Halister News

(Bloomberg) -- A “relentless bid for bonds in NY trading hours” over the last month is surprising in light of gains for U.S. stocks and normal-size moves in USD/JPY and EUR/USD during same hours, BofA strategists Shyam Rajan and Carol Zhang say in note; it appears to be explained by a drop in volatility.

• Theory that “a move lower in volatility is driving leveraged buyers of duration” is supported by large increases in open interest in Bond contract in episodes since 2013 when rates declined while stocks rose, and by leveraged funds adding duration in the bigger rallies
• “This raises the possibility that a decline in volatility is driving buying from funds that increase exposure based on relative volatility amongst asset classes or the ones that find vol-adjusted carry much more attractive”
• During past two weeks, a large drop in vol was “met with the largest flip in speculative positions in the 10y we have seen in quite a while”; MORE
• Finding implies that “a positive uptick in data or an increase in vol could trigger significant long positioning unwinds”; with market already pricing in more than 70% chance of a June hike, positive surprises “would have to come from global growth or Congress”

(Bloomberg) -- About 40%-50% of the increase in assets prices expected with pension bill will follow the definition of a voting schedule, Jose Antonio Pena, chief economist at Porto Seguro Investimentos, says in a telephone interview on Thursday.

• Scheduling of the lower house’s first round vote on pension reform will be a strong indication that the government is minimally comfortable with approval, with a safety margin of 10, 15 or even 20 votes
• Between 20% and 30% of assets appreciation should follow approval in the first round in the lower house and another 30% should come with final approval in the Senate
• Pena sees pension reform being eventually approved 
  • Bill should pass 1st round in lower house in late May, early June and final approval in Senate by Sept. or earlier, if there’s no mid-year recess: Pena
• Says recent tension in markets stems from perception that process won’t be as peaceful as spending cap bill was and pension reform won’t be definitive, but just one step in the adjustment process
• BCB could accelerate easing pace to 125bps if pension bill passes 1st round vote before Copom meeting in May, but that’s not guaranteed; base case is 100bp cut in May