Guy Haselmann: "Greater Mistrust and Huge Volatility Will Benefit Treasuries"

January 16, 2015

2 minute read

by Guy Haselmann, Director, Capital Markets Strategy, Scotiabank GBM

Market Comment

· Greater mistrust and huge volatility will benefit Treasuries.

· A G-5 central bank just broke its promise to the market. Market participants have increased efforts to monitor their counter party risk. It is likely several other central banks will follow as many are highly-likely over-promising on what they can ultimately deliver.

· CHF moved 40% in 10 minutes before settling around 20% stronger. A few FX exchanges have stated they are going out of business. Several currencies have moved more than 30% in the past 6 months and oil has drop over 50%. It is possible some smaller energy related firms could default on payments.

· Higher volatility in markets prudently and generally leads to paring of risk by portfolio managers.

· For many, quick and enormous moves (like in CHF) lead to large losses and margin calls. Margin calls lead to selling of risky assets. Many second order ripple effects occur in this environment. Sub-prime in 2008 is an example.

· The pace in the demand for Treasuries has accelerated and this demand will persist a while longer.

· Some banks said they no longer meet capital requirements. Adjustments back toward meeting those requirements will benefit Treasuries over illiquid, risky, or credit securities.

Central Bank Comment

· The ECB has been promising sovereign QE for 7 months. It is probably fully priced in. Its main goal has been and remains to depreciate the Euro. EU country rates have already converged, so the goal in proceeding with QE is unlikely to be to try to converge them further. On the contrary, should the structure of QE indicate less EU integration, such an anti-union move should significant widen periphery spreads (despite the ECB buying them)

· Draghi rarely disappoints markets but he will have his challenges not doing so next week.

· Some believe that SNB’s removal of its QE is being replaced by ECB QE. I don’t entirely look at it this way, because the ECB QE is priced-in and has been well-telegraphed and expected for so long (7 months). Therefore, the market is losing SNB’s support that it had believed was going to continue as a core policy.

· Hidden risks and uncertainties are growing. Negative sovereign yields and a depreciating Euro creates added problems. USD securities, particularly Treasuries that offer more yield and a strong currency, look attractive to Europeans and foreigners.

Oil Comment

· Oil oversupplies will not end or be worked off anytime soon. Oil will remain under pressure. I can see it test $40 per barrel in the near term. Lower oil causes significant stresses in various areas and elevates geo-political tensions.

· “The people I distrust most are those who want to improve our lives but have only one course of action.” – Frank Herbert

Regards and Have a peaceful weekend.

Guy

Guy Haselmann | Director, Capital Markets Strategy
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Scotiabank | Global Banking and Markets
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Global Macro Commentary Jan 16

Author

Guy Haselmann

Mr. Haselmann has 30 years of diverse capital markets experience, including 14 years building and managing assets at 2 well-known macro hedge funds. During his career, Mr. Haselmann traded numerous capital market securities. He has developed risk management strategies and trading procedure guidelines.

Previously, Mr Haselmann was Director of Capital Markets strategy, at Scotiabank GBM, where he incorporated a global macro approach. Mr. Haselmann has been published in academic journals, newspapers, and has written countless strategy pieces. He has appeared on various TV and Radio programs, such as BNN Bloomberg and Bloomberg. Mr. Haselmann is a guest lecturer at several universities, including his alma mater the University of Delaware Lerner College of Business and Economics. He is a frequent panelist at industry conferences.

In addition, Mr. Haselmann was a gubernatorial appointee to the NJ State Investment Council and was appointed by the chair to the Investment Policy, Executive, and Nomination subcommittees. Mr. Haselmann is President, and a member of the Board of Governors, of the NY Money Marketeers.

Specialties: Analyzing global macroeconomic policies and capital market interconnections to strengthen investment and strategic decision-making in financial markets. Providing portfolio construction solutions to enhance risk-adjusted returns. Macro trading and strategy. Risk management. Alternatives advisory services. Hedge funds and other alternative investments. Funds of Hedge Funds. Analysis for optimizing position sizes. Capital market products. Options.