Liquidity Trap! 3M Treasury Yield At -0.025%

A liquidity trap is a situation in which, “after the rate of interest has fallen to a certain level, liquidity preference may become virtually absolute in the sense that almost everyone prefers holding cash rather than holding a debt which yields so low a rate of interest.”

Well, Buckaroos, we are in a liquidity trap with the 3 month Treasury yield at -0.025%.

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A closer look at the T-bill market today.

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So here we sit in a classic liquidity trap!

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Fed Chair Jerome Powell in a liquidity trap!

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Mega thanks to Jesse at Jesse’s Cafe Americain for the jail jpg.

Frankly, I like The Byrds version of Buckaroobetter with the great Clarence White on the Fender Telecaster B-Bender guitar.

10Y T-Notes Bid-Ask Spreads Widen To Financial Crisis Levels

The markets are over, under, sideways, down.

Bid-ask spreads on the 10-year Treasury Notes have exploded and is back to financial crisis levels.

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A steepening Treasury yield curve bodes ill for stocks … and volatility.

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Hedge, hedge, hedge!

Stimulypto II: Fed Opens Primary Dealer Credit Facility While Trump Pushes $1.2 Trillion Stimulus, $1,000 Checks in Two Weeks (Dow Jumps 1,000 Points!)

Its Stimulypto time again! The Fed and the US Government are going on a $1.2 TRILLION spending spree related to the infamous coronavirus.

(Bloomberg) — The Trump administration is discussing a plan that could amount to as much as $1.2 trillion in spending — including direct payments of $1,000 or more to Americans within two weeks — to blunt some of the economic impact of the widening coronavirus outbreak.

Treasury Secretary Steven Mnuchin pitched $250 billion in checks to be sent at the end of April with a second set of checks totaling $500 billion four weeks later if there’s still a national emergency, according to a person familiar with the matter.

“Americans need cash now, and the president wants to give cash now. And I mean now, in the next two weeks,” Mnuchin said Tuesday at a White House briefing alongside President Donald Trump.

“It is a big number,” Mnuchin told reporters later on Capitol Hill. “This is a very big situation in this economy, we put a proposal on the table that would inject $1 trillion into the economy.”

The administration had been discussing a total aid package of $850 billion, but discussions later included spending as much as $1.2 trillion, according to people familiar with the matter.

The cash payments would be part of a stimulus plan Mnuchin is negotiating with Congress. The administration hasn’t decided on how much to send Americans, but wants the checks to exceed $1,000, according to two people familiar with the matter.

Mnuchin’s proposal included $300 billion for small business loans, $200 billion in stabilization funds, $250 billion in cash payments and a possible second round of checks, people familiar with the matter said. Including tax deferrals, that would bring the cost of the plan to around $1.2 trillion.

Also, The Federal Reserve on Tuesday opened an emergency lending program for primary dealers in yet another step aimed at keeping cash flowing into a U.S. economy shuddering under the impact of the coronavirus pandemic.

The Primary Dealer Credit Facility “will offer overnight and term funding with maturities up to 90 days and will be available on March 20, 2020,” the central bank said in a statement.

The facility will run for at least six months, the statement said, and may be extended. It will be offered at the discount rate, which was cut to 0.25% on Sunday evening in an emergency move by the central bank when it lowered its benchmark federal funds rate to nearly zero.

The Dow jumped 1,000 points on the sea of spending.

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Stimulypto!!

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The Morning After! US Treasuries Surge, Mortgage Rate Spread Highest Since Q4 2008

It is the morning after the Fed panicked and lowered its lower bound for The Fed Funds Target rate to … 0%. Here is Fed Chair Jerome Powell calling to The Fed to take evasive action!

The result? US Treasuries yields are falling like a rock. US Treasury 10Y yields are down around 20 basis points this morning.

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And unless lenders lower their 30-year mortgage rates, the spread between Bankrate’s 30 year average mortgage rate and the 10 year Treasury yield is at its highest level since Q4 2008, the epicenter of the financial crisis.

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This morning before the US equities markets open, Europe is already down around 7% – 8%.

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Here is Fed Chair Jerome Powell wishing us all the best!

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Vanilla (Swap) Sky! FRA-OIS Spread Highest Since Q1 2009 (Dow Up Almost 10%)

The spread between forward rate agreements (FRA) and overnight indexed swaps (OIS) just spiked to the highest level since Q1 2009.

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A vanilla interest rate swap is an agreement between two counter-parties to exchange cashflows (fixed vs floating) in the same currency.  This agreement is often used by counterparties to change their fixed cashflows to floating or vice versa.

The payments are made during the life of the swap in the frequency that is pre-established by the counter-parties.

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Here is Tom Cruise wearing his Coronavirus mask from Vanilla Sky.

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Good news! The stock market is up almost 10%, the exact opposite of yesterday.

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Fed Announces “QE 4 (NOT!)” And Market Says “Big Whoop” (VIX Rises To 75 As Dow Dumps 10% In One Day)

Well, this didn’t go as The Fed hoped!

(Bloomberg) — The Federal Reserve took aggressive steps to ease what it called “temporary disruptions” in Treasuries, flooding the market with liquidity and widening its purchases of U.S. government securities in a measure that recalls the quantitative easing it used during the financial crisis.

The Federal Reserve Bank of New York said in a statement that the “changes are being made to address highly unusual disruptions in Treasury financing markets associated with the coronavirus outbreak” and had been done at the direction of Fed Chairman Jerome Powell in consultation with the Federal Open Market Committee.

Under the Fed’s existing program to buy $60 billion a month in securities, the purchases will be widened to include coupon-bearing notes across a range of maturities to match the maturity composition of the Treasury market, it said. (or $1.5 TRILLION)

This is really QE 4 with a NOT! added.

The market reacted by saying “Big whoop.”

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Today, the Dow dumped 10% or 2,352.33 points.

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As the VIX hit 75, the highest since 2008 and the financial crisis.

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Powell tried a “Hail Janet” pass … and it went unnoticed.

At least the US Treasury yield curve lost its sag!

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Another Trading Day, Another Trading Halt (NASDAQ Opens Down 7%, Europe Down 9%, Brazil Down 11.65%)

Another trading day, another trading halt as NASDSAQ opens down 7%.

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Europe is a sea of red as is Brazil.

Here are the circuit breakers thresholds and time durations:

Level 1 halt (7% decline in S&P 500 index)

  • Trading will halt for 15 minutes if drop occurs before 3:25 p.m.
    At or after 3:25 p.m.—trading will continue, unless there is a Level 3 halt.

Level 2 halt (13% decline in S&P 500 index)

  • Trading will halt for 15 minutes if drop occurs before 3:25 p.m.
    At or after 3:25 p.m.—trading will continue, unless there is a Level 3 halt.

Level 3 halt (20% decline in S&P 500 index)

  • At any time during the trading day—trading will halt for the remainder of the trading day.

Trading has resumed in America. As of 10am EST, Europe keeps crashing (down 10%).

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High yield CDX gets crushed!

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Gold is down 3.82%, silver is down 5.40% and Brent crude is down 6.43%.

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UPDATE:

Dow down >2,000. Eurozone stocks crushed like an oversteamed bratwurst!

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Get to the choppa!

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Big Bubbles? Fastest Bear Stock Market (Down 20% From Peak) May Happen! Dow Closes Down 1,467

The WHO (World Health Organization, not the 60s/70s rock band) announced that the coronavirus is a new PANDEMIC.

Or it is a bubble pop? Not tiny bubbles as Don Ho sang.  But a BIG bubble … burst.

Yes, The Federal Reserve and other Central Banks kept their target rate near zero for almost the entire Obama Presidency, then started to raise rates only to lower them again. But the S&P 500 and NAREIT – all equity indices have risen dramatically as well.

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A bear market in equities is when prices fall 20% from their peak. Over the past month, we are almost in a bear market.

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Is this that fast 20% in history? Nearly.

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And there is lots of downward rotation in global equities.

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Yes, equity markets are fragile thank to the central banks. And now the bears have been awakened.

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What Virus? MBA Mortgage Applications SOAR With Rate Declines (Particularly Refi Apps Up 55.43% WoW)

If you are watching panic at the Bank of Japan, European Central Bank, and Bank of England, you would think that the Spanish Flu from 1918 that killed between 17 and 100 million people was back.

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While we watch the DJIA shed another 800 points in the first 30 minutes of trading, mortgage applications for last week skyrocketed as is there was no coronavirus.

Mortgage applications rose 55.43% from the preceding week. Refinancing applications rose 78.585 (NSA) while mortgage purchase applications rose 7.21%, far less than refinancing applications.

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Here is a chart of refinancing applications as mortgage rates tumble.

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Let’s see what happens with existing home sales in the next report.

 

Stimulypto! U.S. Stocks Rebound on Stimulus Speculation (Fiscal And Fed)

What do you call an expected 3 rate cuts by The Federal Reserve AND fiscal stimulus to combat the coronavirus? STIMULYPTO!!

(Bloomberg) — U.S. stocks turned higher in another wild day on Wall Street, with investors pining for details on the Trump administration’s expected stimulus to combat the coronavirus’s economic impact. Treasuries fell and oil jumped.

The S&P 500 whipsawed from the outset Tuesday, surging 3.5% before turning negative and the rising again. President Donald Trump promised “major” moves to counter the fallout, but he has not communicated his plans to Congress yet. He did say his administration would assist the airline and cruise industries. A 4% rally in European stocks got zapped.

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The Dow has recovered a bit from yesterday’s stock slaughter.

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The unknown fiscal stimulus (likely reduced tax withholding) in addition to the anticipated three Fed rate cuts coming in March.

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Stimulypto indeed!

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Update: after a few speed bumps, the Dow closed up 1165 points. Stocks Jump Most Since 2018 on Stimulus Hope

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And the 10-year Treasury yield is up 26 basis points.

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