Lead Stories

Fed has not lowered interest rates enough: Kocherlakota
Reuters
The Federal Reserve has not done enough to lower U.S. borrowing costs to boost economic growth, a top Fed official said on Friday, citing his outlook for overly low inflation and overly high unemployment over the next two to three years.
http://jlne.ws/112i9Kb

QE Reduced This Summer
Inside Futures
Futures are higher in spite of the second strong hint from the Federal Reserve in less than a week that there could be an earlier than expected scaling back of the Federal Reserve’s quantitative easing program.
http://jlne.ws/112hxV0

Bank of America and Friends Win Big
The Motley Fool
Shortly after the bell, Bank of America is on track to regain the 1% it lost yesterday. Though it does appear that the bank may be moving along with the market, there is one big headline that might be swaying the bank’s investors toward the positive end of the spectrum.
http://jlne.ws/112hzfB

Euro Eyes Fresh 2013 Low on ECB Policy- Pound Rebound on Tap
Inside Futures
The Euro slipped to 1.2830 as European Central Bank (ECB) board member Benoit Coeure reiterated that the Governing Council is ‘exploring options to further strengthen lending to the real economy and, in particular, to small and medium-sized enterprises,’ and it seems as though the central bank will continue to embark on its easing cycle over the coming months as the region struggles to return to growth.
http://jlne.ws/112hJ6F

Asmussen Says Long Phase of Low Interest Rates Carries Risks
Bloomberg
European Central Bank Executive Board member Joerg Asmussen said policy makers should be aware of the risks related to keeping interest rates low for an extended period of time.
http://jlne.ws/112ie0H

Profits are up, but low interest rates put pressure on banks
St. Louis Post-Dispatch
After some dismal performances during the economic downturn, most local banks are growing profits again.
The more than 80 locally chartered retail banks and thrifts in the St. Louis region reported $77.2 million in profits in the first quarter that ended March 31, up from a $60.6 million profit in the first quarter of 2012, according to a summary of bank performances by the Federal Reserve Bank of St. Louis released this week.
http://jlne.ws/112ifSc

How bond investors can avoid becoming losers
MarketWatch
The 10-year Treasury has recently been yielding between 1.5% and 2%. Short-term Treasury interest rates are near zero. Even if inflation stays at 2% over the next decade (the informal target of the Federal Reserve), government bonds will provide negative real (after inflation) rates of return.
http://jlne.ws/112iE78

Federal Reserve Cites Bank of Montreal Branch for Money-Laundering Deficiencies
Dow Jones Newswires (via Fox Business)
 U.S. regulators Friday ordered Bank of Montreal (BMO, BMO.T) to strengthen its anti-money-laundering programs, citing deficiencies in its U.S. subsidiary’s efforts at risk management and compliance with the Bank Secrecy Act.
http://jlne.ws/112j9y9

Banks lift FTSE to 5.5-year highs
Alistair Smout, Reuters
The FTSE top share index hit fresh five and a half year highs on Friday, as banks were buoyed by an upgrade, the prospect of the end of state ownership in the sector and rotation out of defensive stocks.
http://jlne.ws/12HoKwL

Economic News

Federal Reserve: rising inequality jeopardizes economic recovery
RT
A top ranking member of the United States Federal Reserve cautioned economists this week that growing inequality within the US was worsening the odds of a quick return to the conditions of the pre-recession days.
http://jlne.ws/112j3q4

Exchanges, Clearing Houses & MTFs

ICE Clear Europe Named 2013 Clearing House of the Year by Energy Risk Magazine
Press Release (ICE)
IntercontinentalExchange (NYSE: ICE), a leading operator of global markets and clearing houses, announced today that ICE Clear Europe has been named Clearing House of the Year for 2013 by Energy Risk magazine.
http://jlne.ws/YOhcZy

Regulators

CFTC Approves SEF Rules and Swaps Block Rule
CFTC Law
On Thursday the CFTC approved the Swaps Block Rule, the Made Available to Trade Rule, the SEF rules, and the Interpretive Guidance and Policy Statement on Disruptive Practices.
http://jlne.ws/112hEzQ

Big Banks Losing Grip on Derivatives
Bloomberg
Unless you’re employed by a derivatives trading desk at a large bank, here’s some good news: The derivatives cabal is slowly but surely headed for a break-up.
http://jlne.ws/112hQPu

Global News

EURO GOVT-ECB rate cut talk lifts Bunds to one-week high
Reuters
German Bunds hit one-week highs on Friday, with traders citing talk the European Central Bank was checking with some banks whether they were ready for a potential cut in its deposit rate to below zero.
http://jlne.ws/112i0Xi

Brazil central bank pledges to bring down inflation this year
Reuters
Brazil’s central bank chief Alexandre Tombini on Thursday pledged to bring inflation lower this year and next, suggesting a more aggressive monetary tightening stance that sent interest rate futures rallying.
http://jlne.ws/184oVp8

Aust bonds prices move higher
The West Australian
Australian bond futures prices are higher after disappointing US economic data saw Treasury yields fall.
http://jlne.ws/112hSXH

Interest rates hit historic low following Central Bank decision
The Journal of Turkish Weekly
Turkey’s bond yield faced a fall to its historical low in response to central Bank’s decision to cut all three of its main interest rates by 50 basis points yesterday in an attempt to stimulate the faltering economy and guard against lira appreciation.
http://jlne.ws/112irRg

Mexico Grows Less Than Forecast Reinforcing Rate Cut Outlook
BloombergBusinessweek
Mexico’s economy grew less than analysts expected in the first quarter, fueling bets policy makers will cut interest rates again this year.
http://jlne.ws/112iz3e

Conversation Starter

Today’s ugly data raises questions about strength of U.S. economy
Reuters (via Financial Post)
The U.S. economy showed worrisome signs as jobless claims rose sharply last week while ground-breaking at home construction sites tumbled in April and a gauge of underlying inflation pointed to weak demand.
http://jlne.ws/184qAew

*There is some good news buried amidst the bad news — SR

The Fed Is Failing On Both Parts Of Its Dual Mandate
Huffington Post
When it comes to monetary policy, the Federal Reserve has just two jobs, and it’s failing at both of them.
The Fed has a dual mandate to promote maximum employment and to keep prices stable.
http://jlne.ws/11I9AvB

*HuffPo puts in its two cents — SR

Lead Stories

Broker Fired in Rate-Rigging Probe
The Wall Street Journal
R.P. Martin Holdings Ltd. fired a broker and suspended two top executives amid continuing scrutiny of the securities firm’s role in alleged interest-rate manipulation, according to a person familiar with the move.
http://jlne.ws/12EH9tW

Libor in a barrel
The Economist
IT IS a lesson of the past five years that benchmarks in unregulated markets can fall victim to the incentives they create. Subprime mortgages bundled into securities often won high scores from ratings agencies that stood to profit in a busy market. The London Interbank Offered Rate, LIBOR, was sometimes underestimated by banks which were cast in a healthier light by lower interest rates. Has something similar been going on in energy?
http://jlne.ws/184pY8K

T-Note Yields Near 2%, But Will Fed Budge?
IndexUniverse
Yields on 10-year Treasury notes have spiked in the past few weeks, nearing 2 percent, in what likely reflects changing investor sentiment about the Federal Reserve’s plans when it comes to interest rates.
http://jlne.ws/11I8H6s

Fed’s Plosser: Start Tapering Asset Buys in June
Reuters (via CNBC)
The Federal Reserve should reduce asset purchases from next month given the economy’s brighter prospects, a senior official of the central bank said Thursday.
“Things are better enough for the Fed to slow the pace of purchasing, if we are really serious about the fact that (the purchase program) is scalable,” Philadelphia Fed President Charles Plosser said.
http://jlne.ws/11I9sw9

The Fed Is Failing On Both Parts Of Its Dual Mandate
Huffington Post
When it comes to monetary policy, the Federal Reserve has just two jobs, and it’s failing at both of them.
The Fed has a dual mandate to promote maximum employment and to keep prices stable.
http://jlne.ws/11I9AvB

Fed hawks push for move away from housing-linked stimulus
Reuters (via Fox Business)
A trio of hawkish regional Federal Reserve officials are calling for the U.S. central bank to stop buying mortgage-backed bonds, citing recent improvement in the housing market.
http://jlne.ws/11IacS3

HILSENRATH: The Fed Isn’t Worried About Low Inflation
Business Insider
Whenever the WSJ’s Jon Hilsenrath speaks, everyone in the market listens.
Hilsenrath is out with a new blog post on WSJ.com this afternoon aimed at one of the hottest topics surrounding Federal Reserve policy right now: persistently low inflation, which could keep the Federal Reserve from tapering monetary stimulus anytime soon.
http://jlne.ws/11IaAzW

BOND REPORT: Treasurys Push Higher On Weak Data
Dow Jones Newswires (via Fox Business)
Thursday’s weak economic reports on jobs, housing, inflation, and manufacturing follow disappointing producer-prices data Wednesday, raising questions about the pace of economic growth.
http://jlne.ws/11IaY1i

Economic News

Capital markets: Record low borrowing rates lure corporations north
Financial Times
Brazil’s domestic bond markets have strengthened considerably in the past decade.
The country’s rapid growth has brought a new wave of companies, lenders and investors into local capital markets as its financing needs have risen sharply.
http://jlne.ws/10Bid3E 

Today’s ugly data raises questions about strength of U.S. economy
Reuters (via Financial Post)
The U.S. economy showed worrisome signs as jobless claims rose sharply last week while ground-breaking at home construction sites tumbled in April and a gauge of underlying inflation pointed to weak demand.
http://jlne.ws/184qAew

Boston Fed chief says budgets cuts, tax hikes hurting economy
The Boston Globe
Eric S. Rosengren, president of the Federal Reserve Bank of Boston, called on Congress and President Obama to delay efforts to lower the federal deficit, arguing that budget cuts and tax increases have slowed the economy and contributed to stubbornly high unemployment.
http://jlne.ws/11IamZF

Fed’s Raskin: Still Long Way From Feeling Like Healthy Economy
The Wall Street Journal
The U.S. economy continues to recover from the 2008 financial crisis and the deep recession that followed, but it still has a long way to go until it feels “like a healthy economy,” Federal Reserve governor Sarah Bloom Raskin said in a speech on Thursday.
http://jlne.ws/11IaLv9

Firms & Banks

Citigroup Spurned By Big Name Hedge Funds
The Motley Fool
Citigroup has been on a tear the past two days, rising 5% after hedge fund manager David Tepper spoke out about his confidence in stocks earlier in the week. Dubbed the “Tepper Rally,” the bull market following his comments, especially within the financial sector, really boosted Citigroup — which is Tepper’s largest holding in his Appaloosa Management fund.
http://jlne.ws/184q3Js

Regulators

Swaps market faces liquidity drain from unprepared buyside
Financial News
A large number of institutional investors remain unprepared for the next wave of US rules on derivatives clearing, according to two studies, which could lead to as much as $55 trillion worth of liquidity being drained from key markets.
http://jlne.ws/10uWyhE

Big Banks Get Break in Rules to Limit Risks
Dealbook
Under pressure from Wall Street lobbyists, federal regulators have agreed to soften a rule intended to rein in the banking industry’s domination of a risky market.
http://jlne.ws/184q93N

Global News

Bunds rally as data casts doubt over U.S. recovery
Reuters
German Bund futures jumped the most in six weeks on Thursday as weak data out of the United States cast doubt over the strength of the recovery in the world’s largest economy.
http://jlne.ws/184pdfG

Japan Bankers Chief: Rise in Interest Rates Is Process of Normalization
The Wall Street Journal
The head of Japan’s biggest banking lobby group said Thursday the recent rise in interest rates is a process of normalization that will eventually stabilize.
http://jlne.ws/10BkMmr

Weak Japanese yen not likely to move interest rates: central bank
The China Post
TAIPEI — Taiwan’s central bank is unlikely to adjust interest rates in the short term even in the face of a weakening Japanese yen, according to Australia and New Zealand Banking Group Ltd. (ANZ).
http://jlne.ws/11I8q3i

Turkey’s Central Bank Cuts Three Key Rates: Statement
Bloomberg
Turkey’s central bank published the following statement on its website today.
“The Monetary Policy Committee (the Committee) has decided to cut the short term interest rates as follows:
http://jlne.ws/11I83FT

Brazil central bank pledges to bring inflation down this year
Reuters
Brazil central bank chief Alexandre Tombini on Thursday pledged to bring inflation lower this year and next, suggesting a more aggressive monetary tightening stance that sent interest rate futures higher.
http://jlne.ws/184oVp8

Advice for Incoming BoC Governor: It’s Time to Start Raising Interest Rates
Epoch Times
OTTAWA—Incoming Bank of Canada governor Stephen Poloz is already getting advice on what to do once he takes charge next month—start hiking interest rates.
http://jlne.ws/184r5oG

Israel Bond Rises to Record on Rate Cut Bets and Shekel Gains
Bloomberg
Israel’s government bonds rose, pushing the yield down to a record, as inflation slowed and a surprise interest reduction spurred bets the central bank could follow with another rate cut.
http://jlne.ws/11I8ujv

Lead Stories

Eurex to relaunch Euribor
FOW
In a surprise move, FOW understands that Eurex is close to a relaunch of the Euribor contract, the highly liquid three-month STIR contract, following the implementation of its new trading architecture which enables new functionality including the spread matrix.
http://jlne.ws/10Xrsek

Trading Technologies to Connect to NASDAQ OMX’s New NLX Exchange
Press Release (TT)
Trading Technologies International, Inc. (TT) announced today that TT will connect its X_TRADER platform and related products to NASDAQ OMX NLX (NLX), a new London-based derivatives trading market.
NLX will initially list European short-term interest rate (STIR) and long-term interest rate (LTIR) euro- and sterling-based futures products. All instruments will clear through LCH.Clearnet,providing optimal initial margin efficiencies for market participants who will have the unique ability to portfolio margin both STIRs and LTIRs in a single clearing house.
http://jlne.ws/14310ok

Bernanke should banish the babbling barons of bubbleism: Paul Krugman
Penn Live
Bubbles can be bad for your financial health — and bad for the health of the economy, too. The dot-com bubble of the late 1990s left behind many vacant buildings and many more failed dreams. When the housing bubble of the next decade burst, the result was the greatest economic crisis since the 1930s — a crisis from which we have yet to emerge.
http://jlne.ws/13mhxkC

Eris Exchange Announces A Single Day Trading Volume Record
Press Release (via Herald Online)
Eris Exchange, a US-based futures exchange offering swap futures as a capital-efficient alternative to traditional OTC interest rate swaps, today announced that on May 10, 2013, market participants traded a record $1.27 billion in notional value. The volume record is equivalent to 12,700 contracts, adjusting for the impending contract size change to $100,000 notional. This change will take effect June 3, 2013, pending all relevant CFTC regulatory review periods.
http://jlne.ws/13md94Z

U.S. stocks extend record run, euro slips on data
Reuters
U.S. stocks scaled record highs on Wednesday as weak data reinforced expectations that stimulative central bank policies would continue, while evidence that Europe was stuck in recession pushed the euro to a six-week low against the dollar.
http://jlne.ws/13me5Gy

European Stocks Climb
The Wall Street Journal
European stock markets climbed to multiyear highs, as weak growth reports from the euro zone raised hopes the European Central Bank would consider more measures to help boost the sluggish economy.
http://jlne.ws/10YiRYZ

World’s central banks rush to cut rates, but China stands firm
Live Trading News
While central banks worldwide have cut rates and weakened their currencies in response to the plummeting Japanese Yen, China has stood firm, confident that its economy, the world’s 2nd biggest, can withstand current global weakness, a leading economist says.
http://jlne.ws/13mfaOt

Rising rates may increase risk in bond market
San Diego Source
A warning last week by Ben Bernanke to Wall Street firms to not “reach for yield” also has a message for individual investors.
The chairman of the Federal Reserve Board was addressing a tendency by some firms to take on excessive forms of risk in order to raise the yields offered on certain investments, as investors search for higher rates of return in a near-zero-interest-rate environment.
http://jlne.ws/13mfJrE

Board of Governors of the Federal Reserve System : Federal Reserve offers 28-day term deposits with full allotment at 26 basis points through its Term Deposit Facility
Press Release (via 4-Traders)
On May 20, 2013, the Federal Reserve will conduct a fixed-rate offering of term deposits with full allotment of tenders through its Term Deposit Facility (TDF). The Federal Reserve will offer 28-day term deposits with an interest rate of 0.26000 percent and a maximum tender amount of $1,250,000,000.
http://jlne.ws/13mhV2v

Volcker: Government Makes Up 35% Of GDP, Mortgage Markets Are Now A State ‘Subsidiary’
Forbes
Former Fed Chairman Paul Volcker warned of the risks of an asset bubble forming given the incredible amount of liquidity the Bernanke Fed has injected into the market, even though he said banks are substantially stronger than before the crisis on Wednesday.  Volcker also indicated  that in the U.S. government makes up about 35% of GDP and that the financing of the residential mortgage market by the state has led to a dysfunctional financial system.
http://jlne.ws/13micSR

BOND REPORT: Treasurys Snap Losing Streak On Weak Data
Dow Jones Newswires (via Fox Business)
Weak global economic data Wednesday prompted investors to bid up Treasurys, helping the safe-haven debt close out the day with its first gains in a week.
http://jlne.ws/13mipFH

The Fed’s #1 Assumption About QE Relies On A Misunderstanding Of Basic Portfolio Management
Business Insider
For several years now, the Federal Reserve has been buying up Treasury bonds in an attempt to boost the economy with monetary stimulus.
One big channel through which this quantitative easing (central bank bond buying) is supposed to work is known as the “portfolio rebalancing channel,” and the idea is that as central banks draw supply out of government bond markets and bond yields fall, investors will sell their bonds and rebalance their portfolios by investing in riskier assets, like stocks.
http://jlne.ws/13miARy

Global News

Bond prices grind lower amid US optimism
Herald Sun
AUSTRALIAN bond futures prices are lower as the US dollar and Wall Street gained ground after a run of positive economic data from the world’s largest economy.
http://jlne.ws/13mdhkT

Japan Jolts Bond Market in the Wrong Direction
The Wall Street Journal
The Bank of Japan’s ambitious monetary-easing campaign has hit an early snag: Rising bond yields have emerged as a potential barrier to growth.
http://jlne.ws/105kngm

Weak yen unlikely to affect interest rates
Taipei Times
The central bank is unlikely to adjust interest rates in the short term even in the face of a weakening Japanese yen, the Australia and New Zealand Banking Group Ltd (ANZ) said yesterday in its latest weekly research note.
http://jlne.ws/13mj4XC

Now is the right time for interest rate reforms in China
South China Morning Post
Hu Shuli says reform of China’s money markets needs to take place very soon as a lack of progress has hampered nation’s economic system.
http://jlne.ws/13mfooW

Ruble Weakens on Declining Oil as Interest Rate Left Unchanged
Bloomberg
The ruble slumped for the first time in three days against the central bank’s target basket of currencies after Russian policy makers left interest rates unchanged and oil fell.
http://jlne.ws/13meWa5

RBI to cut interest rates in June, July after April WPI: BofA-ML
The Economic Times
Bank of America-Merrill Lynch expects the Reserve Bank of India to cut interest rates by 25 basis points on June 17, and then by another 25 bps in July – revising its prior expectation of a cut in October, according to a note on Wednesday.
http://jlne.ws/13mg0L8