Letter From Fed Chairman Bernanke to Senator Schumer (8/27/07) on current mortgage market problems will be posted after the tidbits.
One Year ARM Rates Jumps 67bp Last Week, Pushing Above 30 Year Fixed Rate
From Bloomberg: “Mortgage applications in the U.S. declined to a four-week low as the rate on one-year adjustable loans jumped by the most since the Mortgage Bankers Association began keeping records in 1996…Banks may be jacking up short-term rates to dissuade buyers from choosing riskier mortgages as defaults on subprime loans climb. The housing slump will worsen as banks restrict the availability of credit and falling real-estate prices prevent owners from tapping home equity for extra spending money, economists said. ``If rates go up and credit gets tighter, that is going to lead to a drop in demand on top of what we have already seen,'' said Abiel Reinhart, an economist at JPMorgan Chase & Co. in New York. ``That is going to have an adverse impact'' on the economy through the first half of 2008, he said…The average rate on a one-year adjustable mortgage surged to 6.51 percent, the highest since January 2001, from 5.84 percent the prior week. The rate also surpassed the cost of a 30-year fixed loan for the first time. The number of applications for adjustable-rate loans slumped 23 percent, while those for fixed-rate mortgages rose 0.2 percent. Adjustable-rate mortgages dropped to 15 percent of all applications, the fewest since July 2003. The average rate on a 30-year fixed loan fell to 6.41 percent last week,…”
Cost of Insuring Against Mortgage Lender Defaults Rising Again
From Reuters: “Debt protection costs on U.S. mortgage lenders, including Countrywide Financial Corp., rose on Wednesday as concerns about weakness in residential mortgages and the housing market continued. The cost to insure the debt of the home loan unit of Countrywide, the largest U.S. mortgage lender, rose around 50 basis points to 280 basis points, or $280,000 per year for five years to insure $10 million in debt. CIT Group Inc.'s credit default swap spreads were around 30 basis points wider at 245 basis points. Swap spreads of Capital One Bank, a unit of Capital One Financial Corp. widened around 20 basis points to 90 basis points. Washington Mutual Inc.'s debt protection costs also rose around 15 basis points to 122.5 basis points.”
Rating Agencies Downgrade Security Companies Earnings Potential
From Bloomberg: “Standard & Poor's said business conditions for securities firms are worse than in the second half of 1998 and revenue from investment banking and trading
could fall 47 percent in the final six months of this year…``This is more severe than in 1998,'' when investment- banking and trading revenue fell 31 percent in the second half
following Russia's debt default… In a separate report, Moody's Investors Service estimated revenue losses of 10 percent or less due to loan markdowns for the five largest U.S. investment banks in the second half of 2007.”
Commercial Banks Also Under Pressure
From Handelsbanken: “The details of the second quarter FDIC data highlight the problems facing the financial markets and the economy. A combination of a flat yield curve, rising troubled loans, and a weak housing market all combined to depress bank earnings and force a tightening in lending standards. Specifically, insured commercial banks and savings institutions reported $36.7 billion in net income – a decline of 3.4% from the comparable period a year ago. This decline in earnings was caused by higher provisioning for loan losses, particularly at large institutions. FDIC insured institutions added $11.4 billion in provisions for loan losses to their reserves during the second quarter, the largest quarterly loss provision since the fourth quarter of 2002. Net charge-offs spiked to $9.2 billion in the second quarter. The loan categories with the largest increase in charge-offs included consumer loans other than credit cards (up $757 million, or 60.9%), commercial and industrial loans (up $577 million, or 71.4%), residential mortgage loans (up $422 million, or 144.3%), and credit card loans (up $393 million, or 12.1%). Real estate loans 90 days past due grew $6.4billion or 10.6% which is the largest increase in this category since the fourth quarter of 1990. The second quarter was also the fifth consecutive period of rising non-performing real estate loans. Although insured institutions accelerated their reserve growth during the April-to-June period, the rising non-current loan rate still pushed the banking industries coverage rate to its lowest level five years. The industry’s coverage ratio of reserves to non-current loans fell from $1.30 in reserves for every dollar of non-current loans to $1.21 during the quarter. With bank earnings under pressure and the need to build reserves accelerating, it is likely that banks will further ration credit to the economy.”
British SIV (Special Investment Vehicle) Forced to Liquidate Assets
From Reuters: “Cheyne Finance Plc, a structured investment vehicle (SIV) …said on Wednesday it was seeking to restructure after the value of its investments fell enough to force it to start selling assets. Standard & Poor's late on Tuesday downgraded Cheyne Finance's ratings sharply, with the issuer rating falling to A- from the top AAA, after the SIV told investors and ratings agencies it had breached its major capital loss test and had to liquidate assets to repay outstanding debt. SIVs raise a mixture of short-term and medium-term debt to invest in longer-term securities, often in the asset-backed market. Fears have risen over this strategy as fallout from the U.S. subprime mortgage crisis has battered both the values of the securities SIVs invest in and reduced investor appetite for short-term debt…S&P said that most of Cheyne's portfolio was in real estate securitisations.”
Non-Chinese Asia Showing Strong Growth Too
From Goldman Sachs: “[South Korean] Industrial production (IP) rose 14.3% year on year (yoy) in …Encouraging bounce in consumption. The Consumer Goods Sales Index increased to 9.8% yoy in July versus 4.8% yoy previously… Some easing in capex. Facilities (plant and machinery) investment slowed to 1.3% yoy in July versus 9.2% yoy in June. We continue to expect robust exports growth for the remainder of the year which should underpin a firmer capex trend going forward. …GDP growth forecasts… consensus of 4.7% and 5.1% respectively. The strength in the tradable sector should underpin the capex recovery and in turn bolster the labor market. We believe this should set the stage for further consumption strength down the road.”
First Funding of New Chinese State Foreign Exchange Investment Company
From Goldman Sachs: “According to media reports, the first installment of Rmb600 billion (US$79 billion) worth of Special Treasury Bonds (STB) has been issued (effectively) to the People’s Bank of China (PBOC) today. The duration of the bonds is 10 years, and the yield is set at around 4.3% p.a., which is close to the current market rate of 4.23% of the corresponding treasury bonds. 2) It is reported that the total of Rmb1.55 trillion (US$200 billion) Special Treasury Bonds will likely to be issued in three installments, with sizes of Rmb600 billion, Rmb600 billion and Rmb350 billion, respectively. In execution, the special bonds will be first purchased by the Bank of Agriculture (BOA), then sold to the PBOC by the BOA in exchange for foreign exchange (FX) funds, which will be later injected into the State Foreign Exchange Investment Company. 3) Under this arrangement, the issuance of the STB to the PBOC will not have any direct impact on market liquidity, and therefore no impact on market interest rates. The issuance of the STB adds another bond instrument to the central bank’s sterilization assets, with a much longer duration (maximum of 10 years) than current central bank bills (maximum duration of 3 years). 4) However, in our view, neither the establishment of the State Foreign Exchange Investment Company, nor the issuance of the STB will change the amount of FX inflows, i.e., the amount of sterilization that needs to be undertaken. Therefore, the fundamental policy challenge remains unchanged for the central bank: how to conduct independent monetary policy in a very open economy with a significantly undervalued currency. Pressures in domestic inflation, in particular asset inflation, are reflections of such challenges.”
Tech Company M&A Especially Hard Hit by Tightening Credit Conditions
From TheStreet.com: “The widening credit crisis is exposing the vulnerability of tech companies that have borrowed avidly in recent years as hedge funds, pension funds and other large investors have loaded their portfolios with corporate debt, holding down interest rates. The tighter link to the credit markets could choke the growth of tech companies that have made acquisitions a major plank of their expansion plans. In recent years, IT services firms as well as makers of software, semiconductors and telecom gear have used cash instead of stock to make acquisitions. The reliance on debt is showing up on their balance sheets at a time when skittish investors are draining the credit markets of liquidity, making it costlier to refinance existing debt or take on new debt. Software maker Oracle (ORCL) , for instance, spent nearly $20 billion in cash on acquisitions over the last three years. In that time, the company's debt as a proportion of total capital, a common measure of a company's debt burden, rose from 2% to 31% according to a study by the Center for Financial Research and Analysis…"If companies have debt that is maturing, the issue is whether they have enough cash on their balance sheet to retire the debt, and if not, are they going to be able to refinance it in the current market environment,"… Credit market turmoil has widened the spread between the yields on Treasury bonds and some corporate debt by roughly two percentage points, according to data from UBS.”
MISC
From RBSGC: “MBA reports this morning that the 1yr ARMs rate rose by the most on record (WoW gain) to 6.51% vs. 5.84% last week. This is the most since Feb 2001 and coincides with resetting of ARMs as an ongoing issue…”
From Lehman: “Latest data from the Fed showed that asset-backed commercial paper (ABCP) yields remained elevated at 6.05%, roughly 80bp above similarly rated unsecured CP rates.”
From The Wall Street Journal: “Countrywide is counting on its savings bank, along with Fannie Mae and Freddie Mac, to fund nearly all of its future lending by drawing on deposits and borrowings from the Federal Home Loan Bank system. Countrywide officials say the bank's above-average interest rates on certificates of deposit and savings accounts are reversing a recent loss of deposits. New deposits have exceeded outflows so far this week, a Countrywide spokesman says.”
From Reuters: “Euro zone banks bid for a record amount of money at the ECB's regular long-term funding operation on Wednesday, reflecting ongoing tightness in the interbank lending market. Central banks have poured funds into money markets to tackle a liquidity crisis, stemming from the subprime saga, which has made many banks clam up on normal interbank lending. The European Central Bank lent out 50 billion euros for 91 days but with banks bidding for a total of 119.75 billion euros, strong demand pushed up the cost. "There is still a huge premium for cash particularly in the three months area," one trader said.”
From USA Today: “August car sales could be down 10% compared with a year ago as the mortgage credit crunch makes homeowners feel less secure and unwilling to sign on for another large monthly payment. Consumer website Edmunds.com estimates that sales will be down about 10% compared with last August, even as the automakers continue to pile on incentives to lure customers. Auto sales are particularly weak in regions such as Florida, Nevada and California, where the housing market also is being hard-hit.”
From Bloomberg: “China to `Actively' Take Measures to Curb Inflation…China's inflation rate surged to a 10-year high of 5.6 percent in July…Increases in food prices account for 80 percent of inflation…``Based on analysis of current data, the full-year consumer price index may still rise to more than 3 percent even if we step up micro-economic control measures for the rest of this year,'' he [Su Ning, deputy Chinese central bank governor] said. China's government is concerned burgeoning investment will overheat the economy, risking a slump…Inflation may ease once the government restrains food prices, he said.”
From JP Morgan: “Korea’s manufacturing output surged an additional 2.1%m/m in July [+14.3% YoY], reinforcing the impressive acceleration in industrial production in the major Asian economies. Korea’s advance was led by the high-tech sector, as is the case throughout Asia. EM Asia’s traditionally tight linkage to US industry and US tech demand, both of which have picked up pace, has been reaffirmed by recent developments.”
From Dow Jones: “Bernanke is expected to stop short of sending an implied policy signal when he addresses the Jackson Hole conference in Wyoming Friday.”
From RBSGC: “…despite Wednesday's gain to stocks, our read on things in mortgage space remains quite dire. Using a Titanic analogy conveyed by our long bond trader and echoed by others in the structured space, we in the bond market are in the boiler room, waist deep in cold sea waters, and the stock market is up there in first glasses enjoying martinis with ice chunks clipped off a convenient berg.”
End-of-Day Market Update
From Lehman: “Treasuries finished lower after a wild and exceedingly choppy session that saw an early rally, a big concession into 2 year supply, a 2 year auction that came
almost 3 basis points through the market, and then a late day selloff driven by heavy selling of the 5 year sector as equities powered to new highs…There were big market dislocations today suggesting that the combination of yield curve volatility and quarter end balance sheet constraints are starting to take a toll…The yield curve flattened on the day, moving by about a basis point from 2s to bonds.”
From Reuters: “Stocks rebounded on Wednesday, pushing the S&P 500 and the Nasdaq up more than 2 percent, after investors snapped up beaten down technology shares, while the energy sector benefited from a surge in oil prices.” [Dow closing up 247 points, almost exactly reversing yesterday’s broad-based decline on relatively low volume]
From Market Watch: “The dollar reversed its previous-session losses against the yen on Wednesday as investors renewed their appetite for risk amid a bargain-hunt for U.S. equities. The dollar was up 2% against the Japanese currency at 116.14 yen…Although the unwinding of carry trades continued during the Asian session, they reversed during early European trading…In carry trades, investors borrow lower-yielding currencies like yen to reinvest in higher-yielding assets elsewhere.” [Dollar index closing down .05 at 80.70]
From Fortune: “Oil prices extended early gains Wednesday after a government report showing drops in crude and gasoline supplies overshadowed fears of a slowing economy. U.S. light crude settled $1.78 higher to $73.51 a barrel…EIA also noted that gasoline supplies are at their lowest level ever, when taking into account the level of demand…supplies will be able to meet only 20 days of fuel use…Oil prices hit a record trading high of $78.77 on Aug. 1…”
If a picture is worth a thousand words…
3-Month Treasury T-Bill Yield
One Year ARM Rates Jumps 67bp Last Week, Pushing Above 30 Year Fixed Rate
From Bloomberg: “Mortgage applications in the U.S. declined to a four-week low as the rate on one-year adjustable loans jumped by the most since the Mortgage Bankers Association began keeping records in 1996…Banks may be jacking up short-term rates to dissuade buyers from choosing riskier mortgages as defaults on subprime loans climb. The housing slump will worsen as banks restrict the availability of credit and falling real-estate prices prevent owners from tapping home equity for extra spending money, economists said. ``If rates go up and credit gets tighter, that is going to lead to a drop in demand on top of what we have already seen,'' said Abiel Reinhart, an economist at JPMorgan Chase & Co. in New York. ``That is going to have an adverse impact'' on the economy through the first half of 2008, he said…The average rate on a one-year adjustable mortgage surged to 6.51 percent, the highest since January 2001, from 5.84 percent the prior week. The rate also surpassed the cost of a 30-year fixed loan for the first time. The number of applications for adjustable-rate loans slumped 23 percent, while those for fixed-rate mortgages rose 0.2 percent. Adjustable-rate mortgages dropped to 15 percent of all applications, the fewest since July 2003. The average rate on a 30-year fixed loan fell to 6.41 percent last week,…”
Cost of Insuring Against Mortgage Lender Defaults Rising Again
From Reuters: “Debt protection costs on U.S. mortgage lenders, including Countrywide Financial Corp., rose on Wednesday as concerns about weakness in residential mortgages and the housing market continued. The cost to insure the debt of the home loan unit of Countrywide, the largest U.S. mortgage lender, rose around 50 basis points to 280 basis points, or $280,000 per year for five years to insure $10 million in debt. CIT Group Inc.'s credit default swap spreads were around 30 basis points wider at 245 basis points. Swap spreads of Capital One Bank, a unit of Capital One Financial Corp. widened around 20 basis points to 90 basis points. Washington Mutual Inc.'s debt protection costs also rose around 15 basis points to 122.5 basis points.”
Rating Agencies Downgrade Security Companies Earnings Potential
From Bloomberg: “Standard & Poor's said business conditions for securities firms are worse than in the second half of 1998 and revenue from investment banking and trading
could fall 47 percent in the final six months of this year…``This is more severe than in 1998,'' when investment- banking and trading revenue fell 31 percent in the second half
following Russia's debt default… In a separate report, Moody's Investors Service estimated revenue losses of 10 percent or less due to loan markdowns for the five largest U.S. investment banks in the second half of 2007.”
Commercial Banks Also Under Pressure
From Handelsbanken: “The details of the second quarter FDIC data highlight the problems facing the financial markets and the economy. A combination of a flat yield curve, rising troubled loans, and a weak housing market all combined to depress bank earnings and force a tightening in lending standards. Specifically, insured commercial banks and savings institutions reported $36.7 billion in net income – a decline of 3.4% from the comparable period a year ago. This decline in earnings was caused by higher provisioning for loan losses, particularly at large institutions. FDIC insured institutions added $11.4 billion in provisions for loan losses to their reserves during the second quarter, the largest quarterly loss provision since the fourth quarter of 2002. Net charge-offs spiked to $9.2 billion in the second quarter. The loan categories with the largest increase in charge-offs included consumer loans other than credit cards (up $757 million, or 60.9%), commercial and industrial loans (up $577 million, or 71.4%), residential mortgage loans (up $422 million, or 144.3%), and credit card loans (up $393 million, or 12.1%). Real estate loans 90 days past due grew $6.4billion or 10.6% which is the largest increase in this category since the fourth quarter of 1990. The second quarter was also the fifth consecutive period of rising non-performing real estate loans. Although insured institutions accelerated their reserve growth during the April-to-June period, the rising non-current loan rate still pushed the banking industries coverage rate to its lowest level five years. The industry’s coverage ratio of reserves to non-current loans fell from $1.30 in reserves for every dollar of non-current loans to $1.21 during the quarter. With bank earnings under pressure and the need to build reserves accelerating, it is likely that banks will further ration credit to the economy.”
British SIV (Special Investment Vehicle) Forced to Liquidate Assets
From Reuters: “Cheyne Finance Plc, a structured investment vehicle (SIV) …said on Wednesday it was seeking to restructure after the value of its investments fell enough to force it to start selling assets. Standard & Poor's late on Tuesday downgraded Cheyne Finance's ratings sharply, with the issuer rating falling to A- from the top AAA, after the SIV told investors and ratings agencies it had breached its major capital loss test and had to liquidate assets to repay outstanding debt. SIVs raise a mixture of short-term and medium-term debt to invest in longer-term securities, often in the asset-backed market. Fears have risen over this strategy as fallout from the U.S. subprime mortgage crisis has battered both the values of the securities SIVs invest in and reduced investor appetite for short-term debt…S&P said that most of Cheyne's portfolio was in real estate securitisations.”
Non-Chinese Asia Showing Strong Growth Too
From Goldman Sachs: “[South Korean] Industrial production (IP) rose 14.3% year on year (yoy) in …Encouraging bounce in consumption. The Consumer Goods Sales Index increased to 9.8% yoy in July versus 4.8% yoy previously… Some easing in capex. Facilities (plant and machinery) investment slowed to 1.3% yoy in July versus 9.2% yoy in June. We continue to expect robust exports growth for the remainder of the year which should underpin a firmer capex trend going forward. …GDP growth forecasts… consensus of 4.7% and 5.1% respectively. The strength in the tradable sector should underpin the capex recovery and in turn bolster the labor market. We believe this should set the stage for further consumption strength down the road.”
First Funding of New Chinese State Foreign Exchange Investment Company
From Goldman Sachs: “According to media reports, the first installment of Rmb600 billion (US$79 billion) worth of Special Treasury Bonds (STB) has been issued (effectively) to the People’s Bank of China (PBOC) today. The duration of the bonds is 10 years, and the yield is set at around 4.3% p.a., which is close to the current market rate of 4.23% of the corresponding treasury bonds. 2) It is reported that the total of Rmb1.55 trillion (US$200 billion) Special Treasury Bonds will likely to be issued in three installments, with sizes of Rmb600 billion, Rmb600 billion and Rmb350 billion, respectively. In execution, the special bonds will be first purchased by the Bank of Agriculture (BOA), then sold to the PBOC by the BOA in exchange for foreign exchange (FX) funds, which will be later injected into the State Foreign Exchange Investment Company. 3) Under this arrangement, the issuance of the STB to the PBOC will not have any direct impact on market liquidity, and therefore no impact on market interest rates. The issuance of the STB adds another bond instrument to the central bank’s sterilization assets, with a much longer duration (maximum of 10 years) than current central bank bills (maximum duration of 3 years). 4) However, in our view, neither the establishment of the State Foreign Exchange Investment Company, nor the issuance of the STB will change the amount of FX inflows, i.e., the amount of sterilization that needs to be undertaken. Therefore, the fundamental policy challenge remains unchanged for the central bank: how to conduct independent monetary policy in a very open economy with a significantly undervalued currency. Pressures in domestic inflation, in particular asset inflation, are reflections of such challenges.”
Tech Company M&A Especially Hard Hit by Tightening Credit Conditions
From TheStreet.com: “The widening credit crisis is exposing the vulnerability of tech companies that have borrowed avidly in recent years as hedge funds, pension funds and other large investors have loaded their portfolios with corporate debt, holding down interest rates. The tighter link to the credit markets could choke the growth of tech companies that have made acquisitions a major plank of their expansion plans. In recent years, IT services firms as well as makers of software, semiconductors and telecom gear have used cash instead of stock to make acquisitions. The reliance on debt is showing up on their balance sheets at a time when skittish investors are draining the credit markets of liquidity, making it costlier to refinance existing debt or take on new debt. Software maker Oracle (ORCL) , for instance, spent nearly $20 billion in cash on acquisitions over the last three years. In that time, the company's debt as a proportion of total capital, a common measure of a company's debt burden, rose from 2% to 31% according to a study by the Center for Financial Research and Analysis…"If companies have debt that is maturing, the issue is whether they have enough cash on their balance sheet to retire the debt, and if not, are they going to be able to refinance it in the current market environment,"… Credit market turmoil has widened the spread between the yields on Treasury bonds and some corporate debt by roughly two percentage points, according to data from UBS.”
MISC
From RBSGC: “MBA reports this morning that the 1yr ARMs rate rose by the most on record (WoW gain) to 6.51% vs. 5.84% last week. This is the most since Feb 2001 and coincides with resetting of ARMs as an ongoing issue…”
From Lehman: “Latest data from the Fed showed that asset-backed commercial paper (ABCP) yields remained elevated at 6.05%, roughly 80bp above similarly rated unsecured CP rates.”
From The Wall Street Journal: “Countrywide is counting on its savings bank, along with Fannie Mae and Freddie Mac, to fund nearly all of its future lending by drawing on deposits and borrowings from the Federal Home Loan Bank system. Countrywide officials say the bank's above-average interest rates on certificates of deposit and savings accounts are reversing a recent loss of deposits. New deposits have exceeded outflows so far this week, a Countrywide spokesman says.”
From Reuters: “Euro zone banks bid for a record amount of money at the ECB's regular long-term funding operation on Wednesday, reflecting ongoing tightness in the interbank lending market. Central banks have poured funds into money markets to tackle a liquidity crisis, stemming from the subprime saga, which has made many banks clam up on normal interbank lending. The European Central Bank lent out 50 billion euros for 91 days but with banks bidding for a total of 119.75 billion euros, strong demand pushed up the cost. "There is still a huge premium for cash particularly in the three months area," one trader said.”
From USA Today: “August car sales could be down 10% compared with a year ago as the mortgage credit crunch makes homeowners feel less secure and unwilling to sign on for another large monthly payment. Consumer website Edmunds.com estimates that sales will be down about 10% compared with last August, even as the automakers continue to pile on incentives to lure customers. Auto sales are particularly weak in regions such as Florida, Nevada and California, where the housing market also is being hard-hit.”
From Bloomberg: “China to `Actively' Take Measures to Curb Inflation…China's inflation rate surged to a 10-year high of 5.6 percent in July…Increases in food prices account for 80 percent of inflation…``Based on analysis of current data, the full-year consumer price index may still rise to more than 3 percent even if we step up micro-economic control measures for the rest of this year,'' he [Su Ning, deputy Chinese central bank governor] said. China's government is concerned burgeoning investment will overheat the economy, risking a slump…Inflation may ease once the government restrains food prices, he said.”
From JP Morgan: “Korea’s manufacturing output surged an additional 2.1%m/m in July [+14.3% YoY], reinforcing the impressive acceleration in industrial production in the major Asian economies. Korea’s advance was led by the high-tech sector, as is the case throughout Asia. EM Asia’s traditionally tight linkage to US industry and US tech demand, both of which have picked up pace, has been reaffirmed by recent developments.”
From Dow Jones: “Bernanke is expected to stop short of sending an implied policy signal when he addresses the Jackson Hole conference in Wyoming Friday.”
From RBSGC: “…despite Wednesday's gain to stocks, our read on things in mortgage space remains quite dire. Using a Titanic analogy conveyed by our long bond trader and echoed by others in the structured space, we in the bond market are in the boiler room, waist deep in cold sea waters, and the stock market is up there in first glasses enjoying martinis with ice chunks clipped off a convenient berg.”
End-of-Day Market Update
From Lehman: “Treasuries finished lower after a wild and exceedingly choppy session that saw an early rally, a big concession into 2 year supply, a 2 year auction that came
almost 3 basis points through the market, and then a late day selloff driven by heavy selling of the 5 year sector as equities powered to new highs…There were big market dislocations today suggesting that the combination of yield curve volatility and quarter end balance sheet constraints are starting to take a toll…The yield curve flattened on the day, moving by about a basis point from 2s to bonds.”
From Reuters: “Stocks rebounded on Wednesday, pushing the S&P 500 and the Nasdaq up more than 2 percent, after investors snapped up beaten down technology shares, while the energy sector benefited from a surge in oil prices.” [Dow closing up 247 points, almost exactly reversing yesterday’s broad-based decline on relatively low volume]
From Market Watch: “The dollar reversed its previous-session losses against the yen on Wednesday as investors renewed their appetite for risk amid a bargain-hunt for U.S. equities. The dollar was up 2% against the Japanese currency at 116.14 yen…Although the unwinding of carry trades continued during the Asian session, they reversed during early European trading…In carry trades, investors borrow lower-yielding currencies like yen to reinvest in higher-yielding assets elsewhere.” [Dollar index closing down .05 at 80.70]
From Fortune: “Oil prices extended early gains Wednesday after a government report showing drops in crude and gasoline supplies overshadowed fears of a slowing economy. U.S. light crude settled $1.78 higher to $73.51 a barrel…EIA also noted that gasoline supplies are at their lowest level ever, when taking into account the level of demand…supplies will be able to meet only 20 days of fuel use…Oil prices hit a record trading high of $78.77 on Aug. 1…”
If a picture is worth a thousand words…
3-Month Treasury T-Bill Yield
10-Year Treasury Note Yield
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