cti2015header-morning comments web

Market Update

US tsys opening higher on avg volume in TY futures (226k), US 10Y 1.53 (-2bps),curve 0.5bps flater. Tsy prices higher yet in a narrow range overnite, supported by weakness in Asian stocks. German bunds higher, curve bull flattening after German 10Y auction was sold at -0.09% – a record low yield on strong demand as it was the first covered auction since May (E5.7bln bid vs 5bln target). Gilts also continue to drive higher since yest BOE’s buyback yest and MPC comments. Long term Gilt yields hit another record low earlier with the 10Y at 0.527%. The US Treasury auctions $23bln in 10Y notes at 1PM after a very strong 3Y yest with indirect demand at 56.9% and a 2.98 b/c. With UK 10Y gilts ~100bps below tsys and the tsy/bund spread ~163bps this aft 10Y auction should go reasonably well. GOCs trading higher, the 10Y yield below 1.05 at 0.97% for the first time since July 13th. The 10Y sector is trading at the richest levels since late Feb after this week’s rally. The BOC auctions $3.9bln in new 2Ys at noon, Nov 2018s with the WI roll 0.6/0.3 and the Aug 18s at 0.505 the lowest in a month. Provis unch after corp supply yest weighed on spreads which closed 1.5bps wider. Next week’s CMB 10Y expected to be reopening of the Sep 26s for $2bln, mkt 57.5/56.5 vs 59.5 at May’s auction.

News headlines                                                                            

  • Dollar Weakens, Bonds Rally on Muted Prospects for Fed Rate Hike (Bloomberg) The dollar weakened and government bonds advanced on speculation the Federal Reserve will be slow to raise interest rates amid uneven global growth. The greenback slid against all of its major peers, dragging the Bloomberg Dollar Spot Index down to a six-week low. A gauge of emerging-market currencies climbed to the highest level since July 2015. Metals were also boosted by the dollar’s retreat, with palladium, tin and zinc rising to the highest in a year. Oil fell as U.S. stockpiles expanded and Saudi Arabia was said to have raised July production to a record. U.K. government bonds extended gains after the Bank of England indicated it will stick with its current quantitative-easing plans. European stocks were little changed and most Asian shares fell.
  • Exclusive: BOJ to defend QQE in Sept policy assessment – sources (Reuters) The Bank of Japan has already prepared a preliminary outline of a « comprehensive » assessment of its policies due next month that will maintain a pledge to hit its 2 percent inflation target at the earliest date possible, sources familiar with its thinking said.
  • Iran Expects $25 Billion Oil Contracts Signed Within Two Years (Bloomberg) Iran expects foreign oil companies to sign deals valued at $25 billion over the next one to two years under the terms of a new contract model approved last week, the managing director of the National Iranian Oil Co. said. The state energy producer plans to tender contracts over a period of six months to a year to develop several oil and gas fields, the oil ministry’s news service Shana reported Tuesday, citing Ali Kardor. NIOC has identified 34 foreign companies as suitable bidders, he said. NIOC is also seeking investments under existing models, he said.
  • Soaring Debt Has U.S. Companies as Vulnerable to Default as 2008 (Bloomberg) U.S. companies have taken on so much debt that they’re at least as vulnerable to defaults and downgrades as they were leading up to the 2008 financial crisis, according to a report by S&P Global Ratings Tuesday. Corporate leverage in the U.S., excluding financial firms, is at the highest level in 10 years, driven by a combination of low interest rates and slowing profits, S&P analysts Jacob Crooks and David Tesher wrote. This has resulted in record leverage ratios across a universe of 2,200 companies, they wrote.
  • Brazil’s Senate indicts Rousseff, opens impeachment trial (Reuters) Brazil’s Senate voted early on Wednesday to indict President Dilma Rousseff on charges of breaking budget laws and put her on trial in an impeachment process that has stalled Brazilian politics since January. With the eyes of the world on the Olympic Games in Rio de Janeiro, senators in the capital Brasilia voted 59-21 against the suspended leftist leader in a raucous, 20-hour session presided over by Chief Justice Ricardo Lewandowski.
  • No Need to Be So Negative on Sub-Zero Rates, Mr Carney (Bloomberg) The Bank of England governor said last week he was « not a fan' » of negative interest rates and had no intention of going below zero, unlike his peers in Europe or Japan. In fact, he accused them of getting it « a bit wrong. » Carney’s argument: Some banks have raised mortgage rates in response to central banks going negative. But what might be true for individual lenders doesn’t hold up for the entire 19-nation euro region. In fact, the transmission of the European Central Bank’s monetary policy has never worked better in the past decade – despite a deposit rate of minus 0.4 percent, according to calculations by JPMorgan economist David Mackie.
  • Delinquency rates are rising in oil-dependent provinces, according to new report (Financial Post) Declining oil prices helped drive double-digit annual increases in delinquency rates in Alberta and Saskatchewan, according to a credit agency report out Wednesday. TransUnion said the percentage of people delinquent on debt for more than 90 days rose to 3.08 per cent in Alberta — a 14.7 per cent jump from a year ago. In Saskatchewan the rate rose to 3.38 per cent, an increase of 11.59 per cent during the same period.


Overnight markets

  • Overview: US 10yr note futures are up 0.1535% at 132-18, S&P 500 futures are up 0.14% at 2180.5, Crude oil futures are down -0.23% at $42.67, Gold futures are up 1.14% at $1362, DXY is down -0.73% at 95.477.

US Economic Data

  • 10:00 AM: JOLTS Job Openings, June, est. 5588, (prior 5500)
  • 14:00 AM: Monthly Budget Statement, July, est. -115.0b (prior -149.2b)

 Canadian Economic Data

  • There is no major economic data for today



Disclosure and Disclaimer

The following sources of information have been, or may have been, used partially or in their entirety to compile the herein provided CTI Capital Securities Inc. (“CTI Capital”) ‘Morning Comments.’ CTI Capital believes these sources to be generally reliable, however, as said sources are varied and from third parties, CTI Capital cannot guarantee the accuracy or completeness of said information: Canadian Press (CP); Bloomberg News (BN); Wall Street Journal (WSJ); Stone & McCarthy Research Associates (SMRA); New York Times (NYT); Financial Times (FT); Market News International (MNI); Globe and Mail; Associated Press (AP); CNW Group (CNW); Reuters; Business News Network (BNN); Market Watch; and others.

Ivan Greenstein, Stephan Buu, David Leclair-Legault

Institutional Bond and Equity Desk
CTI Capital Valeurs Mobilières Inc.

Tel : (514)-861-0240
Fax: (514)-861-3230