The Big Short (Of US Treasuries): Australia Is Only US Treasury Ally, No Country Going Long in US Treasuries

Over the past 3 months, the number of short positions on US Treasuries has grown with virtually no country going long. Australia is taking small long positions in US Treasuries.

According to Citi’s Amitabh Arora:

Flow Analysis: Over the last 3 months we have seen good appetite for European Government Bonds (EGBs), net buying of United States Treasuries (USTs), and flat demand for Japanese Government Bonds (JGBs). However, the buying of USTs hasn’t been in 10s where the main short is located. Hedge funds are accelerating their buying of EGBs (across the curve) and decreasing their selling of USTs. Real money has resumed their buying of USTs and has started to sell EGBs.

Futures Positioning in US. Since 2010, the CFTC has published a supplement to their weekly commitments of traders report specific to financial products. Asset managers are long, while dealers, hedge funds, and other buy side investors are short. Using alternative positioning indicators, we assess where we can give credence to the CFTC data, and where there is more to the picture than the CFTC data reveals.

The clearest position concentration is short USTs (Figure 1). As the grey shaded squares indicate, the short has increased materially over the last 3 months. Equally importantly, there is an absence of corresponding longs in any client group to balance these shorts. Together that points to the prospect of even lower UST yields.

Citi 10Y_shorts

With US inflation running at about 2%, the real yield on the US Treasury 10Y is about 0.33% or 33 basis points.


Fed Presidents Lockhart And Fisher were active personal asset traders in 2013. I wonder if they were big shorters?

At least Australia is showing “Lady Liberty” some affection.


FHFA Proposes 2015-2017 Housing Goals for Fannie Mae and Freddie Mac (FHFA Concedes That Low Income Households Should RENT)

Washington, D.C. – The Federal Housing Finance Agency (FHFA) today proposed a rule that would establish housing goals for Fannie Mae and Freddie Mac (the Enterprises) for 2015 through 2017. FHFA is requesting comment on all aspects of the proposed rule. The Housing and Economic Recovery Act of 2008 requires FHFA to establish annual housing goals for both Enterprises, and FHFA’s current housing goals rule is effective through the end of 2014.

The biggest change for residential mortgages is for Low Income Families Refinance Goals.


On the multifamily side, smaller units (5-50) for low income families rises 50% by 2017 for Fannie Mae and triples by 2017 for Freddie Mac.


Perhaps FHFA and their Director Mel Watt are conceding that low-income households would be better off renting than trying to own a home. At least according to the data which shows that real income and wage growth have stagnated while homeownership drops along with labor force participation.

It’s now a Renter’s Life!



Primary Dealers Cut Non-agency Residential MBS Holdings by Most in More Than Year

The resurgence of non-agency residential mortgage-backed securities (PLRMBS) is floundering with much of the trading in Freddie Mac’s STACR deals. STACR is the risk-sharing RMBS from Freddie Mac, not the typical Participation Certificates (passthrough) bonds.

Aug. 29 (Bloomberg) -By Jody Shenn- Non-agency RMBS holdings fell $2.4b to $15.8b in week ended Aug. 20, largest drop since disclosure series began in April 2013, latest NY Fed data show.


• Followed jump by $1.7b to high of $18.1b previous week
• Earlier Trace data signaled unwind was likely, Brean Capital strategist Scott Buchta writes in note to clients
• “Much of this trading activity has been in the STACR/CAS sector and in addition we have seen some investors opportunistically adding on weakness”
• August returns for legacy subprime seniors averaging ~0.4%, lifting YTD to 10.4%, according to Barclays index
• STACR 2014-DN2 M3 last traded at 101-31 on Aug. 27, up from ~97-12 on Aug. 6, down from 3-month high of 107-28+ on June 23, according to Trace data.


Here are the STACR bonds and their ratings. starcprosupp


Pending Home Sales Drop 2.7% YoY, 10th Month In A Row Of Declines (Real Wage Growth Is ZERO Despite Massive Fed Intervention!)

Pending home sales are out this morning and they rose 3.3% in July!

The bad news? Pending home sales dropped 2.7% YoY. It is the 10th straight month of YoY declines.


Not really surprising given that REAL WAGE GROWTH IS ZERO.


And mortgage purchase applications in “Death Valley” along with nominal earnings growth of 2% and stagnant real median household income.


Here is our dormant wage growth (nominal growth of 2% which is the same as the inflation rate = NO REAL GROWTH IN WAGES) after all the stimulus thrown at the problem by The Fed.


Why is Fed Chair Janet Yellen laughing?


US Q2 Real GDP Adjusted Upwards To 4.2% (PCE Up Only 2.5% But Durable Goods Up 14.3%, Fixed Investment Up 17.5%)

The Bureau of Economic Analysis (BEA) has released their adjustment to the Q2 GDP report of 4.0%. It has been revised upward to 4.2%! Just in the nick of time too since the midyear elections are just around the corner!

Here is an interesting piece of information. Personal Consumption Expenditures (typically about 70% of GDP) rose by only 2.5%. But Durable Goods Expenditures rose by 14.3%, the largest increase since 2009. Lots of aircraft orders for Boeing!


Fixed investment rose 17.5% in Q2, the largest increase since Q4 2011.

Although not in the GDP report, real wage growth is 0%. That is correct. NO WAGE GROWTH!


So, Personal Consumption Growth rose only 2.5%, but Durable Good Expenditures rose by 14.3% and fixed investment rose by 17.5% with NO REAL WAGE GROWTH.

The reaction in the bond markets? US Treasury 10 year yield dropped to 2.330%.


The BEA spokesman announcing the Q2 GDP revision and sees nothing but untapped economic potential.


French Jobseekers Surge To Record High, Global Sovereign Yields Fall

France has some unwanted (although expected) labor news. French jobseekers climbed to 3.424 million, a new record high.


And here is the chart of French jobseekers against the French 10 year government yield. Isn’t it supposed to be going in THE SAME DIRECTION?


Now here is something you don’t often see. ALL global sovereign yields are declining, not a sign of an improving global economy.


I’ll bet French Prime Minister Francois Hollande wishes this was a barrel of wine instead of herring.


Land Of The Dead: Mortgage Purchase Applications Rise Slightly, But Still Down 10.6% Since Last Year (End Of Year Approaching)

So much for the much anticipated housing recovery of 2014. Like Cinderella, end of the year is approaching and nothing is happening, at least in terms of residential mortgage lending.

Mortgage applications increased 2.8% from one week earlier, according to data from the Mortgage Bankers Association’s (MBA) Weekly Mortgage Applications Survey for the week ending August 22, 2014.


The NON seasonally adjusted Purchase Index increased 0.5% from the previous week, but remain down 10.6% since the same week from last year. AND just wait for the Labor Day slump coming next week!!


The seasonally adjusted Purchase Index increased 3% from one week earlier, but still remain at pre-bubble, 1995 levels.


And if I include the decline/stagnation of American incomes (coupled with declining labor force participation, we get the Land of The Dead (Tierra de los muertos) chart.


The Refinance Index increased 3% from the previous week, but remain in The Land of the Dead as well.


The average contract interest rate for 30-year fixed-rate mortgages with conforming loan balances ($417,000 or less) decreased to 4.28% from 4.29 percent, with points decreasing to 0.25 from 0.26 (including the origination fee) for 80 percent loan-to-value ratio (LTV) loans.

Yes, the residential mortgage market remains in The Land of the Dead.