No. 9 Li Yuen Street East,
Central, Hong Kong Thailand Bureau:
11/13 Petchkasem Road, Hua Hin, Prachuab Kirikhan, Thailand 77110
