Yields on $7.8 trillion of government bonds have been driven below zero by worries over global growth, forcing investors looking for income to flood into debt with maturities of as long as 100 years. Worse still, as Bloomberg reports, central banks’ policy is exacerbating matters, as the unprecedented debt purchases to spur their economies have soaked up supply and left would-be buyers with few options.
Following the early weakness in the Treasury complex, many dealers predicted that today's 2 Year auction may tail the When Issued at pricing, and that is what happened, albeit by the smallest possible amount: today's 2 Year auction closed at 0.842%, stopping through the When Issued 0.841% by the smallest possible increment of 0.1bps.
The internals were nothing to write home about. The Bid to Cover was 2.643, modestly higher than last month's 2.578, if still below the 6 month average of 2.89.
In the aftermath of China's gargantuan, record new loan injection in Q1, which saw a whopping $1 trillion in new bank and shadow loans created in the first three months of the year, many were wondering where much of this newly created cash was ending up.
We now know where most of it went: soaring imports of crude oil.
We know this because as the chart below shows, Chinese crude imports via Qingdao port in Shandong province surged to record 9.86 million metric tons last month based on data from General Administration of Customs.
Now that everyone has finally figured out that the only way to not get steamrolled in this "market" is to frontrun central banks - something we have been pounding the table on since mid-2009 when we said that the only two financial statements that matter are the Fed's H.4.1 and H.3 - and not just central banks, but central banks who are now so intimately intertwined in capital markets that the moments they adjust one variable, they unleash a torrent of "reflexive" actions which promptly leads to a cascading effect across the markets and promptly undoes whatever it is that they want
One of the recurring themes as we cross Q1 earnings season, is that virtually every sellside strategist has been repeating ad nauseam how as a result of the shaprly lowered earnings expectations...
... companies will have no problems beating consensus estimates. And then we got something like last week's week's barrage of tech company misses.
For many pundits this apparently did not register and just today BofA said that "1Q EPS expectations have likely bottomed as companies have begun to beat across the board." This is how it explained this observation: