Bonds In Conversation : Change of Month, Change of Heart

We had a change of month and a change of heart, it seems, in the markets.

Alibaba timed the market high this round and we are down over 3% from that fateful 18th of September as the USD kicked ass into the 3Q close.

spx dxy

As usual, the IMF is behind the curve, calling for asset bubbles a week ago and now citing their concerns and getting ready to downgrade their global growth forecast again.

IMF April 2014
Economic Normalisation. EM and DM growth expected to reach 4.9% this year, up from 4.7%.

IMF yesterday
We’re facing a “new mediocre” period of sluggish growth,  Lagarde tells Bloomberg’s Tom Keene. 

“The International Monetary Fund next week will again lower its estimate on global growth prospects amid an economic recovery “that is brittle, uneven and beset by risks,” Managing Director Christine Lagarde said Thursday.
“Only a modest pickup is foreseen for 2015, as the outlook for potential growth has been pared down,” Ms. Lagarde said in prepared remarks for an event at the Georgetown University School of Foreign Service.”

And was it Ali Baba or the Hindenburg Omen or Rosh Hashanah ? Or Ebola or Ukraine or the Isis ? Or was it Bill Gross leaving Pimco ?

Link to what my latest on Alibaba:

And after their Bubble warnings, IMF has to cover their tracks and gross miscalculations from earlier this year.

Zerohedge : Lagarde says Disconnect between market and economy “Quite Worrying”.

The Fear & Greed Index is near maximum.

Fear N Greed Index

And some impatient folks are loading up on stocks on the “fear” that they would miss  out on a rebound, inspired perhaps by Warren Buffet on Wednesday.

I think we have come to the day of reckoning.

After months of denial, I am just waiting for the authorities to say the magic word, “Secular Stagnation” and so far, people like IMF’s Lagarde is using “new mediocre period of sluggish growth” and Japan is extending their time frame for their 2% inflation target to kick the can down the road just a little further.

And the godlike faith we had in the central banks is fast eroding, in a rude awakening from the stupor of Secular Complacency our indolent markets have been greedily lapping in.

Link to post on Secular Complacency I wrote in August :

We have come to realise that the ECB cannot save the Eurozone economies. Only their governments can. And buying up all the securities and Greek bonds in the market for the next 2 years cannot force any bank to lend to the flailing economies that, at best, delivers 1.5% growth.

Spain is expected to grow 1.3% this year, making it one of the best performing economies in Europe. And this is because they have decided to add prostitution and drugs into their GDP count.

Spain will be spared the Argentina fallout this time that is next on the global agenda as the Argentine central banker resigned yesterday causing a 7% plunge in their stock market.

That is because Spain has already lost most of their $15 bio investment in Argentina 2 years ago when the country seized Repsol’s YPF oil investment and paid Spain about 5 bio in Argentine bonds  which are now in default.

And it is hard to see any meaningful way for any turnaround in sentiments in the near term. Unless we see half a million jobs created in the US tonight when they announce the Non Farm Payrolls at 830pm (SG time) or substantial wage growth (which is not happening so far).

I am not bullish bonds in general and even Draghi said that Eurozone interest rates have reached their lowest level (yes, -0.2 to 0%).

Thoughts on last night’s proceedings during the ECB press conference are I noted that even the ECB draws the line on junk and it does not make sense to extend beyond 2 years because that is when their stimulus ends (unlike QE3 which had no end date).

Going ahead, there is a pressing need to re-calibrate our risk exposures in these pretty confounding times where a change of heart can happen on a whim with the market acting like a herd in fear.


Bill Gross’s exit from Pimco roiled markets into the month end close with a record $446.5 mio single day outflow. The Total Return Fund’s Morningstar rating has been cut from Gold to Bronze.

The Russell 2000 Index made their year low last night, bouncing back to close higher. But the damage has been wrought and we should expect to see more outflows from high yield portfolios.

A Geneva report highlights that the combination of slow growth and mounting debts point to economic disaster especially for EM economies.

And the best quote I take from Saxobank is that “Hope is not  good policy”.

Credit spreads still look peaky overall and spreads are trading above their 6 month averages which is a poor sign as the markets brace for a deluge of Chinese banks’s Coco bonds to be launched in the near future and prepare for the results of the year long European banks audit.

Moody’s noted that spreads continue to widen despite more upgrades than downgrades and to proceed with caution as debt outruns profits !

The new issuance market has been sensibly quiet and I remain deeply skeptical of spreads.

I would point out that market is getting ready for Singapore’s MAS to announce their semi annual monetary policy statement between 10-14 Oct along with the 3Q14 GDP numbers.

With the entire world on hold and in various stages of easing, the SGD could choose if to go the way of America or to follow the crowd.

My views from last month :

Have a nice weekend and note the Blood/Harvest Moon eclipse next week on the 8th.

USD Asian Bond Prices (indicative)



SGD 2014 Bonds (indicative)


SGD 2013 Bonds (indicative)