Lead Stories

Parsing the Federal Reserve
The Economist
The Federal Reserve left a lot of people scratching their heads this week. Between Chairman Ben Bernanke’s testimony, and the release of the minutes to the May 1st Federal Open Market Committee, investors were struggling to figure whether an end to easy monetary policy was nigh.
http://jlne.ws/14Jeoyq

Are Treasury and the Fed at Odds Over Big Banks?
National Journal
Treasury Secretary Jacob Lew has been cagey about whether he thinks Wall Street’s giant banks are getting dangerously large and out-of-control once again, as many experts believe.
http://jlne.ws/14JfOZJ

Treasuries Advance as Highest Yields in Two Months Renew Demand
Bloomberg
Treasury 10-year notes rose as the highest yields since March bolstered demand while investors debated whether the economy is strengthening enough for the Federal Reserve to consider slowing stimulus measures.
http://jlne.ws/14J8xZL

New CBOE/CBOT 10-year U.S. Treasury Note Volatility Index (VXTYN)
Matt Moran, CBOE
CBOE and CBOE Futures Exchange (CFE) plan to offer trading on the 10-year Treasury Volatility Index in the future.  The VXTYN Index has the potential to become a popular gauge if there is a future rise in both interest rates and interest rate volatility.
http://jlne.ws/Z5DeqT

Federal Reserve risks boom and bust as QE dilemma presses
The Guardian
This week’s episode was a classic. First, Ben Bernanke suggested on Wednesday that the time was not right to withdraw “accommodative” monetary policy. Then he said the Fed committee could make a decision to reduce its $85bn-a-month quantitative easing programme at the “next few meetings” if the economic data warranted such a move.
http://jlne.ws/14JeKVR

Wall Street Bothered by Fed Worries
Reuters (via The New York Times)
Wall Street was mainly lower for a third day on Friday on lingering concern the Federal Reserve may scale back its support to the economy.
http://jlne.ws/14JgrlV

Draghi Says Bond-Buying Pledge Helps Transmit Rates
Bloomberg
European Central Bank President Mario Draghi said his pledge to buy government bonds is helping to ensure that interest-rate cuts reach the parts of the euro-area economy that need them the most.
http://jlne.ws/10pUHv9

Will Rising Interest Rates Hurt the Stock Market?
U.S. News & World Report
You can’t listen to the news these days without hearing about how interest rates are at historic lows. In 1981, the 10-year Treasury hit an all-time high of nearly 16 percent. Since then, interest rates have been steadily falling to their current value of around 2 percent.
http://jlne.ws/14JbBFm

U.S. Corporate Credit Swaps Climb Before Durable Goods Report
Bloomberg
A gauge of U.S. corporate credit risk rose for a third day before data on durable goods orders.
http://jlne.ws/10pUJTR

Low interest rates are the final straw for many company pensions
The Washington Post
It was no small matter for the ILM Group’s executives when they froze the pension plan that has provided retirement security for the firm’s employees since 1947.
http://jlne.ws/14Jbae5

Dealers Absorbing Junk Bonds as ETF Demand Drops: Credit Markets
Bloomberg
Wall Street banks are expanding holdings of speculative-grade bonds as prices fall from record highs with investors retreating from exchange-traded funds that buy the debt.
http://jlne.ws/10pUPuK

IRS announces third quarter 2013 interest rates
CPA Practice Advisor
Under the Internal Revenue Code, the rate of interest is determined on a quarterly basis. For taxpayers other than corporations, the overpayment and underpayment rate is the federal short-term rate plus 3 percentage points.
http://jlne.ws/10pVMTV

Exchanges, Clearing Houses & MTFs

Eurex may copy CME swap futures
Risk Magazine
German exchange seeking legal advice on scope of Goldman Sachs patent behind CME’s interest rate swap futures.
http://jlne.ws/16f2Reg

Firms & Banks

Comparing Net Interest Margins For The Country’s Biggest Banks
Trefis
Investors have expressed some serious concerns about the impact of shrinking net interest margins (NIM) for the country’s biggest banks on their value in the recent past – especially for banking giants Wells Fargo (NYSE:WFC) and U.S. Bancorp (NYSE:USB) which rely on the traditional loans-deposits model for a majority of their income.
http://jlne.ws/14Je2aT

Regulators

Federal Reserve Board Implements Rule On Retail Foreign Exchange Transactions
Mondaq
The Federal Reserve Board (“FRB”) has adopted Regulation NN covering retail foreign exchange transactions (“retail forex transactions”) of banks.1 Regulation NN implements section 742(c)(2) of the Dodd-Frank Act, which amends the Commodity Exchange Act (“CEA”) to provide that a regulated U.S. financial institution may not enter into, or offer to enter into, certain types of foreign exchange transactions with a retail customer except in compliance with a rule or regulation of a federal regulatory agency allowing the transaction.
http://jlne.ws/14JfmuB

Global News

Abe fears spike in long-term interest rates could hurt economy
GlobalPost
Prime Minister Shinzo Abe expressed concern Friday that a spike in Japan’s long-term interest rates could drag down the economy, as financial markets have recently become volatile due in part to the Bank of Japan’s massive fund injection into the market.
http://jlne.ws/14JbSbn

China vows to liberalise interest rates, push yuan reforms
Reuters
China will continue to liberalise interest rates, make the yuan currency more responsive to market forces and more convertible this year, the government said on Friday.
http://jlne.ws/14JcoGj

Singapore Dim Sum Debt Planned as Yuan Clearing Spreads
Bloomberg
HSBC Holdings Plc (HSBA) and DBS Group Holdings Ltd. are planning the first-ever sales of yuan-denominated bonds in Singapore as the city competes with Hong Kong and Taiwan as an offshore hub for the currency.
http://jlne.ws/10pUAzT

Spanish Bonds Extend Slump to Second Day as Italian Debt Tumbles
Bloomberg
Spanish bonds fell, with 10-year yields posting the biggest two-day gain in more than three months, as the Federal Reserve’s signal it may slow asset purchases reduced demand for higher-yielding assets.
http://jlne.ws/10pUDeZ

Conversation Starter

The Too Big To Fail: Federal Reserve Bank At 100 Years Of Age
Forbes
As the markets reach new highs, and scandal dominates the nation’s capitol, I am compelled to
examine the still unresolved challenges about whether our 100 year old central bank– the Federal Reserve– will be capable of warding off another potential systemic financial crisis like the one that almost toppled the economy in 2008.
http://jlne.ws/10hdtov

Lead Stories

Central bankers everywhere after Bernanke warning
Reuters
It’s raining central bankers today which is well-timed after Federal Reserve Chairman Ben Bernanke dropped the bombshell that the Fed could take the decision to begin throttling back its money-printing programme at one of its next few policy meetings.
http://jlne.ws/11fOGTa

Fed Blog Post May Offer A Clue On Timing Of Interest Rate Hikes
Forbes
When might the Fed raise interest rates again? Perhaps at the end of 2014.
http://jlne.ws/11fPmId

Treasuries Rise as Investors Win Largest Share of TIPS Auction
Bloomberg
Treasuries rose after investors won the largest share of 10-year inflation-indexed notes sold today at any auction since at least 2003 amid renewed debate over whether the Federal Reserve will slow monetary stimulus.
http://jlne.ws/11fMnzm

House approves bill on student loans interest rates
The Associated Press (via The Boston Globe)
House lawmakers on Thursday approved legislation that links student loan rates to the ups and downs of the financial markets in spite of a veto threat from President Barack Obama.
http://jlne.ws/11fPcRa

Moody’s Defied as Local Bond Risk Falls to 2010 Low: Muni Credit
Bloomberg
Investor confidence in U.S. municipal debt is the highest in three years even as Moody’s Investors Service warns that local-government credit quality is set to weaken for the 18th straight quarter.
http://jlne.ws/11fMXgJ

Understanding deliverable swap futures
HedgeWeek
With the Dodd-Frank clearing mandate underway, market participants are looking for more capital efficient alternatives for their OTC activity. Deliverable Swap Futures (DSF) may provide a solution for those looking to obtain interest rate swap exposure, but who want the efficiencies and margin savings of standardised Futures contracts.
http://jlne.ws/11fO7c6

Primary Dealers Saw Fed’s Confusing Strategy Reducing QE Impact
Bloomberg
The 21 primary dealers that trade securities directly with the Federal Reserve Bank of New York, said that confusion about the central bank’s intentions for its bond-buying program is reducing the policy’s effectiveness.
http://jlne.ws/11fNAGZ

Fed chairman Ben Bernanke: stimulus programme not creating ‘bubbles’
The Guardian
Federal Reserve chairman Ben Bernanke denied his $85bn-a-month stimulus programme was creating new financial bubbles as he updated Congress on his views on the US economic recovery on Wednesday.
http://jlne.ws/11fPLKD

U.S. 10-Year TIPS Sale May Yield Negative 0.244%, Survey Shows
Bloomberg
The government’s $13 billion auction of 10-year inflation-indexed notes may draw a yield of negative 0.244 percent, according to the average forecast in a Bloomberg News survey of eight of the Federal Reserve’s 21 primary dealers.
http://jlne.ws/11fNLSB

ProShares Launches New High Yield Bond ETF with Built-In Interest Rate Hedge
ETF Daily News
ProShares, a premier provider of alternative exchange traded funds (ETFs), today announced the launch of ProShares High Yield—Interest Rate Hedged (BATS: HYHG), a new high yield bond ETF that uses Treasury futures to provide a built-in hedge against rising interest rates.
http://jlne.ws/11fOdk1

Exchanges, Clearing Houses & MTFs

Volatility Index for 10-Year Treasury Options Begun by CBOE, CME
Bloomberg
The Chicago Board Options Exchange and the CME Group Inc. started an index that measures the pace of projected swings in U.S. 10-year Treasury futures.
http://jlne.ws/11fNa3x

Regulators

IMF Staff Suggests Tighter Debt Rules to Improve Restructuring
Bloomberg
The International Monetary Fund may have been too optimistic in assessing the debt sustainability of some borrowing countries and could toughen loan conditions in an effort to make debt restructuring more successful, according to the fund’s staff.
http://jlne.ws/11fN1x3

OTC clearing: Phase two of swaps clearing for Dodd-Frank is only weeks away
HedgeWeek
New global rules for OTC derivatives have been implemented in the US and are imminent in Europe that will have significant long-term implications for how hedge funds, asset managers and regional banks execute, clear, and report their swap positions.
http://jlne.ws/11fOweq

Global News

Spanish Bonds Slide With Italy’s Amid Signs of Global Slowdown
Bloomberg
Spanish and Italian bonds led losses among the securities of Europe’s so-called peripheral nations as China’s manufacturing and euro-area services and factory output all contracted, sapping demand for higher-yielding assets.
http://jlne.ws/11fMzif

Kuroda Struggles With Communications Test as Bond Yields Climb
Bloomberg
Installed as head of the Bank of Japan in March, Kuroda aims to unlock borrowing and spending by lifting inflation expectations and wages after 15 years of deflation. Market volatility partly triggered by the BOJ’s record bond-buying now threatens to sap business and consumer confidence and weaken the campaign to reflate the world’s third-biggest economy.
http://jlne.ws/11fMFX4

German 10-Year Bunds Erase Gain After U.S. Jobless Claims Data
Bloomberg
German 10-year bunds erased an advance after a report showed fewer Americans than projected filed applications for unemployment benefits last week.
http://jlne.ws/11fNTSl

Lead Stories

Bernanke says more progress needed before stimulus pullback
Reuters
The Federal Reserve’s monetary stimulus is helping the economy recover but the central bank needs to see further signs of traction before taking its foot off the gas, Fed Chairman Ben Bernanke said on Wednesday.
http://jlne.ws/10Muvq0

Dudley Says Decision on Taper Will Require 3-4 Months
Bloomberg
Federal Reserve Bank of New York President William C. Dudley said policy makers will know in three to four months whether the economy is healthy enough to overcome federal budget cuts and allow the central bank to begin reducing record stimulus.
http://jlne.ws/10Mt0Iu

U.S. 10-Year Yield Tops 2% as Bernanke Says Fed May Taper Buys
Bloomberg
Treasuries fell, pushing 10-year note yields above 2 percent for the first time since March, after Federal Reserve Chairman Ben S. Bernanke told Congress the Fed may cut the pace of bond purchases at the next few meetings if policy makers see indications of sustained economic growth.
http://jlne.ws/10MsB8W

U.S. Bank Capital at Risk When Bond Gains Evaporate, Fitch Says
Bloomberg
About $25 billion in unrealized bond gains are at risk from rising interest rates that may erode capital levels at some of the largest banks by 1 percentage point or more, according to Fitch Ratings.
http://jlne.ws/10Mt8I5

Text: Federal Reserve meeting minutes
USA Today
A meeting of the Federal Open Market Committee was held in the offices of the Board of Governors of the Federal Reserve System in Washington, D.C., on Tuesday, April 30, 2013, at 2:00 p.m. and continued on Wednesday, May 1, 2013, at 9:00 a.m.
http://jlne.ws/10MvKp8

Wall Street falters in volatile session on Fed worries
Reuters
Stocks fell on Wednesday with the S&P 500 posting its biggest decline in three weeks, after minutes from the latest U.S. Federal Reserve meeting showed some officials were open to tapering large-scale asset purchases as early as at the June meeting.
http://jlne.ws/10MvSVG

Regulators

EU Said to Toughen Creditor-Loss Rules for Bailed-Out Banks
Bloomberg
The European Union will tighten its rules on bailouts for banks, setting out tougher requirements for creditors to face losses if public money is used, according to two people familiar with the matter.
http://jlne.ws/10Mt62V

Global News

German Bonds Snap Two-Day Decline Before Euro-Area PMI Reports
Bloomberg
German government bonds snapped a two-day decline before data tomorrow that economists said will show output in the euro-area’s manufacturing and services industries contracted this month.
http://jlne.ws/10MsHxc

Bank of Japan vows market steps to curb bond turbulence
Reuters
The Bank of Japan vowed on Wednesday to take necessary steps to reduce volatility in bond markets that has threatened to jeopardize the government’s fight to end deflation and revive growth.
http://jlne.ws/10MtEWg

Russia Cancels Bond Auction as Rate Outlook Drives Up Yields
Bloomberg
Russia abandoned the sale of $1.1 billion of ruble bonds, the first cancellation of an auction since October, after yields surged on concern policy makers will refuse to lower interest rates to bolster growth.
http://jlne.ws/10MsN80

Brazil’s Tombini: Central Bank Will Act in ‘Timely Manner’ on Key Rates
The Wall Street Journal
The president of Brazil’s central bank on Tuesday reaffirmed his commitment to taming inflation, reiterating the central bank’s key phrase that it will act in a “timely manner.”
“The central bank is vigilant and will do what’s needed, in a timely manner, to ensure inflation declines,” Mr. Tombini said in a meeting with Lower House lawmakers.
http://jlne.ws/10Mvc2N

Caisse Joins HSBC Dumping Bonds as Returns Shrink: Canada
Bloomberg
Canada’s biggest pension-fund manager will “significantly” cut its C$64 billion ($62.3 billion) allocation to bonds as the fixed-income market’s foothold among its most loyal base of investors grows less certain.
http://jlne.ws/10Mtf6g