US Treasury Secretary Mnuchin Still Interested In Ultralong (High Duration) Sovereign Debt As Argentina Sees strong demand for surprise 100-year bond

US Treasury Secretary Steve “The Munchkin” Mnuchin said on Bloomberg News today that Treasury is still considering issuing ultra-long sovereign debt. This comes on the news that Argentina is issuing a 100 year sovereign bond that is in hot demand.

Reuters — Argentina sold $2.75 billion of a hotly demanded 100-year bond in U.S. dollars on Monday, just over a year after emerging from its latest default, according to the government.

The South American country received $9.75 billion in orders for the bond, as investors eyed a yield of 7.9 percent in an otherwise low yielding fixed income market where pension funds need to lock in long-term returns.

Thanks to a stronger-than-expected peso currency, the government has increased its overall 2017 foreign currency bond issuance target to $12.75 billion from its previous plan of issuing $10 billion in international bonds, Finance Minister Luis Caputo told reporters in Buenos Aires.

Argentina is going to the international capital markets to help finance a fiscal deficit of 4.2 percent of gross domestic product this year. Caputo said Argentina has $2.6 billion in bonds left to be issued this year. The new paper could be denominated in euros, yen or Swiss francs.

The new bond had a coupon of 7.125 percent, the finance ministry said in a statement that hailed success of the sale as evidence that Argentina had regained “credibility and confidence.”

Still, the move came as a surprise given Argentina only last year ended a decade-long dispute with creditors over its 2002 default and residents tend to frown upon accumulating debt in dollars.

Mnuchin is considering joining the “High duration” crowd of nations issuing sovereign debt with maturities longer than 30 years. Once Argentina’s 100 year bond starts to trade, their sovereign yield curve will be the longest after Austria’s 70 year sovereign bond.

Argentina is now a member of “The High Duration” Club. Based on preliminary estimates, the modified duration (as measure of interest rate risk) is 14.

Here is Fed Reserve Chair Janet Yellen discussing ultra long bond issuance with members of Mnuchin’s Treasury team.


(Cape) Fear! Shiller CAPE Ratio At 1929 Black Tuesday Levels (Probability Of Further Rate Cuts Low)

Robert Shiller, the Nobel Laureate in economics from Yale University, has a cyclically-adjusted price-earnings ratio termed the CAPE ratio. And it just rose to the same level as Black Tuesday of 1929, the famous stock market crash.

The Federal Reserve, after months of lowering their target rate, waited until after the November 2008 election of Obama to cut the rate a final time and did not raise their target rate again until December 2015. But since the November 2016 election of Trump, The Fed has raised its benchmark rate 3 times.

With such staggering monetary stimulus, it is not surprising that the S&P500 index has experienced such a fantastic run despite poor wage growth.

Nothing has been the same for Gold since QE3.

Let’s see if The Fed raises their benchmark rate again. But the implied probability of a rate hike before March 21, 2018 is less than 50% (with zero probability of a rate hike at the July 26th meeting, growing to 40% for the December FOMC meeting).

Here is a picture of The Good Ship Follypop.

Yes, Shiller’s CAPE (Fear) index is at 1929 Black Tuesday levels.

Cry For Argentina! Issuing 100 Year Sovereign Debt As Fiscal Deficits Grow To Worst Since 2000

Cry for Argentina. 

Argentina, which has defaulted on its debt seven times, is now faced with the worst fiscal gap since 2000.

(Bloomberg) Argentina is planning to sell its first 100-year bond a year after returning to global capital markets, as it grapples with a soaring budget deficit.

The bond, which will be used to shore up its budget and refinance debt, may be priced as soon as Monday and yield about 8.25 percent, according to a person with knowledge of the matter, who asked not to be named because the deal is private. Citigroup Inc. and HSBC Holdings Plc are managing the sale. The debt-issuance plan was announced on Twitter by the Argentine Finance Ministry, which hasn’t provided further details.

Argentina will join Mexico, Ireland and the U.K. in selling debt that matures over a century. While Argentina last year sold what was at the time the largest emerging-market bond on record, the move will test investor resolve on Argentina. As well as seeking to close its fiscal deficit, the south American country has defaulted seven times in 200 years.

Argentina currently has the second highest sovereign 10 year yield at 13.52% when denominated in their home currency the Argentian Peso. Their US dollar denominated 10 year yield is 5.99%. Venezuela, of course, has the worst 10 year sovereign yield in the Americas at 25.41% (and that is in US Dollar denomination!)

Here are the current Peso-denominated and US Dollar-denominated sovereign curves for Argentina. Since the Peso-denominated curve only goes out to 10 years and their US Dollar denominated curve extends out to 30 years, I assume that the new 8.25% 100-year sovereign bond will be US Dollar denominated.

Argentina is trying to get its act together under President Mauricio Macri.

Here is the Argentinian Peso spot rate relative to the US Dollar.

Hopefully the days of Juan and Eva Peron and their failed economic policies are long gone.

NY Fed’s Dudley: “Remain Calm!! All Is Well! Flattening Yield Curve Is NOT A Bad Sign For The Economy!!”

The New York Fed’s President and CEO William (Bill) Dudley just uttered one of the silliest statements of all time at a business forum in Plattsburgh, New York.

(Bloomberg) — Federal Reserve Bank of New York President William Dudley sounded a positive note on the U.S. economy, saying the central bank wanted to tighten monetary policy “very judiciously” to avoid derailing the expansion that began in mid-2009.

“I’m actually very confident that even though the expansion is relatively long in the tooth, we still have quite a long way to go,” Dudley said Monday in Plattsburgh, New York.

Yields on U.S. Treasuries rose and the dollar advanced after Dudley’s comments. 

Dudley also said that a flattening (Treasury) yield curve is not a bad sign for the economy.

Well, that was a silly thing to say because since the 1970s, the US Treasury curve has always flattened before a recession.

True, we live in a global economy where numerous nations continue to struggle with low growth. And global Central Banks continue to keep their benchmark rates near zero.

Or is Dudley doing his equivalent of “Remain calm! All is well!” from Animal House?

REAL Home Prices Remain 21.35% Below 2006 Peak (As Of December 2016)

How bad was the h0using bubble of the 2000s? Real home prices remain 21.35% below their peak in 2006 during the housing bubble, according to the Bank for International Settlements.

US homeownership is back to pre-1990s levels, but post-1986 levels.

This despite the massive stimulus from The Federal Reserve.

So, what happens when the game of musical chairs stop?

NY Fed Nowcast Downgrades Q2 GDP Growth To 1.86%, Bad Housing Start Data Latest Culprit (Slip Slidin’ Away)

The New York Federal Reserve’s NOWCAST model for GDP growth just downgraded Q2 GDP growth to 1.86%.

The latest culprit? The rotten housing starts data from this morning.

And we were so hopeful about 3%+ GDP growth in February. Alas, Congress is not going along with Trump’s economic agenda.

GDP optimism seems to sink with every Fed Funds Target rate increase.

As Paul Simon warbled, “Slip Slidin’ Away” .

“You know the nearer your destination (of 4% GDP growth)
The more you’re slip slidin’ away.”

Here is Fed Chair Janet Yellen singing “Slip Slidin’ Away” (better known as the GDP song).


A Hawk In The Crowd: Fed Bucks Central Bank Trends By Raising Rates 4 Times Since Dec ’15 While Others Lower Or Keep Steady

With the latest hike in their target interest rate, The Fed Funds Target Rate, Yellen and the FOMC have now completed 4 rate hikes since December 2015 (although my friend Chris Whalen claims there will be no more).

One reason why Chris Whalen may be right is that The Fed is bucking the headwinds of no rate changes by other Central Banks.

Yes, I left off the Bank of England because I ran out of room. But it is the same for the BofE — no change. But the BoE has cut rates once while The Fed has increased rates 4 times.

To highlight the impact of The Fed’s 4 rate increases, I compare the US Treasury yield curve (actives) with the Japanese sovereign curve for today versus December 1, 2o15 before their first rate hike.  Notice that the US Treasury curve has been flattened for 10 year maturities and lower. The converse is true for the Japanese sovereign curve: their curve is lower, particularly in the mid-to-long end of the sovereign curve.  But still flattening. The bright lines are for today, the darker lines are for December 1, 2015.

The UK sovereign curve, like the Japan sovereign curve, is flatter today than on December 1, 2015.  But most of its flattening occurs at the mid-to-long end of their curve.

I certainly hope “Lonesome Yellen” doesn’t speak like this when off camera.

Yes, Yellen and The Fed are “A Hawk in The Crowd.” Amongst pigeons. Or a pigeon among hawks.