Finally, its about time! Soverign Bond Trading from the CME!

So, directional trading on the bonds of France, Germany, Italy, Netherlands, UK and US?



Key features and benefits of the new contract include the following:

• Sovereign Yield Spread futures wrap a sovereign yield spread exposure into a single futures contract — with no need to execute and manage individual legs in cash bond/repo markets or across multiple futures exchanges.
• Sovereign Yield Spread futures make trading and monitoring of sovereign yield spread exposures simpler, more cost-effective, and more capital efficient than ever before.
• Sovereign Yield Spread futures are cash-settled and trade exclusively on CME Globex.

Key facts:

• Pair-wise spreads among 10-year sovereign bond yields of:
  
  • France (OATs)
  • Germany (Bunds)
  • Italy (BTPs)
  • Netherlands (DSLs)
  • UK (Treasury Gilts)
  • US (10-Year Treasury Notes)
• Reference Bond price evaluations provided by a designated third-party price evaluation service
• Price basis: Modified IMM Index = 100 + Yield Spread
• Yield spread = "Sold" Nation yield minus "Bought" Nation yield
• Contracts expire by cash settlement on last trading day
• Block minimum: 250 contracts
• Electronically traded on CME Globex
• Centrally cleared

FYI: Must Watch Charlie Rose Tomorrow (Apr 20)

Scheduled for Apr 20th, Henry Kissinger and Hillary Clinton will be interviewed on Charlie Rose!!!

Video can be seen on the web site as of thursday the 21st : http://www.charlierose.com/

China Net Seller Of US Treasurys For Fourth Consecutive Month

Zerohedge: While we will present a comprehensive update of the just released TIC data shortly, the one chart worth noting is the sequentual change in holdings by foreign countries, and particularly one of them. Importantly, of the 4 largest holders of US debt, China, Japan, the UK and Oil Exporters, the latter 3 all saw an increase in their Treasury holdings, China continues selling Treasurys, with a 4th consecutive decline in its total holdings. That said, since TIC data is notoriously flawed and always incorrect, with at least half UK purchases being attributed to China post annual revisions (nobody knows who is responsible for the other half) it could well turn out that China was the only country actually buying US paper. We won't know for sure for at least a year from now following the next full year revision. And by then it likely won't matter.

And In The Meantime, The Adjusted Monetary Base....

...is up by $51 billion in two weeks. But, once again, before people freak out that this is some crazy scheme to flood the market with money (nothing crazy about that scheme: it has been going on for 2 years), keep in mind: this is merely the delayed catch up of the SFP program unwind and the ongoing increase in Treasury holdings by the Federal Reserve Capital, ULC. Nonetheless, it is disturbing that the gradual phase out in the build up of the Adjusted Monetary Base, exclusively due to the rise in Excess Bank Reserves, is still proceeding at a 100%+ CAGR.

The variance between the accumulation in Excess Reserves (Fed liabilities) and Security Holdings (Fed assets) since the start of QE2, can be seen on the chart below. Whereas two months ago reserves were lagging the build out in assets by up to $170 billion, this has since flipped and there has been a dramatic build out in reserves to the tune of $74 billion more than assets.

Once again, there is little mystery here: the question is how much will the market discount these electronic 1 and 0s eventually entering the market, and being an inflationary force, and secondly, just how effective will an IOER hike be in order to prevent $1.7 trillion in excess reserves at the time of QE2 end (on $970 billion of currency in circulation) from becoming a hyperinflationary juggernaut.
Where there is mystery, however, is what actually comprises the Fed's "Other Assets" account which in the last week hit a new all time record of $123 billion.

GE Investment Arm Shedding Bond Risk on ‘Lofty’ Expectations

General Electric Co. (GE)’s investment arm is shedding commercial-mortgage securities, high-yield corporate bonds and emerging-market debt, anticipating that investor expectations for the U.S. economy will deteriorate.
GE Asset Management has been reducing holdings of riskier securities since late February, after favoring them as they rallied over the previous 14 months, said Paul Colonna, 42, who oversees about $53 billion as the Stamford, Connecticut-based unit’s chief investment officer for fixed income.
The threat of a federal-government shutdown as lawmakers wrangle over budget cuts underscores the end of the fiscal stimulus that helped the U.S. escape an 18-month recession, Colonna said. The economy faces a renewed housing slump that may extend for years as policy makers reduce government support amid a lack of “bread-winner job” creation and tepid wage growth even as unemployment falls, he said.
“There’s not enough to drag us down into a double-dip recession, but there’s enough to take down the lofty expectations that are out there and impact asset prices,” Colonna said in a telephone interview. There have been “some very, very aggressive run-ups” in credit markets, he said.
U.S. commercial-mortgage bonds have returned 20.5 percent since the end of 2009, while speculative-grade company bonds have gained 20.3 percent, according to Bank of America Merrill Lynch index data, reflecting growing confidence in the economy and the Federal Reserve’s stimulus for markets that’s pushed investors to seek high-yielding debt.
Emerging-market debentures returned 18.6 percent, while Treasuries have offered 5.3 percent, the data show.

Fade Tightening Expectations

ZeroHedge: Marc Chandler, head of currency strategy at Brown Brothers, shares Zero Hedge's healthy dose of skepticism over two things: the pace of tightening in Europe, which the market is now taking for granted (the EURUSD hit 1.4315 earlier following rumors of Petrodollars now being recycled by purchasing European currency, not dollars: deja vu 2005 anyone?), and Fed tightening following a purported QE2 end. Summarizing: "our argument is two-fold. First, in Europe, we suspect the market is ahead of itself on the likely pace of ECB tightening. The market appears ripe for buy (the euro) on the “rumor” of an ECB rate hike and sells on the fact type of action. Second, similarly, the market appears too aggressive in pricing in Fed tightening after QEII is finished. The pendulum of market sentiment has swung too hard and we expect it to adjust in the weeks ahead." The problem is how to trade this: if the market is expecting too much tightening in both the EUR and USD, shouldn't the two offset? Then again, with the Yen carry trade now being put on en masse by everyone in the aftermath of the reserve-repo carry end, what happens with the two currencies may be quite irrelevant as everyone rushes to short the Yen. That said, there appears to be further EUR upside before the strong Europe trade finally fizzles: "Prudent investors should also consider what is potentially on the euro’s upside. An initial barrier is seen in the $1.4280-$1.4300 area. A break could signal another 1-2% euro rise to the $1.4450 and possibly $1.4600. To be sure, we suspect further euro appreciation in the face of tightening of monetary and fiscal policies will exacerbate the pressure in the periphery and act as further headwinds to European growth."

Portugal Is Outtahere: Country Sells 6 Month Bills At Ridiculous 5.117%, 12 Month At 5.902%!

ZeroHedge: Earlier today Portugal, by the skin of its teeth, sold €1 billion in 6 and 12 month Bills, which however may be its last auction before the country is forced to beg for a bailout: the yield on the 6 Month bill rose from 2.984% three weeks ago to 5.117%, while the 12 Month surged from 4.311% to 5.902%. This is simply a ridiculous yield and at this rate pretty soon the country will be paying more to issue Bills than Bonds. "I suspect that as far as the market is concerned, funding at these levels can only be viewed as a temporary measure," said Peter Chatwell, rate strategist at Credit Agricole. "There has been a very important signal from the banks for the future," said BNP Paribas analyst Ioannis Sokos. "Portugal can still make it through April, but probably won't get to June without a bailout." Which incidentally is when the country is going to have new government elections: cruising through a period of insolvency without a man in charge is probably not the best idea. But what is worst is that the country's social security fund is once again rumored to have been a buyer of last resort. Since these bonds will eventually default, Portugal's pensioners will not be happy to find out that a notable portion of their retirement capital will soon be wiped out.