And they walked away, unscathed
November 21, 2023
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–Solid 20y auction about 1.2 bps through at 4.78% with b/c 2.58. Yields were generally lower in a quiet session, with tens down 1.5 bps to 4.422%. However, front end was weak with twos up a fraction to 4.911%. Weakest SOFR contract was U’24 at 9527.0 (-2.0), but U’25 was +2.0 at 9619.5 and U’26 was +3.5 at 9625.5 (highest point on the SOFR curve). 2/10 ended at a new recent low -49, likely a better long than short from these levels.
–This morning a buyer of 20k SFRH4 9500/9525cs vs 9450p for 1.5 to 1.25 credit. Ref yesterday’s settle in SFRH4 at 9475, the put settled 4.25 and call spread at 2.5. (thanks PNToptions)
–Today’s news includes Chicago Fed National Activity and Existing Home Sales, expected 3.9m, below the Covid low. At the start of 2022 sales were about 6.3m and have trended lower ever since. 10y TIPS auction at 1:00 EST followed in an hour by FOMC minutes. NVDA reports after the bell. Expected EPS $3.39 on revenue $16.11b.
–Asset prices often decline when rates go up. You know, what they call “an inverse relationship”. Here’s an example cited by @TripleNetInvest: Washington DC office building sold for a shocking 77% discount to the price it traded in 2016. Sold for $21 million or $109 sqft, vs $72m in 2019 and $93m in 2016. Isn’t Washington where they’re churning out all the money?
–I don’t know if this particular ‘alternative strategy’ had any CRE assets, but Blackstone is closing a ‘multi-strat fund’ after assets dropped nearly 90% on a negative 2% return since the beginning of 2020. Maybe that ‘inverse relationship’ had something to do with it.
“This is a small, legacy fund. We are in talks with clients to move their capital to newer strategies that offer greater flexibility than the current structure allows,” FT quoted Blackstone as saying.
Of course it’s a small fund jackass. It’s lost NINETY PERCENT of assets. But that’s a very kind offer to help the remaining investors into a NEW and IMPROVED strategy.
–Amy Nixon was kind enough to highlight this excerpt from Moody’s recent negative outlook on the US (and related warnings about US banks). This is from Nov 14:
Moody’s negative outlook on bank debt reflects “the potentially weaker capacity of the government of the United States of America (Aaa negative) to support the U.S.’s systemically important banks,” analyst Peter E. Nerby said in a research note published late Monday. (Morningstar)
–Powell makes it a point to note that the US banking system is sound and resilient at nearly every appearance. The CRE crack-up is perhaps telling a different story about loan assets. Tell a lie long enough…
–Here’s a little metaphor for the US financial & political system.
And they walked away, unscathed.
