(BoE PIVOT, ~double o/n volumes)while WE slept; largest 1d DROP in 30y GILTS (61.8bps) as CBs practice Steven Wright monetary policy
Good morning … Presented without comment,
SEE NEWS RELEASE HERE where you’ll note,
… To achieve this, the Bank will carry out temporary purchases of long-dated UK government bonds from 28 September. The purpose of these purchases will be to restore orderly market conditions. The purchases will be carried out on whatever scale is necessary to effect this outcome. The operation will be fully indemnified by HM Treasury.
Result? 30yy GILTS dropped by 61.8bps … ultimately / so far the largest 1d fall in history (following largest POP in history)
#Got7s? Want some? 7yy as of 625a
Momentum (slow stochastics) remains overSOLD but its different this time in that we’ve got the first of the global CBs to admit defeat, turn and run for cover, buying longer-dated gilts as they go along …
Meanwhile, that was NOT a good 5yr UST auction …
Gruesome, Tailing 2Y Auction Sends Yields To Session High, 10Y At 3.99%
(I’m confident they meant 5y) … And despite the ‘news’ that,
Futures Jump, Yields And Dollar Slide After Gundlach Says He's A "Buyer" Of Treasuries
ZH also notes (sorry, not sorry but now without Terminal its really all I got) that even Gundlach couldn’t save things
Stocks Crater To Fresh 2022 Lows As Yields Soar, UK 30Y Yield Goes Vertical
… here is a snapshot OF USTs as of 705a:
… HERE is what another shop says be behind the price action overnight…
… WHILE YOU SLEPT
Treasuries are notably lower (belly underperforming) yet strongly outperforming the collapsing UK Gilt market (UK 2yrs +102bp in two sessions) as GBP fell to a record low (103.50) versus USD during Asian hours. Asian stocks fell (Korea's KOSDAQ -5.07%), EU and UK share markets are mixed/lower while ES futures are showing -0.8% here at 7:15am. Our overnight US rates flows saw better buying in the long-end into the further drop in prices during Asian hours. The desk noted outright buying of put option blocks contributing to the belly underperformance then. Our London AM flows were light despite the price action with the swap boxes in 2's and 20's 'broken' as currents trade tight in RP. Overnight Treasury volume was roughly DOUBLE averages with 2's (270%) seeing the highest relative average turnover among benchmarks.
… and for some MORE of the news you can use » IGMs Press Picks for today (28 Sep) to help weed thru the noise (some of which can be found over here at Finviz).
And from the narrative creation team,
Equity Strategy - Who Owns What: The beginning of the end
A confluence of crises is prompting a rush to cash and USD. Oversold conditions and bearish HF positioning provide a cushion. But absent a circuit breaker, capitulation may have a final leg on a dual recession/liquidity shock. US retail exposure is still high and bonds are looking increasingly attractive vs. equities.… The valuation differential between bonds and equities continues to fall as bond yields rise and equities fall. However, we still see more valuation risk to equities from higher yields, and equities continue to look extended vs. other asset classes, in our view.
And written hours before BoE PIVOT, Goldilocks
Another Step Towards Pricing the Hawkish View
… The sharpness of the move in financial conditions relative to prior episodes increases the chances that the market shifts to worrying about the growth risks from tightening and makes markets more vulnerable to relief if the inflation or labor market news is friendlier. But if the conditions on inflation and recession remain unmet, relief could still prove hard to sustain.
Equity market troughs in past monetary policy-driven corrections have always been quite closely proceeded by a peak in 10-year yields, a threshold not yet reached. And while the market has priced more risks of a hawkish/recessionary outcome, our estimates imply that, if the Fed pushes the economy into recession, there could still be significant downside to both short-dated bonds and equities here.
One step forwards and then one step BACKWARDS … so much for the hawkish view? But then again, Goldilocks ALSO wrote,
Investors have repriced the odds of a soft landing of the economy lower, but analysts’ earnings expectations across US-domiciled IG and HY public equity issuers tell a different story. Relative to last quarter, consensus estimates for full-year 2023 EBITDA growth for the median IG and HY issuer have declined only modestly, by 0.5% and 1%, respectively. A simple top-down model that relates EBITDA growth to real GDP growth would imply a much larger decline, assuming our US economists’ forecasts materialize. And under the surface, the distribution of growth estimates across issuers suggests the left tail has turned a little fatter relative to a quarter ago, but again not dramatically.
While consensus estimates are prone to some inertia, especially at times of elevated macro volatility, EBITDA estimates for full-year 2023 still attribute an unjustifiably high probability to a soft landing, leaving room for downward revisions in upcoming months. For credit markets, the read-through is twofold, in our view. First, slower earnings growth coupled with a higher cost of capital will likely pressure balance sheet fundamentals for the low end of the quality spectrum. Second, relative performance will continue to exhibit an “up in quality” tilt, especially within the HY bond market, where we continue to advocate for an underweight allocation on CCC-rated issuers.
From the CHARTS department, written BEFORE we hit 4% 10yy overnight and the BoE stepped in,
I’ll quit while I’m behind and leave you with Steven Wright foreshadowing global central banking oh so many years ago,
https://fb.watch/fPVjBNxkNv/
Finally, I stumbled across this one HERE and couldn’t help but pass along as it represents not only the goings on in OUR beloved ‘Beltway’ but likely all governments across the globe at the moment,
… THAT is all for now. Off to the day job…
… THAT is all for now. Off to the day job…