Obama Boehner Fiscal Cliff Meeting: Grasping For Last-Minute Solution
Huffington Post
President Barack Obama and House Speaker John Boehner (R-Ohio) met for nearly an hour on Thursday evening in their latest attempt to break the impasse on impending tax hikes and spending cuts. True to form, neither said much of anything about what was discussed.
http://jlne.ws/RtuPMO

S&P ordered by Japan financial watchdog to improve rating system
Bloomberg
Standard & Poor’s Japan unit was ordered by the nation’s financial watchdog to improve its system for verifying and updating credit ratings in the regulator’s first action against a ratings company.
http://jlne.ws/SYY8VK

Standard & Poor’s downgrades six Canadian financial institutions
The Canadian Press
TORONTO – Standard & Poor’s has downgraded the ratings of six of Canada’s financial institutions by one notch.
The Wall Street Journal says the credit ratings agency cites a softening economy, low interest rates and pressure from the headwinds facing Canada’s economy. S&P says the risk for the Canadian banking sector is increasing and expects intensifying competition for loans and deposits will pressure profit growth.
http://jlne.ws/QYwXdQ

Fisher sees Fed trapped in ‘Hotel California’ unable to leave QE
Bloomberg (via Futures Magazine)
Federal Reserve Bank of Dallas President Richard Fisher said the central bank may never be able to exit its unprecedented bond-buying program and that the efficacy of the stimulus measure is “declining over time.”
http://jlne.ws/Sp6pUD

Fixed income exits set to soar as capital costs bite
Financial News
Less than half of investment banks are committed to running global fixed income businesses as regulatory and commercial pressures build, according to new research, fuelling fears of a liquidity drought in the secondary bond markets.
http://jlne.ws/Z6jg1h

Bank of America sues MBIA, claiming tender offer interference
Reuters
Bank of America Corp (BAC.N) has sued bond insurer MBIA Inc (MBI.N) in a New York state court for allegedly interfering with a tender offer to buy MBIA’s bonds.
http://jlne.ws/12d93yH

Senior Deutsche Bank lawyer jailed in raids – sources
Reuters
A senior in-house lawyer at Deutsche Bank (DBKGn.DE) closely involved with its legal battle with the late media mogul Leo Kirch is among those jailed following tax raids at the bank, two sources familiar with the proceedings told Reuters.
http://jlne.ws/WbCnBl

Forex: Euro Struggles On Deepening Recession- ECB Rate Cut On Horizon
Inside Futures
The Euro is struggling to hold its ground on Friday amid the slew of dismal data coming out of the region, and the single currency remains poised to face additional headwinds over the remainder of the year as the deepening recession dampens the outlook for growth and inflation.
http://jlne.ws/Z6kdGT

INVESTMENT FOCUS-So much uncertainty, so little volatility
Reuters
Equating economic uncertainty with financial market volatility this year would have been a dangerous game.
http://jlne.ws/Z6ktpj

A Fed Focused on the Value of Clarity
The New York Times
The Federal Reserve’s decision on Wednesday to announce specific economic objectives for its policies would have stunned and dismayed earlier generations of central bankers, who regarded secrecy as a virtue and obfuscation as a prized technique for manipulating financial markets.
http://jlne.ws/Z6kN7l

The Federal Reserve’s Zombie Economy
Fox Business
Deutsche Bank is out with a new warning that says the Federal Reserve’s latest round of an estimated $1.02 trillion in total annual purchases of U.S. Treasuries and mortgage-backed securities is creating lemon socialism, a U.S. economy filled with the financially undead.
http://jlne.ws/Z6kPw2

Federal Reserve Moves in Opposite Directions on Fixing the Economy
US News
Here’s a flash. Things aren’t always as they seem in Washington.
Case in point: This week headlines around the world screamed that the Federal Reserve Board is making lowering unemployment, not controlling inflation, its key objective. It will continue holding down interest rates and expanding the money supply so long as unemployment remains above 6.5 percent. This means it will extend its unprecedented four years of quantitative easing indefinitely.
http://jlne.ws/Z6kWru

Global economy: Central bankers gone wild
Global Post
Central bankers aren’t exactly the most exciting people.
Sure, they’re smart.
Yes, they understand the complex interplay of economics, finance, politics, markets and all the other factors that make the global economy fly or fizzle.
http://jlne.ws/Z6l5ey

Fed hawks take aim at central bank’s latest policies
Reuters (via Chicago Tribune)
Two top Federal Reserve officials on Friday raised questions about the U.S. central bank’s unprecedented decision to tie monetary policy to specific economic guideposts, and warned that its latest policy actions risk straying into fiscal territory.
http://jlne.ws/Ti50vQ

Economic Reports Ignored
Inside Futures
The Treasury sold $66 billion of securities this week. There was only a lukewarm reception for yesterday’s auction of $13 billion of thirty year bonds.
http://jlne.ws/Ti5h1X

The interest rate market will get some more competition at the end of the year with the launch of the NASDAQ OMX NLX futures exchange. JLN editor-in-chief Jim Kharouf spoke with exchange CEO Charlotte Crosswell, at IDX 2012 in London, about the new exchange’s move into euro and sterling-based short-term interest rate and long-term interest rate contracts, the trading and clearing platform and who will be participating in the new market.

Watch at MarketsWiki.tv.

NYSE Euronext continues to develop its interest rate offerings, challenging competitors in the space, such as CME Group. Paul MacGregor, executive director, head of fixed income, NYSE Liffe (the global derivatives business of NYSE Euronext) sat down recently with JLN’s Managing Editor, Christine Nielsen, to discuss the outlook for the interest rate market and new products on the horizon for the exchange.

Press Release
PRAGUE, Wednesday, April 13, 2011 – The International Swaps and Derivatives Association, Inc. (ISDA) announced that its Board of Directors will elect Stephen O’Connor, Managing Director, Morgan Stanley, as the Association’s new chairman. Mr. O’Connor will be elected with immediate effect at the Board’s regularly scheduled meeting on April 14, at ISDA’s 26th Annual General Meeting in Prague.

O’Connor succeeds Eraj Shirvani, Managing Director, Head of Fixed Income for EMEA Region, Credit Suisse, who has served as ISDA’s chairman since April 2008. During Shirvani’s three-year tenure as chairman, ISDA and the over-the-counter (OTC) derivatives industry undertook a number of initiatives to build safe, efficient markets. ISDA’s Big Bang and Small Bang Protocols enabled greater process and product standardization, the volume of cleared swaps increased significantly, bilateral risk management improved and trade repositories were established for credit default, interest rate and equity swaps. Shirvani will continue to serve on the Association’s Board of Directors.

“On behalf of ISDA’s Board, our member firms and our staff, I would like to thank Eraj for his leadership during a challenging period for the OTC derivatives markets,” said Conrad Voldstad, chief executive officer, ISDA. “He has played an important role in setting ISDA’s strategy and developing our key initiatives over the years and we look forward to his continued contributions to the Association.”

“Steve O’Connor has been very active at ISDA as a Board member and as chairman of the ISDA Industry Governance Committee,” said Mr. Voldstad. “He is ideally suited to lead the Association and our industry forward as we work together to address the challenges and opportunities that lie ahead.”

Shirvani said, “It’s been a privilege and a pleasure to serve as ISDA’s chair. With the support of the Board and our member firms, we were able to make significant progress in key areas, such as reducing counterparty risk and increasing transparency. With Steve O’Connor as the new ISDA chair, Connie Voldstad as CEO and Bob Pickel as executive vice chairman, I know that ISDA will remain a strong, active representative for the OTC derivatives markets.”

O’Connor remarked, “Eraj became chairman at the same time that I joined the ISDA Board. I have seen first hand his effective leadership of ISDA and on behalf of the Board I thank him for his significant contributions as chairman. I have also had the opportunity to work with many parts of the ISDA organization during this time and I look forward to working on behalf of all of our membership constituencies towards the Association’s fundamental mission: Safe, efficient OTC derivatives markets.”

O’Connor has been a member of the ISDA Board since 2008. He joined Morgan Stanley in 1988 and is Global Head of OTC Client Clearing at Morgan Stanley. O’Connor graduated from Imperial College, London with a degree in Mechanical Engineering.

For More Information, Please Contact:

Cesaltine Gregorio, ISDA Prague AGM office, +420 224 84 8302, cgregorio@isda.org 

Donna Chan, ISDA Prague AGM office, +420 224 84 8302, dchan@isda.org 

Rebecca O’Neill, ISDA London, +44 203 088 3586, roneill@isda.org

About ISDA

ISDA, which represents participants in the privately negotiated derivatives industry, is among the world’s largest global financial trade associations as measured by number of member firms. ISDA was chartered in 1985, and today has over 800 member institutions from 55 countries on six continents. These members include most of the world’s major institutions that deal in privately negotiated derivatives, as well as many of the businesses, governmental entities and other end users that rely on over-the-counter derivatives to manage efficiently the financial market risks inherent in their core economic activities. Information about ISDA and its activities is available on the Association’s web site: www.isda.org.

Today marked the date of the inaugural distribution of the JLN Interest Rates Newsletter. Like the related JLN Interest Rates Blog (www.jlninterestrates.com), the goal of the newsletter is to bring to light fixed income and credit derivatives issues and news.

The JLN Interest Rates Newsletter is part of a family of newsletters distributed by John J. Lothian & Co. Other newsletters include the John Lothian Newsletter, Environmental Markets Newsletter, JLN Metals Edition, JLN Managed Futures and JLN Options.

Sign up for the newsletter here: http://jlne.ws/cUXqkR. Contact John Lothian at johnlothian@johnlothian.com with any content suggestions.

Risk.net reports this week that Standard & Poor’s (S&P) has developed an index to track taxable municipal bonds. According to the publication, the taxable municipal bond market has grown significantly since the April 2009 launch of the Build America Bonds program.

Data from the Federal Reserve show foreign investors bolstered their municipal bond holdings almost 19 percent between the third and fourth quarters. “The market and the types of buyers are expanding,” J.R. Rieger, vice president of fixed-income indexes at S&P is quoted as saying.

See the full Risk.net story here:
http://www.risk.net/structured-products/news/1685870/s-p-creates-taxable-municipal-bond-index-talks-structured-products-etfs

According to a  Bloomberg report today, company filings show Wells Fargo – the nation’s fourth-largest bank, whose biggest shareholder is Warren Buffett’s Berkshire Hathaway Inc. – reduced investments in mostly fixed-income securities by $34 billion in 2009’s second half. This compares to the fact that JPMorgan Chase & Co., Bank of America Corp. and Citigroup Inc. boosted their holdings by an average of $35.5 billion.

By scaling back on the so-called carry trade, in which banks borrow in overnight lending markets at rates near zero and invest in higher-yielding securities, San Francisco-based Wells Fargo aims to protect against losses when rates rise, according to Bloomberg.

See the full Bloomberg story here: Wells Fargo Shuns Carry-Trade, Braces for Risk of Higher Rates

According to research released today by Credit Suisse, U.S. fixed income volume growth has accelerated to begin 2010. 

Specifically, the firm reports that corporate bond volume +2% yr/yr QTD, U.S. Treasuries +15% and mortgage-backed securities +11%. According to Credit Suisse, U.S. Federal agency volume trends are more challenged, -18.

Credit Suisse reports in written commentary today that fourth-quarter-to-date, U.S. fixed income volumes are mostly tracking lower from year-ago levels and are mixed from the third quarter.

According to the firm, corporate bond volumes are down 27 percent year over year quarter to date. Federal agency volumes are down 13 percent. U.S. Treasury volume is a bright spot, however, at up 9 percent.

Credit Suisse this week reports some somewhat encouraging stats for rate products. According to the firm, volatility in the first half of November is mixed relative to October, up in equities and short-term interest rates while lower in FX and energy.

Furthermore, fourth quarter-to-date, U.S. fixed income volumes are lower from year-ago levels but mostly tracking higher from the third quarter. Corporate bond (-24% yr/yr QTD), mortgage-backed (-7%) and federal agency (-9%) securities volumes are all lower. U.S. Treasury (+9% yr/yr) is a bright spot, the firm says.