Monday, December 14, 2015

Today's Headlines

  • Third Avenue Ripples Hit Credit Across Globe as Bond Risk Rises. (video) Measures of bond risk surged worldwide amid concern that investors may face more losses in the roiling debt markets after Third Avenue Management froze redemptions from a high-yield fund and London-based Lucidus Capital Partners liquidated its entire portfolio. Credit-default swaps that are used to insure against losses on junk bonds rose in the U.S. and Europe, with the risk premium on the Markit CDX North American High Yield Index rising to the highest level since November 2012 and the Markit iTraxx Europe Crossover Index that tracks speculative-grade debt in Europe climbing for a fifth day. BlackRock’s iShares iBoxx High Yield Corporate Bond ETF, the largest fund of its kind, dropped as much as 1.1 percent to the lowest levels since 2009. “Everyone is nervous,” said Bill Blain, a strategist in London with brokerage Mint Partners. “We know energy names are in most trouble and that defaults are set to soar. At the moment it’s a false calm before the storm moment. There are no bids or offers. Nobody wants to be the first to jump."
  • CLOs Hammered as Energy Rout Plays Havoc With Other Debt Markets. The bust in commodities that’s roiling junk bonds is also taking its toll on funds that bundle loans used to finance buyouts. The riskiest slices of collateralized loan obligations raised after the financial crisis plunged 9 cents on the dollar since September to about 58 cents at the end of last month, down from 84 cents a year ago, according to JPMorgan Chase & Co. Intensifying price declines in recent months have led to one of the "more challenging years in recent memory," JPMorgan analysts Rishad Ahluwalia and Jacob Kurosaki wrote in a Dec. 11 note to clients. CLOs purchase high-yield, high-risk loans and bundle them into securities of varying risk and return. Investors in the lowest-ranked CLO slices, also called the equity tranche, are first in line to absorb any potential losses. The sell-off comes amid concern about the creditworthiness of speculative-grade borrowers as volatility spreads beyond the energy sector. “The price declines are alarming and worrying," Ahluwalia, JPMorgan’s head of global CLO research, said in a telephone interview.
  • Citic Short-Selling Offer to Funds Led Police to Its Door. The fall from grace for China’s biggest brokerage and investment bank, Citic Securities Co., has been fast and steep. The firm -- sometimes referred to as the Goldman Sachs of China -- began the year on its way to eclipsing UBS Group AG in the ranks of the top four securities firms in the world. Now it’s embroiled in a police investigation and a probe by the stock-market regulator. Short selling, stock-index futures, cross-border return swaps -- all were on the table, all permitted with qualified nods by China’s regulators, until the rules changed and suddenly they weren’t. "The sands of regulation in China are always shifting, and the rules are never quite as solid as you would expect in a more advanced economy," said Arthur Kroeber, Beijing-based managing director of Gavekal Dragonomics, an economic research firm. "They come up with a product at a time when the markets are fairly quiet, and the regulators say fine. Then when there’s a problem, the reflex of the authorities is volatility is bad and this psychology of ‘If markets go down, then someone must be at fault.’"
  • Questioning the Stability of China's Economy. (video)
  • India Now Has a Keqiang Index -- And It Paints a Bleaker Growth Picture. Indian brokerage created gauge as signals from the ground contradicted upbeat GDP. Chinese Premier Li Keqiang's name has been attached to another economic gauge, covering another billion people: this time in India. And the picture the Indian Keqiang index is painting is more downbeat than glowing official data. Indian stock brokerage Ambit Capital established the Keqiang index for the subcontinent as it tries to unravel the mysteries of new gross domestic product data introduced in January that has puzzled economists since.
  • How Bad Is Brazil Car Market? Drop Equals All of Mexico's Sales. (graph) Brazil’s car dealers expect 2015 sales to plunge by 1.3 million vehicles, a decline as big as Mexico’s auto market, as economic and political turmoil pummel the South American country. “It’s been the worst year ever for the sector,’’ Alarico Assumpcao, president of the Brazil Car Dealerships Federation, said in an interview. “The country needs to move on and now it is halted. Actually, it is walking backwards.’’
  • Indonesian Bonds Slump as Rupiah Leads Losses in Asia Before Fed. Indonesia’s government bonds dropped the most in almost two years and the rupiah fell to a two-month low on concern a slump in commodity prices and higher U.S. interest rates will curb demand for local assets. A slide in the Bloomberg Commodity Index to its weakest level since 1999 Monday damped the outlook for Indonesia, the world’s biggest palm oil grower and thermal coal exporter. Foreign funds own 38 percent of Indonesian domestic sovereign bonds, the highest proportion in Southeast Asia. Asian currencies declined ahead of the Federal Reserve’s Dec. 15-16 meeting and on speculation China will allow the yuan to drop after policy makers unveiled a new index that valued it against a broad range of currencies. The yield on Indonesia’s 10-year bonds climbed 28 basis points to 9 percent, the biggest jump since January 2014, according to the Inter Dealer Market Association. The Jakarta Composite Index of shares lost 0.4 percent to close at its lowest level since early October.
  • European Stocks Drop to 10-Week Low as Miners Slide Before Fed. (video) Declines in miners and energy producers dragged European stocks lower for a fifth session, two days before the Federal Reserve’s rate decision. Glencore Plc and ArcelorMittal slipped at least 6.3 percent, pushing a gauge of miners to its lowest level since 2009. Tullow Oil Plc and Royal Dutch Shell Plc slid at least 3.5 percent as oil also fell. Investors have turned averse to risky assets before Wednesday’s Fed decision, and traders are pricing in a 74 percent chance that officials will then announce the first rate increase since 2006. The Stoxx Europe 600 Index fell 1.8 percent at the close of trading, wiping out early gains of as much as 1 percent to cap its longest losing streak since July.
  • OPEC History Shows It Can Deal Even Bigger Blows to Oil Price. Oil’s slump of 14 percent in New York since OPEC met on Dec. 4 has struck fear into any remaining crude bulls. The last time the group rattled the market like this -- after its November 2014 meeting -- the pain was more than twice as deep. The message the Organization of Petroleum Exporting Countries delivered this month -- that it will keep pumping until rival producers scatter -- is really just a repeat of the stance taken last November. After that gathering, crude prices plunged 40 percent in seven weeks of losses as the market realized the global surplus would remain. A similar performance this time around would take prices down to the mid-$20s.
  • Beware Energy's Junk Debt Army. Of the $1.35 trillion face value of debt in the BofA Merrill Lynch U.S. High Yield Index, the two biggest sectors, energy and basic industries, account for 28 percent. Apart from their sheer size, though, there is another thing that sets these two sectors apart and should worry anyone holding them: They are incredibly diffuse.
  • Junk Rated Stocks Flashing Same Signal as High-Yield Bond Market. Think equity investors have been blind to warning signs coming from junk bonds? Not quite. For most of the year pessimists have warned that equity markets were missing signals in high-yield credit, where losses snowballed even as gauges like the Standard & Poor’s 500 Index remained relatively stable. While true, most of that is an illusion of index composition -- not evidence of complacency. What if you look at stocks that are representative of the high-yield universe? A basket compiled by Bloomberg of below investment-grade companies, including Chesapeake Energy Corp. and Cliffs Natural Resources Inc., has dropped a lot more -- 51 percent in 2015.
  • Five Mind-Blowing Stats from the Selloff in the Biggest Junk Bond ETF. (video) Big numbers from a big day in bonds. Regardless of which side you fall on, the numbers behind Friday’s trading of the iShares iBoxx High Yield Corporate Bond ETF, better known as HYG, are fascinating. Here's what caught our eye.  
  • Muni Bonds Backed by Junk Companies Feel Pain of High-Yield Rout. The corporate junk-bond rout has mostly left few ripples in the $3.7 trillion municipal market, with one exception: Tax-exempt debt issued by the high-yield companies. Local-government bonds sold on behalf of U.S. Steel Corp., the nation’s second-largest producer, traded Monday at an average of about 67 cents on the dollar, the lowest price since they were issued in November 2009 and down from 113 cents to start the year, data compiled by Bloomberg show.
  • Hedge Funds Burned by Commodities Lose $40 Billion Since '08. The biggest commodities meltdown in a generation has cost hedge funds more than $40 billion in seven years. Losses due to poor performance and investor withdrawals have left assets at the top 10 commodities hedge funds at less than $10 billion, compared with more than $50 billion in 2008, according to estimates from Trafigura Pte Ltd.’s annual report. The trader and asset manager said the perception of commodities as an investable asset has been replaced by a “generalized aversion."
  • NBC Poll: Clinton Would Trounce Trump But Lose to Rubio, Carson. Hillary Clinton would defeat Ted Cruz and trounce Donald Trump in a hypothetical head-to-head general election matchup, but she would lose to Marco Rubio or Ben Carson, a new NBC News/Wall Street Journal poll finds. Clinton, who leads the Democratic primary field by nearly 20 points, would have a strong advantage over Trump with independent voters but would be bested by the three other Republicans with the important swing group. Against Trump, the Democratic front-runner would win 50 percent to 40 percent. Among independents, she would capture 43 percent of the vote, compared to 36 percent for Trump. Among Hispanics, Clinton would get 69 percent of the vote, compared to just 24 percent for Trump. And against Cruz, who has surged in recent polls in the important early state of Iowa, Clinton would win with 48 percent to Cruz's 45 percent, though that's within the poll's margin of error of plus-minus 3.36 percentage points. Despite losing significant support in the NBC/WSJ poll among Republican primary voters, Carson, a former neurosurgeon, still performs competitively against the former secretary of state. He would get 47 percent of the vote in a hypothetical matchup, compared to Clinton's 46 percent. His strong showing would largely be fueled by independent voters, who made up about 11 percent of the poll's sample of registered voters. They would back Carson by double digits, 48 percent to 34 percent. Rubio, a senator from Florida, would fare the best overall against Clinton, winning a head-to-head clash 48 percent to 45 percent (also within the poll's margin of error.) Among independents, his margin of victory would be 44 percent to her 37 percent. Among Hispanics, Rubio would get 36 percent of the vote, compared to Clinton's 59 percent. Rubio would also perform best with female voters out of the top GOP contenders, capturing 44 percent to Clinton's 51 percent. That's compared to Trump's dismal showing of 33 percent to Clinton's 57 percent.
Zero Hedge: 
Business Insider:
  • Iran crude exports on track to hit 6-month high in Dec -source. Iran's crude oil exports are set to hit a six-month high in December as buyers ramp up purchases in expectation that sanctions against the country will be lifted early next year. Iran is on track to ship 1.26 million barrels a day (bpd) of crude this month, according to an industry source with knowledge of the OPEC member's tanker loading schedule.

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