Russia’s currency has declined 6% since the Fed announced the commencement of the tapering program on December 18, 2013. The MSCI Country index for Russia (RSX) has declined over 8%.
While last week’s data releases only indirectly impacted the U.S. debt market, this week, the spotlight will be on several important announcements directly pertaining to U.S. debt.
Employment statistics for January were released on February 7. The U.S. economy added 113,000 to non-farm payrolls for January—lower than the consensus estimate of 181,000.
Mortgage-backed securities are the starting point for all mortgage market pricing and the investment of choice for mortgage REITs.
Argentina’s currency has plummeted ~35% since May 2013, making it one of the worst-performing emerging market currencies since 2009.
Why does the market seem to be so infatuated with employment data? Historically, employment indicators were relevant yet were hardly market-moving.
The MSCI country index for Brazil (EWZ) has lost about 24% of its value since May 22, 2013. The index lost over 22% of its value during between May and August 2013.
Bond prices and interest rates have an inverse relationship. If an interest rate increases, the price on a bond declines, and vice versa.
The Treasury’s newest issuance of floating rate notes, or FRNs, on January 29, commanded immense investor interest. The $15 billion issue received bids for 5.67 times the issue amount.
The main action driving TBAs specifically seems to be out of Washington, between the Fed purchases and the government’s policies to drive origination.
Last week, prices of high-quality U.S. debt kept rising on continued uncertainty in both domestic and international financial markets.
The MSCI country index for Turkey (TUR) has lost 8% of its value since the beginning of this year. The index began its slide in May 2013 and has lost 41% of its value since May 22, 2013.
A higher issuance in high yield bonds falls under the BB and B category, and few are rated in the CCC category. CCC rated bonds are highly distressed companies.
FRNs are usually issued in capital markets, whereas leveraged loans are arranged by commercial and investment banks. While FRNs are typically unsecured and investment-grade, leveraged loans are secured.
Bonds would have ordinarily rallied on weak data, but the lack of bad news out of emerging markets may have pulled some of the flight to safety money out of bonds.
Because China’s one of the largest foreign exchange holdings in the world and a sizeable current account surplus of $193 billion, China’s currency wasn’t threatened by the Fed’s decision to start tapering.
High yield bonds are further sub-categorized into various grades to distinguish between highly speculative, extremely speculative, and default companies.
The U.S. Treasury Department’s latest issue on January 29, the floating rate note (or FRN) will fulfill two investor needs: participating in anticipated future interest rates increases and protecting principal against default.
Credit ratings assess the credit-worthiness of a borrower and assign a grade based on the borrower’s business operation and financial stability.
By definition, the interest on floating rate notes (or FRNs) is variable. Why, then, in an environment where all indicators point to rising future interest rates, is the Treasury issuing them at the cost of the taxpayer?