The S&P500 gained 1.6% (down 5.2% y-t-d), and the Dow added 0.8% (down 7.9%). The broader market rally continued. The S&P400 Mid-Caps jumped 2.2% (down 0.3%), and the small cap Russell 2000 rose 2.6% (down 6.3%). The Morgan Stanley Retail index surged 3.4%, increasing y-t-d gains to a noteworthy 22.8%. The Morgan Stanley Cyclicals increased 3.7% (down 5.1%), and the Morgan Stanley Consumer index gained 0.5% (down 5.9%). The Transports added 0.4% (down 15.5%), while the Utilities slipped 0.6% (down 11.1%). The Nasdaq100 increased 1.8%, increasing y-t-d gains to 10.6%. The Morgan Stanley High Tech index rose 1.1% (up 17.7%), the Semiconductors added 1.3% (up 19.9%), and the InteractiveWeek Internet index jumped 2.3% (up 24.8%). The Biotechs increased 0.4% (down 3.0%). The Broker/Dealers gained 2.1% (up 11.2%), and the Banks surged 8.9% (down 23.7%). With Bullion $14, the HUI Gold index dropped 4.6% (down 2.8%).
One-month Treasury bill rates ended the week at 14 bps, and three-month bills closed at 19 bps. Two-year government yields were little changed at 0.91%. Five year T-note yields rose 5 bps to 1.85%. Ten-year yields increased 4 bps to 2.92%. The long-bond saw yields jump 6 bps to 3.75%. The implied yield on 3-month December '09 Eurodollars fell 7 bps to 1.33%. Benchmark Fannie MBS yields sank 16 bps to 3.92%. The spread between benchmark MBS and 10-year T-notes narrowed a noteworthy 20 to 99 bps. Agency 10-yr debt spreads narrowed 5 to 66 bps. The 2-year dollar swap spread declined 0.75to 56.75 bps; the 10-year dollar swap spread increased 1.25 to 19.25 bps; and the 30-year swap spread increased 2.0 to negative 27.5 bps. Corporate bond spreads were mostly narrower. An index of investment grade bond spreads narrowed 9 to 252 bps, while an index of junk spreads narrowed 35 to 1,142 bps.
Investment grade issuance included Conagra $1.0bn.
Junk issuers included Qwest $810 million and Ventas Realty $200 million.
Convert issuance included Borg-Warner $375million and Micron Technologies $200 million.
International debt issues this week included Korea $3.0bn, KFW $3,0bn, Suncorp $2.5bn, and Hutchinson Whampoa $1.5bn.
U.K. 10-year gilt yields dropped 14 bps to 3.28%, while German bund yields added 3 bps to 3.26%. The German DAX equities index rallied 2.5% (down 6.6%). Japanese 10-year "JGB" yields increased 4 bps to 1.45%. The Nikkei 225 gained 2.4% (up 1.2%). The emerging market rally continued for the most part. Brazil's benchmark dollar bond yields sank 20 bps to a 3-month low 6.16%. Brazil's Bovespa equities index jumped 2.5% (up 21.3% y-t-d). The Mexican Bolsa declined 2.0% (down 8.3% y-t-d). Mexico's 10-year $ yields rose 4 bps to 6.02%. Russia's RTS equities index jumped 9.6% (up 29.4%). India's Sensex equities index gained 4.2% (up 12%). China's Shanghai Exchange added 0.8% (up 34.2%).
Freddie Mac 30-year fixed mortgage rates rose 9 bps to 4.87% (down 101bps y-o-y). Fifteen-year fixed rates added 2 bps to 4.54% (down 88bps y-o-y). One-year ARMs jumped 8 bps to 4.83% (down 35bps y-o-y). Bankrate's survey of jumbo mortgage borrowing costs had 30-yr fixed jumbo rates were unchanged at 6.46% (down 66bps y-o-y).
Federal Reserve Credit jumped $21.0bn last week to $2.070 TN. Fed Credit has dropped $177bn y-t-d, although it expanded $1.181 TN over the past 52 weeks (139%). Elsewhere, Fed Foreign Holdings of Treasury, Agency Debt last week (ended 4/8) rose $12.0bn to a record $2.621 TN. "Custody holdings" have been expanding at a 15.5% rate y-t-d, and were up $403bn over the past year, or 18.2%.
M2 (narrow) "money" supply dropped $28.5bn to $8.308 TN (week of 3/30). Narrow "money" has now inflated at a 23.6% rate over the past 6 months and 13.5% over the past year. For the week, Currency added $1.7bn, and Demand & Checkable Deposits were about unchanged. Savings Deposits fell $13.1bn, while Small Denominated Deposits declined $4.3bn. Retail Money Funds dropped $12.8bn.
Total Money Market Fund assets (from Invest Co Inst) increased $12bn to $3.846 TN.
Total Commercial Paper outstanding surged $56.8bn this past week to $1.533 TN. CP has declined $148bn y-t-d (33% annualized) and $284bn over the past year (15.6%). Asset-backed CP added $3.6bn last week to $704.5bn, with a 52-wk drop of $100bn (12.4%).
Global Credit Market Dislocation Watch:
April 6 - Bloomberg (Howard Mustoe): "The toxic debt of banks and insurers could increase to $4 trillion, the International Monetary Fund will say in new forecasts... The IMF is expected to raise its estimates for U.S. bad debt to $3.1 trillion from its January estimate of $2.2 trillion, with estimates of another $900 billion of toxic assets from Europe and Asia..."
April 7 - Bloomberg (John Glover): "Thirty-five companies defaulted in March, the highest number in a single month since the Great Depression, according to Moody's... The rate at which speculative-grade corporate borrowers worldwide failed to meet their obligations rose to 7% from 4.1% at the end of last year... So far this year, 79 companies rated by Moody's have defaulted..."
April 6 - Bloomberg (John Glover): "About 53% of U.S. companies that issued high-risk, high-yield bonds will default over the next five years, according to Jim Reid at Deutsche Bank AG. The figure compares with a 31% five-year rate in the early 1990s and 2000s, and as much as 45% 'in a very, very different market in the Great Depression,' Reid... wrote... 'Given that this recession will easily outstrip the 90s and 00s, then 40% high-yield defaults over five years seems to be a minimum starting point for this default cycle,' he wrote. A 50% rate is 'not unrealistic.'"
April 6 - Bloomberg (Mark Deen): "Britain's government budget deficit may rise by 32 billion pounds ($48 billion) more than the level forecast in November... the Institute for Fiscal Studies said. The shortfall of 150 billion pounds would amount to 10.4% of gross domestic product in the fiscal year through March 2010..."
April 7 - Bloomberg (Aaron Kirchfeld): "The German government may make an offer for Hypo Real Estate Holding AG, the bailed-out commercial property lender, by the end of the week as it moves closer to the country's first bank nationalization since the 1930s, three people close to the matter said."
April 8 - Bloomberg (Denis Maternovsky and Torrey Clark): "Russian overdue bank loans are increasing by 20% a month, a pace that will bankrupt weak lenders as the financial crisis deepens, OAO Sberbank Chief Executive Officer German Gref said... Russian companies and individuals owe 18.4 trillion rubles ($549bn) to domestic banks, according to central bank data."
April 7 - Financial Times (Deborah Brewster): "Art prices plunged during the first quarter of the year as cash-strapped collectors looked to unload works by postwar masters that had earlier boomed in price along with the stock market. The Mei Moses index... shows art prices fell 35% in the first quarter, having held up during earlier months of the financial crisis."
The dollar index rallied 1.9% this week to 85.79 (up 5.5% y-t-d). For the week on the upside, the Mexican peso increased 3.3%, the Brazilian real 1.8%, the South Korean won 0.6%, the Australian dollar 0.5%, and the Canadian dollar 0.2%. On the downside, the Swedish krona declined 3.9%, the Danish krone 2.5%, the Euro 2.5%, the Swiss franc 2.3%, the Norwegian krone 2.2%, the Taiwanese dollar 1.6% and the British pound 1.4%. In the emerging currencies, the Iceland krona declined 6.3%.
April 9 - Bloomberg (Gavin Evans): "Wool prices in New Zealand, the world's second-largest exporter, fell to the lowest in 30 years as the slump in global construction sapped flooring demand for new buildings and home renovations."
Gold declined 1.6% this week to $879 (down 0.4% y-t-d), and silver fell 3.1% to $12.34 (up 9% y-t-d). May Crude slipped 35 cents to $52.15 (up 17% y-t-d). May Gasoline dipped 0.7% (up 40% y-t-d), and May Natural Gas sank 5.0% (down 36% y-t-d). Copper jumped 3.7% (up 47% y-t-d). July Wheat dropped 7.3% (down 13% y-t-d), and July declined 3.6% (down 2% y-t-d). The CRB index dipped 0.5% (down 0.7% y-t-d). The Goldman Sachs Commodities Index (GSCI) gained 1.0% (up 8.6% y-t-d).
China Reflation Watch:
April 7 - Bloomberg (Shamim Adam and Kevin Hamlin): "China's stimulus plan may fuel the nation's economic recovery this year, helping counter a global recession that is likely to drag growth in Asia's developing countries to the weakest in 11 years, the World Bank said. Developing East Asia, which excludes Japan, Hong Kong, Taiwan, South Korea and Singapore, will expand 5.3% this year, less than a December estimate of 6.7%..."
April 8 - Bloomberg (Li Yanping): "China's exports fell by at least 10% in March from a year earlier, the International Business Daily reported... The 'double-digit' decline was smaller than February's drop..."
April 10 - Bloomberg (Keiko Ujikane and Toru Fujioka): "Japan's record 15.4 trillion ($153billion) stimulus package may give a short-term boost to the nation's economy, while leaving it saddled with a debt burden that will smother future growth, economists said. The plan unveiled yesterday by Prime Minister Taro Aso, who faces elections this year, is aimed at creating jobs in an economy heading for the worst recession since 1945. Equal to 3 percent of gross domestic product, the measures will add to debt that the OECD already forecasts will rise to 197% of gross domestic product next year."
April 7 - Bloomberg (Mayumi Otsuma): "The Bank of Japan will provide more funds to commercial banks by broadening the range of collateral it accepts in an effort to encourage lending to companies. Governor Masaaki Shirakawa and his policy board today decided to accept municipal and central government bonds that are sold directly to investors to ease credit..."
April 8 - Bloomberg (Toru Fujioka): "Japan's corporate bankruptcies rose to a six-year high in March as companies struggled to obtain funds to close books in the final month of the fiscal year. Bankruptcies climbed 14.1% from a year earlier to 1,537 cases..."
April 9 - Bloomberg (Kartik Goyal): "India's industrial production fell the most in more than 14 years... Output at factories, utilities and mines declined 1.2% in February from a year earlier..."
April 8 - Bloomberg (Kartik Goyal and Rakteem Katakey): "India's passenger car sales grew at the slowest pace in at least seven years as the economy cooled and a credit crunch damped demand. Car sales gained 1.3% to 1.22 million in the fiscal year ended March 31..."
Asia Reflation Watch:
April 7 - Bloomberg (Bomi Lim): "South Korea will extend a $100 billion state guarantee on banks' overseas debts until the end of this year to help lenders through the credit squeeze."
April 6 - Bloomberg (Shamim Adam): "Asian economies are poised to 'spring back' from the biggest slowdown in more than a decade as lower interest rates, government stimulus plans and tumbling commodity prices spur domestic demand, HSBC Holdings Plc said... Asian governments have unveiled more than $700 billion in increased spending, tax cuts and cash handouts..."
Latin America Watch:
April 7 - Bloomberg (Renato Andrade): "The risk associated with corporate funding in Latin America has increased over the last six months, Moody's... said... More than half of the companies in the region have 'high exposure' to funding risk, Moody's added."
April 6 - Bloomberg (Sebastian Boyd): "Chilean economy shrank the most in almost a decade in February from the same month a year earlier... The economy contracted 3.9% in February from the same month a year earlier..."
Central Banker Watch:
April 7 - Bloomberg (Jacob Greber): "Australia's central bank cut its benchmark interest rate to a 49-year low after policy makers signaled the economy faces its first recession since 1991. Glenn Stevens lowered the overnight cash rate target by a quarter-point to 3%..."
April 10 - Bloomberg (Courtney Schlisserman): "The U.S. budget deficit surged in March as tax payments by companies and individuals dropped and the government spent more to rescue banks and revive the economy. The excess of spending over revenue climbed to $192.3 billion, compared with a gap of $48.2 billion in the same month a year earlier. Spending increased to $321.2 billion, and revenue fell 28% to $129 billion. The deficit six months into the 2009 fiscal year already exceeds the record set in the entire previous year."
Real Estate Bubble Watch:
April 6 - Bloomberg (Ari Levy and Dan Levy): "Laura Hecox was baffled when an officer from the San Diego County sheriff's department came to her home in February and said she was being evicted. She hadn't missed a rent payment on her four-bedroom house since moving there a year-and-a-half earlier. 'They told me to leave, to get a few things together,' said Hecox... 'I got booted out just like that.' Hecox didn't know the home she was renting in Chula Vista, California... was in foreclosure because her landlord was a year behind on mortgage payments. The new owner was a group of investors led by JPMorgan Chase..."
April 8 - Bloomberg (Hui-yong Yu): "Vacancies at U.S. malls and shopping centers rose to their highest in more than 10 years... according to... Reis Inc. More empty stores and lower rents are ahead 'unless conditions change dramatically,' said Victor Calanog, director of research at the...firm."
MBS/ABS/CDO/CP/Money Funds and Derivatives Watch:
April 8 - Bloomberg (Scott Lanman): "The Federal Reserve may offer investors longer-term loans at higher interest rates to buy commercial mortgage-backed securities, aiming to protect the central bank's balance sheet while acceding to an industry plea. Lobbyists in the commercial mortgage-backed securities industry say the Fed needs to provide loans of at least five years, rather than the current three-year limit, to avert a meltdown in the market. Fed officials, wary of granting the request outright, are considering a compromise in altering terms of its $1 trillion emergency-lending program."
Unbalanced Global Economy Watch:
April 9 - Bloomberg (Theophilos Argitis): "Canada's jobless rate rose to the highest in seven years in March... The unemployment rate rose to 8% from 7.7% in February..."
April 7 - Bloomberg (Brian Swint): "U.K. manufacturing dropped the most in at least four decades as the global economic slump throttled demand for goods from cars to ceramics. Production fell 6.5% in the three months through February..."
April 9 - Bloomberg (Jacob Greber): "Australia's jobless rate jumped by the most since the nation's economy was last in a recession in 1991... The unemployment rate rose in March to 5.7% from 5.2%..."
April 7 - Bloomberg (Gemma Daley): "Australia will take the lead in a A$43 billion ($30.5 billion) project to build a high-speed Internet network after turning away bidders whose plans the government said were inadequate. The government will own at least 51% of a company... The network will provide Internet access 100 times faster than currently available speeds, it said."
Bursting Bubble Economy Watch:
April 6 - Bloomberg (Matthew Benjamin): "Joseph Ramelo gave up searching for work in January to return to school, two months after he was laid off... Antonio Poe is struggling to get by doing part-time landscaping... after losing his job as an electrician. While such workers are feeling real pain from the recession that began in December 2007, they're not represented in the 8.5% unemployment rate... They are part of a broader group that includes those who want a job but have stopped looking... and those who want full-time... but have to settle for part-time... A measure of underemployment that counts those people has almost doubled over the past two years, to 15.6%..."
April 7 - Los Angeles Times: California, which just completed one of the largest municipal bond offerings in U.S. history, will go back to investors for another big chunk of change this month. This time, the state plans to sell taxable rather than tax-free bonds. A portion of the deal will be subsidized by U.S. taxpayers under Congress' new Build America Bonds plan, part of the economic-stimulus program. State Treasurer Bill Lockyer may try to raise as much as $4 billion via taxable bonds either next week or the week of April 20..."
New York Watch:
April 9 - Bloomberg (Oshrat Carmiel): "Home sales in the Hamptons, the New York oceanside resorts favored by financiers and celebrities, plunged 67% in the first quarter as Wall Street job cuts and bank failures stifled demand for second homes."
April 7 - Bloomberg (David M. Levitt): "Manhattan office rents fell 6% in the first quarter as financial companies cut jobs and relinquished space amid the U.S. recession. Rents dropped to $65.01 a square foot from $69.44..."
April 9 - Bloomberg (Jeremy R. Cooke): "U.S. state and local government bonds posted a second consecutive weekly gain as borrowers led by New York City sold about $5.4 billion in new issues. New York boosted by 45% its sale of general obligation bonds to $883 million to feed demand... Washington state, Illinois and California's State Public Works Board brought to market deals totaling more than $1 billion during the holiday-abbreviated week."
April 7 - Bloomberg (Bei Hu): "Global hedge fund assets may fall by more than 20% this year as managers ease redemption curbs put in place in 2008, a report from International Financial Services London said. Assets overseen by the industry already shrunk 9% in the first two months, largely because of $115 billion of investor withdrawals..."
Crude Liquidity Watch:
April 9 - Bloomberg (Arif Sharif): "Dubai has begun disbursing a $10 billion fund it raised to battle the impact of the global credit crisis and its economy is past the worst of the danger, the emirate's top finance official said. 'We are talking about big sums here,' Nasser Bin Hassan al-Shaikh, director general of Dubai's Department of Finance, said... 'The bad days are over' for Dubai's economy, which is stabilizing and will gradually recover, he said."