Comment of the Day
Video commentary for March 28th 2022
A link to today's video commentary is posted in the Subscriber's Area.
Barclays VIX ETN Turmoil Looks Linked to $591 Million Note Error
This article from Bloomberg may be of interest to subscribers. Here is a section:
While the issuance halt initially triggered outsize moves for VXX -- including a 45% jump then reversal in a single session -- the ETN has been calmer as volatility across U.S. stocks retreated, helping prevent a potentially vicious short squeeze in the product.
All the same, since new cash can’t be added to either note the distortions can be significant. VXX closed at a record 24% premium on Friday, according to data compiled by Bloomberg. OIL has swung between a premium and discount amid major moves in the crude market in the past two weeks. It closed Friday at a 1.1% discount to assets.
VXX gained 2.4% in early trading as of 9:02 a.m. in New York. OIL was 3.2% lower.
“This is a rare case of an exchange-traded product issuer dropping the ball and mismanaging their products,” said Todd Rosenbluth, head of research at ETF Trends. “Although it is no more likely to occur again this is another red flag for trading ETNs and not ETFs.”
My view - ETNs were created to offer exposure to portions of the market that are difficult for ETFs to access. This comes with additional counterparty risk. The times when ETN products go awry is generally when there is significant credit market volatility like we have seen recently.
Private market transaction prices down -10%
This blog post from Forge may be of interest so subscribers. Here is a section:
In February, we reported that seller interest outpaced buyer interest on the Forge platform as the broader market downturn led more employees to inquire about selling their vested equity.
These trends now show up in completed transactions. On average, prices in February fell –10% for companies that traded on Forge Markets in both Q4 2021 and February 2022.2 Meanwhile, the Renaissance IPO ETF, which holds many of the newest public tech companies, lost –28.4% from the beginning of October through the end of February.3
Although some softening has started to appear in the private market, the overall picture does not suggest overreaction. Decreasing prices may be new territory for some pre-IPO shareholders, but they seem to be proceeding cautiously. For investors, more sellers participating in the private market may yield a better opportunity to land shares of pre-IPO companies at favorable prices.
My view - Since the 2009 lows, the value of private companies has surged as successive waves of new money chased the promise of outsized returns. The persistence of the low interest rate environment and central bank willingness to increase money supply have been central factors in supporting valuations.
BOJ Steps Into Market to Cap Yields Amid Global Bond Selloff
This article from Bloomberg may be of interest to subscribers. Here is a section:
The BOJ’s yield curve control framework aims to cap the 10-year yield, while allowing more flexibility for longer-tenor yields. There’s also talk among traders over whether the BOJ will act to bring down yields for longer-tenor bonds.
“Focus turns to whether the BOJ will also try to control 20- or 30-year maturities, but it’s likely the bank will tolerate the rise in these super-long yields,” said Mari Iwashita, chief market economist at Daiwa Securities in Tokyo. “By firmly capping 10-year yields, the BOJ can send a signal that it’s keeping an eye on market developments.”
The 30-year yield matched a six-year high of 0.995% reached last month.
The central bank has kept planned purchase amounts for all maturities including super-long bonds steady since July after tweaking operation schedule to quarterly from monthly. It will announce the April-June plan on Thursday.
The BOJ is expected to continue conducting unlimited fixed-rate bond buying particularly when there is risk of scheduled events of data driving U.S. yields higher after Tokyo session ends, such as U.S. jobs data due on April 1, minutes of FOMC’s March meeting and U.S. CPI.
“How high Japanese yields will rise depends on U.S. yields and the BOJ will likely automatically seek to cap yields if there are anticipated risks of overseas yields climbing,” Daiwa’s Iwashita said.
My view - The Bank of Japan continues to target a single point on the yield curve, but every other portion is rising. At present, the curve’s shape remains steep and moving from lower left to upper right which is consistent with easy policy. That begs the question whether continued BoJ activity will create a belly in the curve. That could create an even more distorted picture of Japan’s rising inflationary pressures.
The Chart Seminar June 6th & 7th in London
Now in its 53rd year, the first venue for The Chart Seminar in the post pandemic era will be in London on June 6th and 7th at the Army & Navy Club.
To reserve your place please contact Sarah@fullertreacymoney.com.
Delegate Rates:
Full fee: £1799
Each additional delegate: £850
Fuller Treacy Money Subscriber rate: £850
Prices exclude VAT where applicable
Eoin's personal portfolio: equity index long closed at a small loss March 1st
One of the questions subscribers as most often is how to find details of my open trades. To make it easier I will simply repost the latest summary daily until there is a change.