The fiscal largess that is coming our way is again weighing on global sovereign bonds with now the previous save havens of longer term US Treasuries, German Bunds, UK Gilts and Japanese JGB’s no longer. The US 10 yr yield is up another 3 bps after yesterday’s dramatic 36 bps spike. UK and German 10 yr yields are higher by about 15 bps while Japanese yields are up by 6 bps. Elsewhere, the Italian 10 yr is jumping by 41 bps just today to 2.77% and is up by 165 bps over the past 5 trading days. An astonishing move. There is no place to hide. And just imagine where these bond yields go when we finally get past this virus, which we will.
The newly (again) initiated Fed swap lines were tapped by European banks today on the order of $130b in order to ease dollar funding stress. Fortunately in response, the cross currency euro basis swap just got much less expensive, reversing the spike move over the past two days.
CROSS CURRENCY EURO BASIS SWAP
From a contrarian standpoint, finally within the Investors Intelligence data we are seeing a sharp move higher in the Bear count. They jumped to 32.7 from 22.9 last week and that is the most since January 2nd, 2019. Almost all came out of those thinking we are just seeing a Correction that they want to buy and thus the buy the dip mentality is finally getting burnt. Bulls were little changed, down by 1.6 pts to 34.6 but that is the least since January 2nd, 2019. These are scary times and we of course have no idea where we bottom out here in the short term but getting rid of the buy the dip pavlovian response is a big step closer.
While the euro heavy dollar index is little changed after a strong day yesterday to just under 100, the dollar continues to move higher against commodity currencies and almost everything EM. This of course further squeezes global liquidity.
After mortgage rates bounced higher over the past week coincident with the rise in Treasury yields, refi’s fell 10.4% w/o/w after quite a spike in the two prior weeks. They are still up though an incredible 402% y/o/y. Purchases were little changed, down by .9% but are also up by 10.7% y/o/y. Bottom line, now we have to deal with rising interest rates and along with the economic recession, home buyers are just not going to be active here. And from a ‘social distancing’ standpoint, I’m hearing about open houses getting canceled because sellers don’t want strangers walking around their house.
REFI’s
While this will continue to worsen in March, Japan said its February exports were down by 1% y/o/y which actually was better than the estimate of down 4.2% as maybe some countries who couldn’t get product out of China turned to Japan instead. Imports were very weak, falling by 14% but as expected. Imports from China fell by a dramatic 47% while exports were little changed. The yen is up and also up on the weak after yesterday’s selloff.
Peter is the Chief Investment Officer at Bleakley Advisory Group and is a CNBC contributor.