Dollar Libor at a 10-Year High Adds to Global Funding Headwinds (Fed’s Giant Electric Belt!)

(Bloomberg) — The global dollar benchmark rate that everyone loves to hate and which regulators have marked for extinction approached a 10-year high Wednesday, adding to strains on some emerging economies and U.S. companies alike.

The London interbank offered rate still serves as the basis for trillions of dollars in loans and floating-rate securities globally, even though its replacement is gaining traction. Steeper U.S. interbank borrowing costs risk rippling across developing economies by tightening financial conditions and forcing local-currency benchmarks higher. It’s a development that could heighten investor concern at a time when a rising dollar has sparked worries about emerging-market borrowers’ ability to repay loans in the greenback.

Three-month U.S. dollar Libor is now 2.4496 percent, the highest since November 2008. The main driver is that traders are pricing in further Federal Reserve tightening. Officials’ latest quarterly forecasts indicate another rate hike this year followed by three more in 2019.

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I wonder if The Fed’s rate hikes are contributing to the LIBOR meteoric rise?

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Here is The Fed’s Magical Electric Belt to stimulate the economy!

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Fear! Hungarian National Bank Increased Their Gold Reserves By Ten Times!

Yes, Central Banks are growing more fearful of how their policies may have created staggering asset bubbles that could burst. Though Hungary is a small player, it says something about what is happening around the globe.

Budapest, October 16, 2018 – In view of the long-term national and economic strategygoals, the Monetary Council of the National Bank of Hungary has decided to increase the gold reserves of the country. As a result, in October 2018 the precious metal stock ranges from the previous 3.1 to 31.5 tons increased tenfold. Since 1986, the Hungarian National Bank has been buying gold for the first time since 1986. After the substantial increase in the stock of gold reserves in physical form, its repatriation has already taken place.

The possession of precious metal within the country is in line with international trends, supports financial stability and strengthens market confidence in Hungary. In keeping with the historical role of gold, it remains one of the safest instruments in the world, which, even under normal market conditions, exposes its stability and confidence-building function. With a current stock of about $ 1.24 billion in gold reserves of 31.5 tonnes, it reached the historical level that was available to our country at the time of the “golden train”. Within the international reserve, the share of gold reserves rose to 4.4 per cent, which corresponds to the average of non-euro area Central and Eastern European countries.

The role of gold reserves in the nation and economy strategy is becoming more and more appreciated while both the possession and the increase of the precious metals nationwide appear to be a decisive international trend. In this process, according to the strategic decision of the Hungarian National Bank, the domestic gold reserves rose to 31.5 tons. The raising of the gold reserve and the returning of it in physical form took place in the first half of October 2018.

Increasing and repatriating gold reserves can be considered a significant step in economic history. Since the founding of the Hungarian National Bank in 1924, gold reserves have been maintained, but the stock of the population has fluctuated considerably over the decades, depending on the purpose of keeping. The amount of gold reserve is in the II. World War II, and at the end of the day, he pulled out some 30 tons of gold balloons and gold coins on the MNB’s legendary “gold train” in the Spital am Pyhrn in Austria. This amount was fully returned to the country after the war, while providing cover for the introduction of the new currency of the country, the forint, thus supporting financial consolidation and the stabilization of the post-war Hungarian economy. At the end of the eighties, Hungary’s gold reserves, driven by short-term investment objectives, fluctuated between 40 and 50 tons and then, at the time of the change of regime (between 1989 and 1992), the ruling central bank executives decided to reduce to a minimum level of about 3.1 tons by the end of September 2018. level. With the decision of the MNB today, the stock of 31.5 tonnes of gold reserves reached the level of the stabilization period of 1946 by October 2018.

Gold reserves are held for short-term investment and / or long-term stability purposes by country central banks. The current decision of the Hungarian National Bank was led by the stability goals, and there are no investment concerns behind the holding of gold reserves. Gold also has a confidence-building effect in the normal period, that is, it can play a role in stabilizing and defending it not only in the extreme market environment, structural changes in the international financial system or in deeper geopolitical crises. Gold is still considered to be one of the safest assets that can be attributed to unique properties such as the finite supply of precious metal, which is not linked to credit and counterparty risk, since gold is not a claim against a specific partner or country.

Over the past few years, more and more countries have decided to continue to play a decisive role in the use of precious metals, which serve as traditional reserve assets, and raise their gold reserves. This was followed by Poland, in spite of the fact that it had one of the highest gold reserves in the region. When raising domestic gold reserves to 31.5 tons, the MNB also paid attention to the international and regional role played by precious metals in central bank reserves. As a result, the Hungarian gold reserve increased to 4.4 percent in the Central Eastern European region averaging the entire international reserve ratio. This move from the end of the international rankings to the middle of the way has progressed, both in terms of size and proportion of gold reserves.

On the occasion of the announcement, the National Bank of Hungary also published a “golden book”, which gives an insight into decisive periods such as centuries of golden coins, the rescue of our national treasures by gold trains, or the recent homecoming of the country’s gold reserves.

The National Bank of Hungary must have seen this film clip of fear being wrestled to the ground. By buying gold.

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ADP Employment Survey Shows 230K Jobs Added In September, 10Y T-Note Yield Pierces 3.1% (Mortgage Refi Applications DEAD)

The ADP employment survey for September revealed a gain of 230,000 jobs. AND bartender/waitstaff jobs (a staple of the Yellen years) were small in comparison to other job categories.

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On the news, the 10-year Treasury Note yield rose above 3.10%.

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And The Dow rose triple digits … again.

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And mortgage refinancing applications remain dead with rising Treasury yields.

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My Kuroda! Bank Of Japan’s Yield Curve Management Killing Japan’s Pension Fund

My Kuroda!

Haruhiko Kuroda, the Governor of the Bank of Japan (BOJ), is realizing that his “loose” or “zero interest rate” monetary policies are hurting Japan’s pension fund. Just like The Federal Reserves’ low interest rate policies have done the same to US pension funds.

(Bloomberg) — The world’s largest pension fund is the latest in an array of investors indicating that the Bank of Japan may need to do more to let bond yields rise to tempt them back to the Japanese market, according to Goldman Sachs Group Inc.

Japan’s Government Pension Investment Fund said Wednesday it will give itself more flexibility on how much it invests in Japanese bonds, raising the prospect that it’ll trim its $387 billion stash of domestic debt and sending a warning shot to the central bank, which owns over 40 percent of the market.

With the GPIF already near the bottom of its permitted allocation to government bonds to begin with, the move is effectively a formal recognition of an existing unofficial strategy, analysts including Michael Cahill wrote in a Sept. 26 research note.
“It shows that the rates selloff has so far not been enough to entice long-term domestic investors back into the market,” he said.

Japanese life insurers have proven similarly reticent to bring home funds parked overseas to invest in domestic bonds, even after the BOJ’s first policy tweak in almost two years in July, amid criticism the size of its holdings is distorting the market.

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The Japanese Sovereign curve has gone from all-positive when Kuroda assumed the duties as BOJ Governor to having negative yields for tenors less than seven years. Hardly a great investment for Japan’s pension fund.

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Like in the US, BOJ’s zero interest rate policies (ZIRP) and yield curve management have encoouraged pension funds to seek higher yields elsewhere.

Kuroda is seeing higher yields on Japanese Treasuries … and doesn’t like it.

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Lumber Futures Nosedive Along With Home Building Stocks (When The Music’s Over?)

Is the music over for housing construction and the housing bubble?

Lumber futures, a harbinger for housing, are down solidly on the year amid weaker demand.

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And US homebuilding companies relative to the S&P 500 index has been falling since 2017.

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Or are homebuilders “riders on the storm”? Or is it “The End” of the housing bubble?