The MorningSnapshot- 03/28

The MorningSnapshot
March 28, 2012

 Morning Commentary
Sentiment is mixed this morning with S&P 500 futures up +0.123%, European equities slightly lower with the Euro Stoxx 50 down -0.12%, and Commodities are down amid indications for a slowdown in copper demand in China as well as rising crude oil inventories. The 10yr Treasury is up +1.6bps to 2.2% in early trading, and the euro is gaining versus the dollar.

Exchange-Traded Note (ETN) Risk
A Barclays Exchange-Traded Note (ETN) that traded 134% above the value of the natural-gas index it is tied to has lost 47% of the premium in just three days as traders and investors exit the fund. The iPath Dow Jones-UBS Natural Gas Total Return Sub-Index ETN has crashed -29% since March 21 while its benchmark index declined -6.5%. Barclays suspended issuing new shares in August 2009, which may cause the notes “to trade at a premium or discount in relation to their indicative value,” the bank said in a statement at the time. Yesterday, the ETN fell -2.7% to $3.66.

Additionally a Credit Suisse ETN, VelocityShares Daily 2x VIX Short-Term ETN (TVIX), has become unhinged from the S&P 500 VIX Short-Term Futures Index, the measure the note was designed to track, after suspending issuance of new shares a month ago, “due to internal limits on the size of the ETNs,” according to a statement at the time. ETFs and ETNs typically trade in lockstep with their so-called net asset value (NAV), the value of their assets less the value of liabilities. By contrast, TVIX jumped to 36% above NAV on March 16 before the gap expanded to 62%, 78%, and 89% over the next three days, according to data from Bloomberg. After Credit Suisse resumed issuance of shares on March 23, it has since snapped back to 6.9% above NAV. “People should have made a bigger deal on Feb. 21 when they were suspending it because it’s directly tied to how the product became overvalued,” Peter Tchir, founder of TF Market Advisors in New York, said in a March 23 phone interview. “The product got too big and then this turning on and turning off of the creation rights doesn’t seem to go through a very formal process and yet it’s clearly critical to the value and how these things trade.” In order to offset price distortions caused by investors buying and selling ETFs or ETNs, sponsors regularly create and redeem shares to keep them closely pegged to their underlying assets. Speculation that volatility would come back pushed investors into securities such as the TVIX at the fastest rate ever according to Bloomberg.

Today’s Economic Data Lineup (EST)
7:00am, MBA Mort Apps, week of Mar. 23
8:30am, Durable Goods, Feb., est. 3.0% from -3.7% (revised)
8:30am, Durables Ex Trans, Feb., est. 1.7% from -3.0% (revised)
11:00am, Fed to purchase $4.5b-$5.25b notes in 5/15/2020 to 2/15/2022 range
1:00pm, U.S. to sell $35b 5-yr notes

North America

  • Edith O’Brien, the Chicago-based treasurer of MF Global, will today face lawmakers directly for the first time today. With $1.6B in customer money still missing from the eighth-largest bankruptcy in history, lawmakers are hoping she can provide some detail of the days before MF Global’s collapse.
  • The U.S. Supreme Court will consider how much of the health-care law must be thrown out if the justices decide Congress cannot require Americans to purchase medical insurance. Today’s session will conclude three days of hearings which included six hours in all, representing the longest debate in 44 years.
  • BATS has stated that it will not consider redoing their IPO for at least one quarter after the failed attempt last Friday. Their directors voted to remove Joe Ratterman as chairman, but expressed unanimous support for him to continue serving as CEO.


  • The U.K. economy shrank more than estimated in Q4 2011 as service companies cut output and firms scaled back. GDP fell 0.3% from the Q3, compared with an estimated 0.2% drop.
  • Italy auctioned €8.5B euros of 182-day bills at 1.119%, the lowest YTM since Sept. 2010 and down from 1.202% at the Feb. 27 auction of similar-maturity debt. The bid-to-cover ratio was 1.51 times the amount offered, compared with 1.36 times last month. Prime Minister Mario Monti is implementing a €20B euro package of spending cuts and tax increases to rectify the budget deficit and tame the nation’s €1.9 trillion debt.
  • French GDP grew 1.3% in Q4 2011 instead of the previous estimate of 1.4%.
  • Jared Epstein has departed BNP Paribas SA after two years as head of flow credit trading, which is the business that serves as a middle-man on the most liquid types of credit.


  • Chinese stocks are down the most in four months after Societe Generale SA said Chinese corporate profits will not grow this year, and the nation’s largest copper producer reported worse than expected earnings.
  • Vietnam’s trade deficit narrowed in March as exports rose, supporting the local currency. The gap was $150M this month, compared with a revised $279M in February.

“Forget mistakes. Forget failure. Forget everything except what you’re going to do now and do it. Today is your lucky day.”
-Will Durant
Taylor Anderson
Business Analyst
Clearing House

T 312 634 8902
F 312 930 3187
C 312 618 8339

Leave a Reply