Deal or no Deal, Debt Drama is Not Going Away – El Erian
(Reuters) – Are you tired of all the stories on Europe’s financial crisis and American politicians’ endless bickering about debt and deficits? Are you tired of weekends of hectic negotiations as policymakers rush to cobble together some agreement before markets open? If you are, you are not the only one.
Millions of people, including stressed-out policymakers on both sides of the Atlantic, wish to put these issues behind them. Unfortunately, despite many announcements, they are unable to do so decisively, and for good reason.
So we better understand why, if we want to minimize the risk of collateral damage and unintended consequences.
To do so, you need only remember one rather clumsy phrase: “safe de-levering” (also known to some as “safe de-leveraging”), or the lack thereof. Consider please each word, starting with the second one.
De-levering refers to the rehabilitation of balance sheets that have gotten over-indebted to such an extent that they are unsustainable going forward. The contributing causes are usually numerous and many years in the making.
Markets Little-Changed Since Post-ISM Rally
Charts of MBS, Treasuries, and Stocks all have taken on that familiar “wait and see” aspect that we tend to see leading up to an expected market mover. Things are a bit different in this case considering the market mover in question is not merely a singular event or information release, and neither is it much of an objective affair. Headlines surrounding the debt debate vote are currently popping like fireworks. When the first lit up the sky, there were oooh’s and ahhh’s, but this is like the middle of the show where nothing too dramatic is happening. At some point though, the pace and/or intensity will pick up, and eager audiences will begin to wonder if the grand finale is coming. As you may know, that’s not always an easy thing to judge until AFTER it’s already happened. But until then, things seem almost a bit too calm with Fannie 4.0’s holding onto roughly a 4/32nds range between 101-27 and 101-31, currently up 12 ticks on the day at 101-29. 10yr yields look to have met resistance at 2.72 and SP’s perhaps support at 1275.
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