Thursday June 11

Stocks rise after jobless claims data. The S&P and the DJIA both add 0.2% to 2,109 and 18,039 respectively. Data today showed that jobless claims were higher than expected, but still at very low levels compared to historical standards. Contributing to optimism was retail sales, which showed that excluding autos sales rose 1.0% which was faster than expected along with upward revisions to the previous two readings. IMF negotiators going back to Washington sends bund yields and the euro lower as a result of increasing risk. The dollar index rose 0.3% and the euro fell to $1.1265. The bund yield was down 9 bp to 0.90% as a result of concerns about Greece.

Ukraine’s international creditors are unhappy with the country’s government. The government recently said it would stop making debt payments, as they want restructuring on their payments. In addition to their dismal financial situation, the country is plagued by a war with Russian separatists. Upcoming payments include $39mm due on June 17, and a June 20 payment of $79mm to Russia. In addition, $500mm is due in September and $3bn to Russia and $600mm to the IMF in December. The debt was taken out by the former leader who was pro-Russian. Franklin Templeton is one of the largest international creditors. The IMF proposed $15.3bn of debt relief involving maturities extended out 10 years and interest payments over the next 4 years stopped. Leaders in Kiev oppose this deal, arguing that it would deplete FX reserves and damage the economy.

Creditors say that the time for Greece to come to a compromise is over. The IMF today withdrew its negotiating team, citing ongoing major differences and a lack of progress. Greece overestimated the time they had to make a deal according to a few analysts. The European Council president says that Greece needs to be more realistic in their negotiations and their targets. After a deal is reached, Greece and creditors need to allow time for legislation and funds to actually process. It is expected that if an agreement is not reached by early next week, then funds won’t reach Greece in time for them to make their €1.5bn payment at the end of the month. Greece has another €3.5bn due on July 20.

Treasury yields have risen sharply from 1.9% in mid april to almost 2.5% this week. This movement has been characterized by a lack of liquidity in both investment grade and high yield markets, where turnover has fallen 50%. Treasuries too have experienced periods of illiquidity, but are still ten times more actively traded than investment grade and high yield bonds. Higher issuances over the past several years have been bought by the Fed and foreign banks leaving less products to trade for dealers and investors. JPM has increased its Treasury yield outlook for year end 2015 to 2.55% from 2.50% in part due to an increasing liquidity premium.

Thursday June 11

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