ALERT Israel warns Gaza residents to flee homes ahead of retaliatory strikes [BBC]
The Israeli military says there are still eight "points of engagement" in its territory, a day after Palestinian militants stormed into Israel from Gaza
BOND YIELDS, USD & OIL
A big but orderly bond price fall ( in fact, huge fall ) followed the dollar and oil higher but liquidity seemed ok and when the dollar faltered, oil came off but bond yields remain elevated.
No-one in market-making or liquidity markets, are surprised by the back-up of bond yields but it's speed was exacerbated by oil and the dollar, probably feeding off each other.
A repricing of bonds was well overdue and market participants & speculators were short which helped limit the size of the rout. Unless something changes we're in the process of yields going a lot higher.
Bank solvency worries are not an issue at this stage despite plenty of analysts / economists predicting it. Unless their swaps hedges blow up !
US 30 Year Yield Daily
Only Richest 20% of Americans Still Have Excess Pandemic Savings [Bloomberg]
Soaring bond yields are driving a crisis in the $400 trillion interest rate swap market [Twitter]
As well as Interest Rate Swaps liquidity issues , we've heard talk of issues in the Japanese bill market and Italian BTP collateral issues.
With a slew of US Gov debt being issued this year, the market will have to get itself well shorter than it is currently is, to be able to absorb the new bonds, notes or bills.
All this doesn't bode well for the next few months. US bonds are the collateral of the world and any issue with collateral would probably be dealt with by yield curve control, by the central banks, and look where that got Japan 25 years ago and Australia more recently.
BlackRock’s CEO Larry Fink Sees US 10-Year Yields Topping 5% [Bloomberg]
The FED balance sheet continues to contract, pulling bank reserves from commercial banks.
FED Reverse Repo Operations also in flux.
FED Reverse Repo Operations Daily
More than USD 1 Trillion less being reverse repo-ed every day i.e less short-term cash being lent to the FED.
Shrinking bank credit, a falling FED balance sheet, negative money supply growth and falling reverse repo operations means liquidity is slowly but surely being sucked out of the global system.
GEOPOLITICS & ECONOMY
McCarthy ousted as House Speaker by Republican rebels FT]
India tells Canada to withdraw dozens of diplomatic staff [FT]
IMF chief Georgieva: soft landing possible, but fiscal, debt risks abound [Reuters]
Central banks ‘risk global recession unless they relax 2% inflation targets’ [Guardian]
Iraq to end all dollar cash withdrawals by Jan. 1 2024, central-bank official says
United States
Last event of a crazy week saw US non-farm payroll came in very hot but the breakdown revealed all jobs created in Government or part-time. Market sold off on the headline but rallied towards the close of the day.
US jobs growth surges past expectations with 336,000 new posts [FT]
Japan
Japan seeks to resurrect junk bond market
Japan’s central bank buys $12.7bn of bonds as yields hit highest in a decade
As yen nears 150/$, Japan says watching FX moves with 'strong sense of urgency' [investing.com]
Kishida calls on BlackRock and other funds to ‘invest’ in Japan’s future [FT]
Japan's JGB market is illiquid, government bonds that some days don't trade. The majority are owned by the Bank of Japan. Markets are super sensitive to the potential ending of Japan's easy money policy and yield curve control by BoJ.
United Kingdom
Bank of England sounds out buyers for Metro Bank including NatWest [The Guardian]
RBA holds interest rates
This week the Reserve Bank released it's Bi-annual Stability Report. Normally a yawn, but this time it was full of surprising revelations. Read it hear [RBA]
From the surprisingly benign overview, there are some warning signs
While almost all borrowers have been able to make adjustments that have allowed them to continue servicing their debts and cover essential spending, the share falling behind on their mortgage payments has begun to pick up from a low level. Before reaching this stage, households often contact their lender to enquire about options to restructure their loan or apply for temporary hardship, turn to alternative sources of finance or seek other forms of help. A growing share of households have sought financial counselling; the National Debt Helpline (NDH), for instance, has seen demand for its services increase by around one-quarter from the low level experienced during the COVID-19 pandemic. Some households contacting the NDH have been using ‘buy now, pay later’ products to finance their regular consumption. However, in contrast with some countries, there is little evidence that Australian households are turning to other forms of personal credit (such as credit cards or personal loans) to sustain their spending. "
Here's Christopher Joye (recommended) on LinkedIn: The RBA has not pulled its punches in today's Financial Stability Review
He highlights a sharp increase in defaults amongst illiquid high-yield bonds and private loans.
If you live in Australia you need to read this the Financial Stability Report
The "buffers" the RBA has been talking about for ages, are running out. And especially the dangers of Buy Now Pay Later schemes which originated in Australia and is used far more often here than abroad.