Author Archives: Kevin

4.86 for 100 Years

from Bloomberg News:

Century Club

This would be Ohio State’s second century offer. In 2011, it became the first public school to issue 100-year taxable debt when it sold $500 million. In earlier issues, Walt Disney Co. (DIS) sold centuries in 1993 and the Port Authority of New York and New Jersey followed a year later. Yale University and the Massachusetts Institute of Technology have sold centuries into the corporate market. So has railroad Norfolk Southern Corp.

Ohio State is determining whether to issue taxable bonds due in 2114 or tax-free securities due in 30 years, Papadakis said. The Cleveland Clinic borrowed Sept. 11 via the corporate market at an interest rate of 4.86 percent for a century, data compiled by Bloomberg show.

While historically low yields are luring issuers, some investors are balking at longer debt.

BlackRock Inc., the world’s largest asset manager, is shifting to 10- to 15-year bonds from longer maturities, Peter Hayes, the company’s head of municipal debt, said in a Sept. 10 report. Fidelity Investments is also focusing on intermediate debt, said Kevin Ramundo, a money manager who helps oversee its $28.6 billion of state and local securities.

And TeeVee’s telling you about the Fed changing some words.

Crack for Quants

Forward Guidance has created a new designer drug for the pocket protector crowd – bets when FG will change. Deferred Eurodollars have dropped about 20 ticks since our post last Monday on language change. As Matt Boesler points out today on BBG, the herd is buying puts.

This shows the failure of FG at the Fed. Prodding the market to “price out” any probability of change has led to a massive pass line bet on that inevitable change. The Fed now can either “pay the line” or create a communal bummer around the table. The sad truth is the futures strip no longer provides insight to the Fed about participant expectations. Mathletes and Quants spend their days calculating the cost of wagering on a word change. American exceptional-ism on parade.

One thing everyone, including the Fed, knows: When they do change, the market will over-react. And the crack heads will make another bet.

The Long Meh

Here’s a couple of worthwhile reads:


FED and control of rates

I keep having this nagging thought that everyone, including me, is over-analyzing this. The sad truth is this is an average recovery of average duration. McCulley has pounded the Liquidity Trap drum back from exile. He is right to point out the Fed Watcher industry in an era of openness. Liquidity Trapped economies don’t produce average expansions by definition. however.

Participants and pundits continue to calibrate to the mean reversion of an anomaly that was the last 30 years. Prior to that, as it was with drug culture, most of the 60′s happened in the 70′s. Prior to that, few of us were born and none of those were trading. The historical nickname for the post credit super cycle era? The Long Meh

Fed Language

The employment data was a bit soft and foreign CBs continued to flail in easier directions. The Fed, however, has started the PR campaign for changing the language at this and the next FOMC meetings.

The balloon floating is being spearheaded by 2 new names you’ll be hearing more of: Mester and Powell. Jerome Powell is a Governor and Loretta Mester is Pres. of the Cleveland Fed (Lebron effect already showing). Both are members of a new 4 person panel on communications continuing the futile work begun by Roger Ferguson over a decade ago. The “Openness Objective” has led to confusion, misinterpretation and loss of efficacy, so of course, they are upping the effort.

We remain (as we outlined a month ago in our Minyanville interview) tilted toward the view that the case for raising rates is absent from market demands. The language change will be the Fed’s “toe in the water.” The Taper tantrum clearly shook the Committee’s confidence on markets and market participants, 16 months later they are sheepishly moving back into the game.

Forward guidance was an tether attached to the market to keep it from running amok. The Fedis close to giving us more rope.


Black Swan Rising

This week another store, Home Depot, timidly assured its customers that a major security breach of its systems had occurred but everything was ok. Last week, I was contacted by PNC that someone had charged $125.00 at a gas station in Colorado on my account. What was interesting was PNC knew the charge was fraudulent and related to last Nov’s Target breach. No PIN or ID was needed to transact. Basically, 10 months after the theft, millions of accounts are still being accessed.

The truth is the internet wasn’t built for commerce. Far from Colorado gas charges, the banking system and the exchanges are under constant and systemic sophisticated attack. A fiat system sits on a foundation of faith. Behind the scenes, balances are reduced by hackers and magically replaced by insiders. The biggest offender is the Fed. Caught out be “debt worriers” in the crisis, Bernanke was forced to admit, “All we do is electronically mark up the balances.” The Fed’s best “tightening tool” is to hand more money to its constituents?

One day, impossible to say when, a breach will occur big enough to shake the US consumption machine. The origin will most likely trail back to quasi-governmental based activity. There’s a Black Cygnet out there and it will grow up to be a Swan.

Buy Bonds, They Said

The recent new highs in the Bond Classic and Ultra contracts came with a host of “this time is different” and war fear mongering explanations. The truth is the Note market was skeptical of these claims. We looked for divergences as the long weekend started. The most glaring warning sign was the dis-interest of the belly as long bonds spiked higher.

This morning, the world is still a complicated orb but the manufacturing news is robust. The contract roll is over. The “owners” look more like “renters”. Bonds may garner all the attention but keep your focus on the belly.

Trouble with the Curve

Everyone continues to talk about when the Fed will “raise rates.” The interesting fact is that the market is unwilling or unable to raise rates despite the heavy Fed-timing focus. A few years ago, Europe came to the harsh conclusion that Greece (and then every other EU country) was not Germany. This led to a blow out in spread relationships and even chatter of countries opting out of the monetary alliance.

Today the German government term looks like this: 2 year -.03, 5 yr .18 and Bund .94. These rates have pushed peripheral Europe borrowing costs back down to historical lows. The Spanish 10 year is floating around 2.28, or 10bp UNDER the US. Thus, although a wide spread still exists between Germany and the “others” (we’re an “other” now) the rates are inordinately low and still falling.

So, why is the topic still, “When will the Fed raise – the anchor – rate?” Forward guidance has crafted a tight relationship between out years in Eurodollars. Flat curves are only visible inside the country. The new wides between the US and Germany indicate stress beyond the calibration of monetary policies. As we saw here in Napa, when the stress builds up, things begin to shake.

10 Yr weekly

The 10 year ran at the weekly upside objective on the Aug, 8 pattern last Friday. The market stopped short of the 127.10 objective. This week has seen a slow grind down into the weekly trap gap Of 126.02 to 125.28. The short base took a licking last week as war news went viral.

The POC (point of control) for the long side is 125.22. A settle below there on Friday would be significant given the “soft” J-Hole tilt being floated over the market. A hold and breach early next week seems more likely.


The Kubler-Ross Model of the 5 Stages of Grief apply to the post-crisis recovery. Denial, Anger, Bargaining, Depression..Acceptance. It appears we have finally moved toward acceptance.

The WSj and BBG have picked up on the dramatic regulatory changes shaping the new financial network plumbing. The prevailing sound bite is “collateral shortage.” This is a prime example of what we call “sounds good macro”.  Ultimately, the system will adjust to the needed capital/collateral capacity to fulfill its economic role. The concept of shortage is a calibration to the credit super cycle apex of the old money system.

The Fed’s recent apprehension of excessive RRF usage is another example of moving toward acceptance. PDs are pulling away from repo funding operations at a steady pace. Yellen’s late night “dovish” comments align with the limited demand for credit and the collateral adjustment to its creation. If this is all there is, there’s something to be said for Denial.

Sp Future

Hooper hit the downside objective of 1895.92 on the daily pattern. We pointed out yesterday in a tweet that we saw 1893 as a target. That number is 1 number down on the weekly break that created a new pattern on Aug 1. The reversal pattern increases with the daily objective tag. Standard op on lowering the stop to 1 number down and new pattern after the close.