Scribd Logo
Upload

Welcome to Scribd!

  • 290 views

    The Pensford Letter - 10.22.12

    Uploaded by

    Pensford Financial
    The 10yr Treasury rose about 0.15% through Thursday and then fell back to 1.76%. The European stability mechanism is the permanent replacement for the EFSF and EFSM. There are five designed mechanisms to assist struggling governments.

    Copyright:

    Attribution Non-Commercial (BY-NC)
    Download as PDF, TXT or read online from Scribd

    The Pensford Letter - 10.22.12

    Uploaded by

    Pensford Financial
    290 views4 pages
    The 10yr Treasury rose about 0.15% through Thursday and then fell back to 1.76%. The European stability mechanism is the permanent replacement for the EFSF and EFSM. There are five designed mechanisms to assist struggling governments.

    Copyright

    © Attribution Non-Commercial (BY-NC)

    Available Formats

    PDF, TXT or read online from Scribd

    Did you find this document useful?

    Is this content inappropriate?

    The 10yr Treasury rose about 0.15% through Thursday and then fell back to 1.76%. The European stability mechanism is the permanent replacement for the EFSF and EFSM. There are five designed mechanisms to assist struggling governments.

    Copyright:

    Attribution Non-Commercial (BY-NC)
    Download as PDF, TXT or read online from Scribd
    Download as pdf or txt
    290 views4 pages

    The Pensford Letter - 10.22.12

    Uploaded by

    Pensford Financial
    The 10yr Treasury rose about 0.15% through Thursday and then fell back to 1.76%. The European stability mechanism is the permanent replacement for the EFSF and EFSM. There are five designed mechanisms to assist struggling governments.

    Copyright:

    Attribution Non-Commercial (BY-NC)
    Download as PDF, TXT or read online from Scribd
    Download as pdf or txt
    You are on page 1of 4

    JP Conklin 704-887-9880 office jp.conklin@pensfordfinancial.com www.pensfordfinancial.

    com Leveling the Playing Field October 22, 2012 _______________________________________________________________________ Boy, I sure would wish my team had brought me binders full of women. Bill Clinton

    One of the more wild rides last week as the 10yr Treasury first climbed about 0.15% through Thursday and then fell back to 1.76%, still the highest closing yield in a month. Stocks took a pounding Friday on weak earnings and nervousness that Spain wont ask for a bailout any time soon. Heres the deal Spain WILL ask for a bailout, but Rajoy will wait a week or two following the regional assembly elections to make it look like he wasnt waiting for the electionseven though that is exactly what he was doing. Spanish Bailout The European Stability Mechanism (ESM) is the permanent replacement for the EFSF and EFSM. There are five designed mechanisms to assist struggling governments: 1. 2. 3. 4. 5. Loan Primary bond buying Secondary bond buying Enhanced Conditions Credit Line (ECCL) Precautionary Conditioned Credit Line (PCCL)

    The PCCL is designed for countries currently meeting existing EU fiscal targets, strong access to capital markets, and a sound financial situation. Pretty much the type of country that wouldnt need a bailout. It would seem a run on a country would be when this may be used. The ECCL is similar in function but intended not meeting existing EU fiscal targets, moderate (not Greek-ish) vulnerabilities, and will be subject to more stringent austerity measures. This type of nation has some access to capital markets but is paying a premium for borrowing costs. ECB President Draghi has stated that its open ended commitment is intended for nations willing to comply with austerity measures, which sounds like ECCL and not PCCL. Spain is likely to fall into this category.

    Once Rajoy feels like he can plausibly deny the elections had anything to do with the timing of his request, he will formally request aid. Keep in mind that both the European Commission and the IMF were involved with Spains 2013 budget preparation, so they are already working hand in hand with the Spanish government. There is a key euro meeting on November 12th, so a formal request for bailout is likely to come sometime in late October or early November. VIX for Rates Introducing the SRVX On June 19, 2012 the CBOE introduced the Interest Rate Swap Volatility Index, known as the SRVX index. The SRVX is the first standardized volatility measure in the fixed income market. The index actively trades between 9:30am and 4:15pm EST and for comparison, its equity equivalent is the VIX. The SRVX measures the fair market value of future volatility implied by the swaption market for any swaption maturity and tenor of an underlying swap. A swaption is an option to enter into a swap in the future. As volatility increases, swaption prices increase. Swaption prices have been on a steady decline since the height of the financial crisis and havent been this low since 2007. The graph shows 1yr10yr swaption premiums, and the SRVX should move in close tandem to this premium. Thus far, after opening at 99.57 on June 19th, SRVX has traded down to 86.65. Said another way, volatility has been extremely low on a historical basis.

    LIBOR Outlook Dont look now, but Penn State is playing well. But if you mention Dook beating Carolina, were no longer friends.

    Fixed Rate Outlook It feels like there is a lid on rates while Spain mulls a formal bailout request, the fiscal cliff looms, and elections are on the horizon. Theres just no reason for bond holders to sell en masse right now. But this could change dramatically over the next two or three months.

    This Week FOMC announcement on Wednesday will be the headliner for the week, but this should be a relatively tame event. In the six weeks since the Fed unveiled QEternity, the domestic economic data has been mildly positive but certainly nothing to suggest a change in tactics. There is a chance they decide to stop actively selling front end securities as part of Operation Twist, but this is more likely to happen in December or early 2013 in large part to concerns over Congress leading us over the fiscal cliff. Theres also a lot of significant eco data such as Durable Goods and GDP as well as Treasury auctions beginning Tuesday. All in all, it should be a hectic week.

    Generally, this material is for informational purposes only and is not intended as an offer or solicitation for the purchase or sale of any financial instrument or as an official confirmation of any transaction. Your receipt of this material does not create a client relationship with us and we are not acting as fiduciary or advisory capacity to you by providing the information herein. All market prices, data and other information are not warranted as to completeness or accuracy and are subject to change without notice. This material may contain information that is privileged, confidential, legally privileged, and/or exempt from disclosure under applicable law. Though the information herein may discuss certain legal and tax aspects of financial instruments, Pensford Financial Group, LLC does not provide legal or tax advice. The contents herein are the copyright material of Pensford Financial Group, LLC and shall not be copied, reproduced, or redistributed without the express written permission of Pensford Financial Group, LLC.

    Economic Calendar
    Economic Data Day Monday Tuesday Wednesday 10:00AM 7:00AM 10:00AM 10:00AM 2:15PM Thursday 8:30AM 8:30AM 8:30AM 8:30AM 8:30AM 10:00AM 11:00AM Friday 8:30AM 8:30AM 9:55AM Richmond Fed Manufacturing Index MBA Mortgage Applications New Home Sales (MoM) House Price Index (MoM) FOMC Rate Decision Initial Jobless Claims Continuing Claims Chicago Fed Nat Activity Index Durable Goods Orders Durables ex Transportation Pending Home Sales (MoM) Kansas City Fed Manufacturing Activity GDP (QoQ) Personal Consumption U. of Michigan Confidence 1.8% 1.8% 82.6 6.8% 0.5% 2.0% -0.87 -13.2% -1.6% -2.6% 2 1.3% 1.5% 83.1 0.25% 2.1% -0.3% 0.2% 0.25% 4 4 Time Report Forecast Previous

    Speeches and Events Day Wednesday Time 2:15PM FOMC Rate Decision Report Place

    Treasury Auctions Day Tuesday Wednesday Thursday Time 1:00PM 1:00PM 1:00PM 2-year Treasury 5-year Treasury 7-year Treasury Report Size $35B $35B $29B

    You might also like