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

Lead Stories

How rigged are the markets? Libor, ISDAfix, and now the oil price…
QFinance
It seems that news about the fixing of trillion dollar markets is becoming, well, rather routine. First there was Libor, then there was the announcement that the Commodities Futures Trading Commission (CTFC) was investigating the possible rigging of the interest rate swap rate, another market in the hundreds of trillions.
http://jlne.ws/192jqsv

Treasuries Advance After Fed Officials Back Bond-Buying Stimulus
Bloomberg News
Treasuries rose for the first time in three days as comments from Federal Reserve officials added to speculation Chairman Ben S. Bernanke will emphasize the need to sustain stimulus when he speaks before Congress tomorrow.
http://jlne.ws/14uIju2

Bund Yields Rise to 9-Week High as Bundesbank Sees Faster Growth
Bloomberg News
German government bonds fell, pushing 10-year yields to the highest level in nine weeks, after the Bundesbank said the economy will improve “markedly” this quarter, damping demand for the region’s safest securities.
http://jlne.ws/192fxnm

World stocks hit records as US Treasuries rise
The Age
The Standard & Poor’s 500 Index returned to a record as a Federal Reserve official said bond purchases should continue and Goldman Sachs Group Inc. forecast the stock rally will last at least through 2015. Treasuries rose and the yen pared earlier losses while grains and gold fell.
http://jlne.ws/192iVyK

Low Rates Can Raise Risks at Canadian Banks, Dickson Says
BloombergBusinessweek
Julie Dickson, Canada’s banking regulator, said the current period of low interest rates threatens to increase risks for the country’s lenders and that it has become an issue she’s closely monitoring.
http://jlne.ws/192jRmD

Dudley Says He Can’t Be Sure If Next QE Move Is ‘Up or Down’
Bloomberg
Federal Reserve Bank of New York President William C. Dudley said he has not decided whether the Fed’s next move should be to enlarge or shrink its bond buying program as he called for a fresh look at its eventual retreat from record asset purchases.
http://jlne.ws/192l0KX

Fed’s Bullard Opposes Pulling Back on Federal Reserve Bond Purchases
The Wall Street Journal
There is no case yet for tapering the U.S. Federal Reserve’s current quantitative easing program until inflation picks up, St. Louis Fed President James Bullard said Tuesday.
http://jlne.ws/14Ozs5P

Agency MBS: most thankful for the Fed’s dovish sentiment?
MarketWatch
U.S. markets spazzed with toddler-like glee when Fed officials gave remarks Tuesday indicating commitment to current monetary policies. But although equities and Treasurys gained on the statements of central bankers, the agency mortgage-backed security market may have gotten the biggest sugar high.
http://jlne.ws/192li4A

Economic News

Pound Slides to Six-Week Low Versus Dollar as Inflation Slows
Bloomberg News
The pound slid to a six-week low against the dollar after a government report showed inflation slowed more than economists forecast, giving the central bank more room to boost stimulus that tends to weaken a currency.
http://jlne.ws/192ggoG

Regulators

CFTC Said Preparing ISDAfix Probe Talks in Weeks: Credit Markets
Bloomberg News
Commodity Futures Trading Commission investigators are poring over 1 million e-mails and instant messages as part of their price-manipulation probe of a swaps benchmark that helps determine interest rates on everything from annuities to bonds linked to skyscrapers.
http://jlne.ws/10hc2X9

CFTC To Investigate Whether Benchmark Was Rigged
May 21, 2013 • Bloomberg News
Commodity Futures Trading Commission investigators are poring over 1 million e-mails and instant messages as part of their price-manipulation probe of a swaps benchmark that helps determine interest rates on everything from annuities to bonds linked to skyscrapers.
http://jlne.ws/14uNgDa

Global News

European share rally stalls on doubts about Fed support
Reuters
European shares fell from multi-year highs on Tuesday on concerns the U.S. central bank could call an earlier-than-expected halt to the stimulus programme that had underpinned demand for stocks.
http://jlne.ws/192j2tW

Investors price out Greek default as curve normalises
Reuters
Greek 10-year bond yields fell below longer-dated ones on Tuesday for the first time in three years as investors priced out the risk of Athens defaulting.
http://jlne.ws/192jhp9

China’s Interest-Rate Challenge
Project Syndicate
China’s successful transformation from a middle-income country to a modern, high-income country will depend largely on the reforms that the government undertakes over the next decade. Financial reforms should top the agenda, beginning with interest-rate liberalization. But liberalizing interest rates carries both risks and rewards, and will create both winners and losers, so policymakers must be prudent in their approach.
http://jlne.ws/192jEA3

Aso asks BOJ to communicate with market as interest rates volatile
GlobalPost
Finance Minister Taro Aso on Tuesday asked Bank of Japan chief Haruhiko Kuroda to continue communicating with the market as concern is growing that a possible further spike in the country’s long-term interest rates may have an adverse effect on the economy.
http://jlne.ws/192k3T0

Brazil cenbank keeps hawkish tone ahead of rate decision
May 21 (Reuters) – Brazil’s central bank chief Alexandre Tombini said on Tuesday that policymakers will do whatever is necessary to bring down inflation, maintaining a hawkish tone ahead of next week’s monetary policy decision.
http://jlne.ws/192gVGA

CMA plans a futures and options market segment at NSE
The Star
The Capital Markets Authority will invite and start receiving applications for futures exchanges from August if the regulations are gazetted by then.
It has published, for public comment, the first set of draft regulation on licensing requirements. The three draft regulations will be necessary for establishing a derivatives and futures exchange in the country. The other regulations will be on futures contracts and futures market intermediaries.
http://jlne.ws/192hlga

Stock futures steady ahead of Fed speakers
MADRID (MarketWatch) — U.S. stock futures were little changed on Tuesday with investors expected to look for more clues on any tapering of the Federal Reserve’s easing program. Two Fed presidents with voting rights on the interest-rate-setting committee are due to hit the tape.
http://jlne.ws/192hUGP

Lead Stories

U.S. Bonds Cheapest Since ’90 Versus Bunds Counter Buffett
Bloomberg
The longest decline in Treasuries this year has left U.S. government debt the cheapest since March 2011 when measured by real yields and the best relative value compared with German bunds in more than two decades.
http://jlne.ws/10hbujS

Why QE, low interest rates and volatility are an explosive mix for the markets
Simone Foxman, Quartz
Critics of quantitative easing (QE)—whereby central banks push down interest rates and buy up safe assets to stimulate flagging economies—have long worried about the possible unintended consequences. The point of QE is to push down the yields on safe assets like government bonds so that investors put their money in riskier assets where it can do more economic work; the worry is that too much money in risky assets could blow up in investors’ faces.
http://jlne.ws/14pd5EC

The Fed: Firefighter or Arsonist?
U.S. News
Since the financial meltdown in 2008, the Federal Reserve’s range of powers have expanded, as have the kinds of financial institutions it monitors and regulates.
http://jlne.ws/10hdpVC

Ebbing Deficit Likely to Keep Rates Low When Fed Tapers
Bloomberg
Federal Reserve policy makers say they want to avoid a sudden increase in interest rates when the time comes to start unwinding record monetary easing. A shrinking federal budget deficit is likely to help them meet that goal.
http://jlne.ws/10hcmoK

$2.6 Trillion In Money Markets May Slow Interest Rate Increase
Seeking Alpha
One of the big fears investors have is what will happen to the stock markets when interest rates begin to increase. That is a legitimate fear, but there are factors that may slow and/or lessen the eventual increase in interest rates that may provide a buffer for the stock market.
http://jlne.ws/10hcTaj

JPMorgan, Barclays Boost Forecasts on Junk-Bond Returns for 2013
Bloomberg
JPMorgan Chase & Co. (JPM) and Barclays Plc are lifting their forecasts for U.S. junk-bond returns as this year’s rally exceeds the expectations of top-rated credit strategists.
http://jlne.ws/10hbyjQ

Gross to Buffett Omens Disregarded as Sales Soar: Credit Markets
Bloomberg
Sales of corporate bonds in the U.S. are surging toward the busiest May ever as borrowers race to the market before demand dries up with Bill Gross and Warren Buffett cautioning against buying debt at all-time low yields.
http://jlne.ws/10hbTmq

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

Instead of Low Rates, Let’s Have Bigger Deficits
Bloomberg
Ben Bernanke, the chairman of the Federal Reserve, recently expressed concern that investors were taking too much risk. To some investors, this was heavy with irony — most of the risk-taking can be attributed to the policies that Bernanke has pursued during his tenure.
http://jlne.ws/10hd9pS

Fed’s Fisher wants to slow pace of MBS purchases
MarketWatch
The Federal Reserve can only slow the pace of its mortgage-backed securities, as a sudden stop would be “too violent” for the market, said Richard Fisher, the president of the Dallas Federal Reserve Bank on Monday.
http://jlne.ws/10hdyIM

Economic News

US economy has improved ‘quite a lot’: Chicago Fed
LiveMint
Federal Reserve Bank of Chicago president Charles Evans said the US economy has improved “quite a lot” as the central bank maintains record stimulus.
http://jlne.ws/10hdDvZ

U.S. 10-Year Yield at Almost 2-Month High Before Bernanke Talk
Bloomberg
Treasury 10-year note yields traded at almost a two-month high before Federal Reserve Chairman Ben S. Bernanke discusses the economic outlook in congressional testimony this week.
http://jlne.ws/10hbpge

Regulators

CFTC Said to Review 1 Million E-Mails in ISDAfix Investigation
Bloomberg
Commodity Futures Trading Commission investigators are poring over 1 million e-mails and instant messages as part of their price-manipulation probe of a swaps benchmark that helps determine interest rates on everything from annuities to bonds linked to skyscrapers.
http://jlne.ws/10hc2X9

Default Swaps on Junior Bank Debt Fall on ISDA Rule Speculation
Bloomberg
The cost of credit-default swaps insuring subordinated European bank debt fell to the lowest in three years amid speculation changes to rules governing the securities will devalue existing contracts.
http://jlne.ws/10hcyUX

Global News

Amari Says Further Slide in Yen May Have Negative Effects
Bloomberg
Japan’s Economy Minister Akira Amari said a further slide in the yen would have negative effects after the currency’s 21 percent drop in the past six months, and signaled concern at the prospect of higher bond yields.
http://jlne.ws/10hcc0N

Brazil Swap Rates Rise on Tombini Inflation Stance; Real Slips
Bloomberg
Brazil’s swap rates rose, reversing an earlier drop, as speculation the central bank will step up the pace of borrowing-cost increases overshadowed a report showing analysts reduced their 2013 growth forecasts.
http://jlne.ws/10hcjt5

Aust bond prices lower
The West Australian
Australian bond futures are lower in the wake of improved US confidence data late last week, but spent the local session trading in a narrow range.
http://jlne.ws/10hbbWv

Italian Bonds Rise for Fourth Day as Industrial Orders Increase
Bloomberg
Italy’s bonds rose for a fourth day as a government report showed the nation’s industrial orders increased more than economists predicted, adding to optimism the region’s economy is recovering.
http://jlne.ws/10hcu7V