Random shots

Three random shots on a Friday morning:

* Perhaps the SNB is finally getting it. This week they've allowed the 1 week repo rate to drift higher by 8bps, which makes an interesting contrast to the last time they raised rates. For the first time in recent memory, the daily SNB repo is being watched by the market with interest. While the modestly stronger CHF has not done the FX carry basket any favours, Macro Man is nevertehless pleased to see that the SNB has decided to put their money where their mouths are.
* Further evidence of renewed CB interest in bonds comes fom the weekly Fed custody holding data. After falling over the prior two weeks (a time in which bonds sold off pretty hard), Fed custody holdings of Treasuries and Agencies rose by a healthy $11.7 billion in the last week. Looks like stories about China coming back to market may have been accurate- though wouldn't alternative purchases of T Bills also have been held in custody by the Fed?
* Is Europe about to recouple? Today's ifo survey produced a result which was, while still strong on an absolute basis, fell short of both the prior release and market expectations. At the same time, the 6m/6m change in the OECD leading indicator has clearly turned over; indeed, it is about to cross over below the equivalent US indicator for the first time since December 2005.
There's no trade to do there yet, but it could open up some interesting possibilities in fixed income and, potentially, currencies is that trend continues and is borne out by activity data.





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Anonymous
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June 22, 2007 at 2:18 PM ×

your point about t-bills also being (potentially) held in custody at the fed is a good one -- that is a weak link in my story.

maybe t-bills are sufficiently s-term that it doesn't make sense to shift custody over to the fed ? that is just a guess tho.

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Macro Man
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June 22, 2007 at 2:31 PM ×

Yeah, maybe. That would also suit the buy-tbills-to-flog-them-to-the-soverign-wealth-fund angle as well. Of course, one also has to be leery of twisting any info to suit the pre-existing story. But it probably is safe to say that SOMETHING has changed, even if only temporarily.

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James
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June 22, 2007 at 3:41 PM ×

I think its premature to say that Voldemort is back. I'm still watching the long end move ten handles late in the trading session. That hasn't happened since the 03' deflation scare.

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Macro Man
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June 22, 2007 at 3:47 PM ×

I feel pretty confident in saying he bought some cheap bonds last week; strong anecdotal evidence and the custody data convince me of that. Whether the PBOC put is back is, of course, another question that can only be answered by another visit to the recent highs in yield.

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James
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June 22, 2007 at 4:01 PM ×

Hey Macro Man,

What do you think about the current CDO flap and its relation to carry trades? I'm surprised that no one has been covering yen positions to cover loses in fixed income or CDO's. Or maybe it hasn't happend yet?

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Macro Man
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June 22, 2007 at 4:26 PM ×

I think no one has any losses in CDOs because no one has marked to market. Merrill Lynch was supposedly selling $850 million worth of bonds held as collateral from the Bear Stearns funds. They sold $100 million and then stopped.

Let's see....did they stop because they got such a good price for those bonds that they decided to hold the rest as inventory? Or did they stop because they didn't like the prices they saw.

My impression, and anyone who holds or manages CDOs can feel free to correct me here, is that the entire CDO market is holding its breath and not asking a question ("what are my bonds actually worth?") that they don't want to know the answer to.

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Anonymous
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June 24, 2007 at 4:18 PM ×

Dear MM,

Do you think we can wait to read your exposition on Bear Stearns Hedge fund problems ?

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