LATEST ARTICLES | FIXED INCOME
The Depository Trust & Clearing Corporation (DTCC) has released a new white paper that explores the risks created by U.S. Treasury market fragmentation. The paper, More Clearing, Less Risk: Increasing Centrally Cleared Activity in the U.S. Treasury Cash Market, examines growing concerns around the increased adoption of bilateral clearing for Treasury activity and details the benefits of unifying the market under a central clearing model.According to industry watchers, Treasury market activity today is split between two disparate clearing processes: bilaterally cleared transactions, and centrally cleared transactions via DTCC’s Fixed Income Clearing Corporation (FICC). According to the white paper, interdealer brokers (IDBs) are frequently executing transactions between FICC members and non-FICC members, in which one side of the trade is centrally cleared and the other is bilaterally cleared. The paper notes that this fragmentation is creating “contagion risk,” in part because if a non-FICC member defaults, there could be larger systemic impacts.The white paper notes that the issue of fragmentation has taken on greater urgency due to ongoing market volatility, prompting discussion among industry participants and regulators on the need for an ideal market structure. Prior to 2000, all outright purchases and sales of Treasuries through IDBs were centrally cleared. Today,...
- The absence of stronger gains this week means bonds remain inside their short-term uptrend (see chart)- 100% focus on UMBS 2.5 coupon (why?)- "lower high" yield yesterday and again so far today (keeps hope alive), but...- Conversely, no strong commitment to rallying so far this week.- Net effect: sideways and range-bound for now--perhaps even until Thursday's Powell appearance or possibly even Friday's jobs reportIf yields can manage to rally below the lower yellow line and close in stronger territory for 2 consecutive days, it would present a strong case for the end of this short-term uptrend. That sort of bullish breakout typically presents 2 choices: carve out a new, sideways range or begin a new, short-term rally trend. The latter would probably require some assistance from a friendly Fed, weaker data, or other significant fundamental development.
After 8 straight days with yields closing higher than they opened, bonds are starting out in stronger territory with a chance to reverse the curse. The longer those losing streaks are, the more certain we can be of seeing a corrective green day. Today has every possibility of becoming that day. In fact, as of right now, it already is.
CME Group’s fixed income business BrokerTec has rolled out its dealer-to-client request for quote (RFQ) trading platform for the US repo market.BrokerTec Quote was first launched for the repo market in Europe in June last year providing trading in European sovereign debt, UK gilts, supranational, and agencies.
The Depository Trust & Clearing Corporation (DTCC), the premier market infrastructure for the global financial services industry, today announced that its DTCC Money Market Kinetics service has been enhanced to deliver more frequent updates to critical data, helping to provide increased transparency into the volatility that has been impacting money markets since the start of the COVID-19 pandemic.
NowCP, Paris, and european primary placement facility (eppf), Luxembourg, have launched a new co-operation to provide issuers with the full value chain of financial instruments from the short-end commercial paper to long-dated bonds.The cooperation will be fully automated starting with NowCP’s marketplace as the primary and secondary market trading venue.
Fixed income e-trading platform, Trumid, has expanded its liquidity offering to include emerging markets bonds. Trumid said it had experienced record growth this year, with volumes up 430% year on year across a growing network of over 500 institutions. “We’re very excited to be bringing the efficiency and connectivity of Trumid to emerging markets credit trading,” said Trumid founder and chief executive Ronnie Mateo. “We look forward to expanding our trading community to include EM participants and to work together to build best-in-class trading and workflow solutions.”
TORA, the provider of industry leading trading technology, has today announced that it has expanded its multi-asset Order & Execution Management System (OEMS) trading platform to support fixed income.TORA’s OEMS now offers a range of proprietary tools to help traders access bond liquidity and to efficiently execute and manage bond orders across a broad range of sectors. With coverage across government, sovereign, supranationals, agency, investment grade corporate bonds, high yield, emerging markets, covered bonds and municipal bonds the new offering will appeal to global fixed income managers. This adds to existing coverage of fixed income futures, options and ETFs.
Market volatility has been the order of the day in 2020, as firms across the globe react instantly to the latest developments, whether that be Covid-19, the global economic downturn or geopolitical tensions. This volatility shows no signs of letting up, with the uncertainty around this year’s presidential election stoking yet another wave of uncertainty.
US investment bank JP Morgan will pay a record $920 million after admitting its precious metals and US treasuries trading desks engaged in an unlawful spoofing scheme that spanned eight years.JP Morgan reached parallel agreements with the US Department of Justice, Commodity Futures and Trading Commission (CFTC), and the Securities and Exchange Commission (SEC) resulting in the record penalty for the illegal trading activity.
The end of the week brings the first Friday of the month (of October!) and thus the big jobs report--the economic data that has ruled all others throughout bond market history. Regular readers of this commentary are no strangers to our current stance on the jobs report and practically any other economic report. They just don't have remotely as much power to cause momentum shifts as in the past. Even with the jobs report on tap, none of this week's data is an exception.The economy needs more time to define itself, post-covid--potentially a lot more time. In fact, without a vaccine and a presidential election, that process isn't even possible (though we should certainly be on the lookout for markets to move more convincingly after the election--something that will happen infinitely sooner than an established vaccine).
Bear with me while I'm forced to crank up the power on my analytical microscope in order to find anything interesting to say about one of the least volatile bond market trends we've ever seen. None of what we're about to discuss would make the cut in terms of relevance at almost any other time in bond market history. That said, it's still potentially interesting or even reassuring for those of you who've noticed MBS seeming to struggle a bit versus Treasuries over the past two weeks.Specifically, MBS prices generally saw lower lows and lower highs in those 2 weeks whereas Treasury YIELDS did the same thing (meaning they were IMPROVING modestly while MBS were losing ground). As of today, however, the curse has been reversed. Steady gains in MBS have each 3-month chart looking much more similar to one another.
Ultimus Fund Solutions has completed the second phase of its uSUITE technology launch, as part of its innovative technology strategy.uSUITE, which was originally launched in 2018, uses robotic process automation (RPA) to streamline back-end data processing, eliminating the need for manual intervention.
You know times are tough in the world of bond market analysis when I resort to using an uninspired bullet point list of events for a headline. The only way it could get any worse would be something like "One Weird Trick To Dealing With Sideways Rates" or "Trader Reunited With Bond Market After 20 Years; You'll Never Believe What Happened Next" (both sponsored by Taboola or some such thing). But I digress...So yeah, bonds are sideways. That much we know. Are they sideways due to coronavirus-related uncertainty? After all, 'winter is coming' (kids going back to in-person school in many cases, traditional infectious disease season, more activity moved indoors, etc.). Or are traders waiting to see the election outcome and how other traders play the election outcome? The answer is "yes" either way.
Tossed coconut salad... Fresh coconut milk... New England boiled coconut... There were only so many menu choices for Yosemite Sam working with one ingredient. We're in a somewhat similar position over the past month with nothing to observe apart from a range-bound bond market. But whereas coconuts might make someone crazy eventually, who's going to complain about an incredibly narrow trading range just above all-time low bond yields? The only thing to complain about in this situation is simply the uncertainty regarding the next big move. Are rates going to break higher or lower? And when will that happen?
Financial transaction taxes (FTT), a levy on financial transactions such as the purchase or sale of financial instruments, have been on the radar of capital markets firms for over a decade.The 2008 global financial crisis created political pressure to ensure that the financial sector contributed fairly to the costs of the crisis. As a result, France in 2012 successfully introduced an FTT on equity and high frequency trades, followed in 2013 by Italy implementing a similar levy on equity, derivative and high frequency trades.
While it's definitely not a hard and fast rule, we often see a clear bias toward strength or weakness during any given month in the bond market. July was unequivocally stronger, lining up almost perfectly with the most recent down-trend in yields (teal lines in the chart). August was decidedly weaker, with yields bottoming out on the 4th before embarking on the up-trend we're currently tracking (yellow lines).After a bounce at a ceiling of .79% on Friday, bonds have rallied nicely over the past 2 trading days. As of this morning, they're trading in a narrow range very close to the lower boundary of the prevailing uptrend. Is this a sign that we're about to see another monthly shift in broad, underlying momentum?
Coronavirus obviously ushered in an era of record low rates. The ongoing challenges and uncertainties are fairly well understood. They have a wide spectrum of possible outcomes. As far as we can see at the moment, the baseline outcome involves permanent job losses on a large enough scale to imply a broad shift in economic output. In turn, that shift implies that rates could remain low for a long time or even move lower. That's one of the possibilities, at least. It's the basic bullish case for rates going forward and it's easy to defend--perhaps too easy. In these situations where broad themes seem relatively logical and probable, financial markets have a knack for moving in a counterintuitive way.
Northern Trust (NTRS) and BondEvalue have confirmed the completion of the first trade of a fractionalized blockchain-based bond.According to a joing statement, the trade of a blockchain-based bond, known as BondbloX, was executed on BondEvalue’s platform with Northern Trust as the exclusive asset servicing provider. This comes after the two parties established a strategic partnership in November 2019 to deliver integrated asset servicing and digital solutions for fractional ownership of fixed income bonds operating from the Monetary Authority of Singapore’s Sandbox Express.“SINGAPORE CONTINUES TO BE A SIGNIFICANT MARKET FOR DEPLOYING DLT IN THE FINANCIAL SERVICES SYSTEM.BondEvalue said its platform combines the power of distributed ledger technology (DLT) to enable enhanced transparency, liquidity and faster settlement. “This milestone represents a significant step towards making institutional-grade bonds more widely accessible to certain investors,” said Rahul Banerjee, founder, BondEvalue. “Our platform is greatly assisted”by Northern Trust, who not only brings the confidence of safekeeping and settlement, but advanced understanding of the transformative potential of DLT,” Banerjee added.“Singapore continues to be a significant market for deploying DLT in the financial services system,” said Yen Leng Ong, country executive for Southeast Asia at Northern Trust. “The fintech regulatory sandbox environment has enabled Northern Trust to work...
The European Securities and Markets Authority has published a final report and final guidelines on securitization repository data completeness and consistency thresholds. The guidelines will apply to EU securitization repositories that are registered with and supervised by ESMA. From January 1, 2021, ESMA will consider the guidelines in its supervision of securitization repositories.The EU Securitization Regulation requires securitization repositories to verify the completeness and consistency of the information reported to them.
For days--and especially since last Friday--we've been increasingly worried that the 2-month bond rally was running out of steam and at risk of a reversal. The jury was technically out until all of our overhead ceilings were taken out. As of this morning, they are. The following chart has the exact same trendlines that I've been posting for weeks although I added a new horizontal level (actually an old one) at .64% and another blast from the past at .69%. These are the next 2 stops on the pain wagon should it continue to roll.
No other piece of scheduled monthly economic data has a better track record of influencing the bond market than nonfarm payrolls. There are stretches of multiple consecutive months where it has arguably been responsible for setting the trading tone for the entire month. It began to lose its potency as a market mover when the labor market got "boring" in 2016-2019. Unemployment was so low and job creation was so steady that traders would have needed to see several successive months of surprising job losses before betting on anything other than a continuation of the bulletproof labor market.
A concern for the environment, fair treatment and the rule of law are not new. However, in a post-industrial and capitalist world where technological advancement and profit have for so long been the goals of large corporations and many individuals, the perception and urgency of these considerations is beginning to change. Whether you are attending structured finance conferences or reading magazine articles in the financial press, the buzzword or phrase has very much become ESG.
Now that bonds have broken through previous resistance levels (.58 in 10yr yields and 103.00 in 2.0 UMBS), what comes next? Rather than look for fast-paced follow-through, it would be enough of a victory to merely see bonds maintain these newly acquired levels. Today we'll discuss what those levels might look like and what we'd need to see for them to persist.The key level for 10yr yields was (and perhaps still is) 0.58%. More than any other level, this marked the bottom of the coronavirus range, even though we'd seen yields move much lower on a single day (March 9th).
There's no doubt you'll see excellent mortgage rates when this morning's rate sheets come out. Many lenders will be at or below their previous all-time lows. Many others will be slightly above. And on average, rates will remain in trend that's better described as flat instead of falling. What's wrong with that? Nothing really--especially when rates are in line with record lows. There is something that's interesting about it though, and it's easy to see when we compare MBS price movement to average rates.