In Historic First, Greek Debt Carries Negative Interest Rate (Greeks PAID To Borrow!) Greece Sells E487.5M 91-Day Bills At -0.02%

Remember when Greek debt was a joke? Not anymore! Greece just held a T-bill auction and sold E487.5 million in 91-day bills at … drumroll … -0.02%.

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Athens, Greece (AP) — More than a year after Greece exited its bailout programs, investors — in a historic first — have bought its short-term debt at a loss.

The country’s debt management agency said Wednesday it raised 487.5 million euros ($535 million) selling 13-week treasury bills, for which the yield was -0.02%.

That means investors will get back slightly less than they paid, following a trend in other European countries.

Greece’s last 13-week treasury bill sale, in August, carried a yield of 0.095%.
At the start of its financial crisis, in 2010, Greece was locked out of bond markets as investors feared they wouldn’t get their money back. Bondholders were in fact later forced to accept large losses on their investments.

From then till August 2018 Greece survived on international bailouts.

But it is a cautionary tale: A Beware of Greeks Central Banks like the ECB bearing gifts.

At least Greece’s GDP is growing at 1.9% YoY.

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The ECB president, Mario Draghi. deserves all the plaudits for saving the euro, but the “doom loop” between large banks and sovereign debt hasn’t gone away.

You know we are in monetary Bizarro world when “investors” loan money to Greece with a debt to GDP ratio of 181.80%.

The last known photo of outgoing ECB President Mario Draghi.

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Alarm! VIX Futures Curve Inverts As Dow Drops >500 Points (Tech Stocks Hammered)

It’s NOT always sunny in financial markets.

Today, the Dow dropped >500 points (2%) as of 12:2pm EST. Europe is even worse with the FTSE 100 down 3.23%.

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Meanwhile, the VIX futures curve has inverted!

(Bloomberg) — The front of the VIX futures curve has inverted, pointing to acute concern about the near-term outlook for a stock market that’s come under considerable pressure the last two days.

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Some traders use a VIX curve inversion as a “take cover” signal, noting that would have helped avoid much of the damage associated with risk routs in Q4 2018, during the February 2018 Volmageddon, and amid the August 2015 devaluation of the yuan. On the other hand, it’s also produced numerous false positives. For instance, the Aug. 5 inversion on a closing basis also marked an intermediate bottom for the S&P 500.

For investors in long/short volatility exchange-traded products, this is when the term structure starts to act as a headwind or tailwind for performance.

Tech stocks are getting blasted (Microsoft, Apple, Cisco, Intel).

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Green man strikes again!

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Fear! Interest Rate Derivatives Trading Explodes to $6.5 Trillion Per Day

Brexit, slowing global growth, Central Bank monetary follicies (negative rates). Lots of economic uncertainty and a growing demand to hedge interest rates. In other words, lots of fear.

According to the BIS, daily turnover of OTC interest rate derivatives averaged $6.5 trillion in April 2019, up markedly from the April 2016 survey when it averaged $2.7 trillion per day. This rise appears to have been driven mainly by increased hedging and positioning amid shifting prospects for growth and monetary policy.

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However, other factors also played a role. Much of the turnover in April 2019 was in shorter-term contracts, which are rolled over more often. In addition, the 2019 survey saw more comprehensive reporting of related party trades than in previous surveys. Average daily turnover in April 2019, after adjusting for these trades, is estimated to have been closer to $5.8 trillion in April 2019, up around 120% since the 2016 survey.

The majority of turnover of OTC interest rate derivatives is in swaps and denominated in the mighty US dollar.

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The home of the largest turnover (aka, trading) is in the UK, followed by Hong Kong and then the USA.

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Yes, lots of fear regarding interest rates.

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Shakin’ All Over! German Yield Curve Completely Negative Yield As Germany Issues €869M Zero-coupon Bonds At -0.11% (Tried To Sell €2B)

Things are getting crazy in Europe, particularly in Germany and Denmark,

As Brexit approaches, Germany is desperately trying to save their economy (or at least their banking system) by borrowing at negative rates for 30-years.

The German government sold 869 million euros of 30-year bonds with a negative yield, for the first time ever, adding to the world’s growing $15 trillion in existing negative yielding debt.

The bund, set to mature in 2050, has a zero coupon, meaning it pays no interest. Germany offered 2 billion euros worth of 30-year bunds, and investors were willing to buy less than half of it, with a yield of minus 0.11%.

Here are the German sovereign yield curve (blue) and the Danish sovereign curve (green).

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Of course, the US Treasury curve has the same “bucket” shape as Germany and Denmark (as well as numerous other nations).

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The US Treasury 10Y-3M curve slope is now -40 BPS.

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While not totally submerged, Sweden, France and the UK all have the bucket shape.

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Just so we understand, it’s not just Europe that is slowing. China is slowing too (and before the tariff war).

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Sovereign yield curves are Shakin’ all over.

Beyond The Sea! Boston Fed’s Rosengren’s Plea To Not Cut Rates While Europe Slows (17 European Nations Have Negative 2Y Yields, 13 European Nations Have Negative 10Y Yields)

What a difference 10+ years make in financial markets.

Here is the US Treasury yield curve at the height of the housing bubble (2005) compared to today. Back on July 1, 2005, the yield curve was upward sloping whereas today the curve is inverted at tenors of 5 years or less, then upward sloping.

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At the ten year maturity, both Canada and the US are below 2% in terms of yield (Venezuela is at a whopping 55%!). Chile, in USD, is just about 2%.

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Beyond the sea (Atlantic), there are 13 nations will negative 10-year sovereign yields. Plus the European Financial Stability Facility is at -0.357%.

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At the two-year maturity, Europe has 17 nations with negative yields. And tanking.

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The Boston Fed’s Rosengren is arguing against further rate cuts from an effective Fed Funds rate of 2.1250% while the European Central Bank (ECB) target rate is … -0.40%. That is quite a spread!

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(Bloomberg) — Federal Reserve Bank of Boston President Eric Rosengren continued to push back against further interest-rate cuts by the central bank, arguing he’s not convinced that slowing trade and global growth will significantly dent the U.S. economy.

Meantime, President Donald Trump urged the Fed to cut by a full percentage point to aid U.S. and global growth while complaining the “dollar is so strong that it is sadly hurting other parts of the world”

The German government is getting ready to act to shore up Europe’s largest economy, preparing fiscal stimulus measures that could be triggered by a deep recession, according to two people with direct knowledge of the matter.

Rosengren’s point is that the US economy is still growing with low unemployment while Europe is grinding to a halt. Germany is at 0.40% YoY, Italy is at 0% YoY and France is at 1.30%. The US is at 2.3% YoY. This is, in part, Rosengren’s point.

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While the US economy is humming along at 2.3% YoY growth, Treasury is considering issuing 50- and 100-year bonds. Both will have huge duration and convexity risk.

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So, economic slowdowns beyond the (Atlantic) sea may spill over to the US.

President Trump needs a Dream Lover to enact his rate cuts. Otherwise, markets will be splishy-splashy.