2023-11-06 15:36

ORLANDO, Florida, Nov 7 (Reuters) - Hedge funds ended October holding a record net short position in U.S. Treasuries futures, signaling their persistence with the so-called 'basis trade', although the steep plunge in yields since then may force a substantial reversal in the coming weeks. The latest Commodity Futures Trading Commission (CFTC) figures show that speculators, especially leveraged funds, ramped up their short Treasuries positions in the week ending Oct. 31, most notably at the short end of the curve. This fits with the 'basis trade', a leveraged arbitrage play profiting from price differences between cash bonds and futures that speculators have been doing for much of this year. Regulators have expressed concern about the financial stability risks a sharp and disorderly unwind of these bets could pose in an adverse bond market scenario. Leveraged funds - those speculators more active in the basis trade - increased their combined net short position in two-, five- and 10-year Treasuries futures by more than 300,000 contracts to nearly 5 million contracts, CFTC data show. That is significantly larger than the peak combined net short position from 2019 of just over 4 million contracts, boosted by fresh record short positions in the two- and five-year space. In October leveraged funds increased their net short position in two-year futures by 242,000 contracts to 1.6 million contracts, and by 193,000 contracts in five-year futures to 1.93 million. Both these totals are fresh records. They only grew their net short position in 10-year futures by 10,000 contracts, however. 'Non-commercial' accounts, often seen as a broader grouping of CFTC hedge funds and speculators, actually cut their 10-year net shorts for a second month. A short position is essentially a wager an asset's price will fall, and a long position is a bet it will rise. In bonds falling prices indicate higher yields, and vice versa. But funds play Treasuries futures for other reasons, like relative value trades, and this year, the basis trade. The difference between cash bond and futures prices is tiny, but funds make their money from leverage in the repo market and sheer volume of trade. That trade may be running out of steam. Its profitability has been dented recently by rising borrowing costs in the repo market, according to Javier Corominas at Oxford Economics. On top of that, the sharp rally in bonds, on growing hopes of a U.S. economic 'soft landing' and less onerous borrowing needs for the Treasury, will almost certainly be shaking out some of these short positions. Yields have slumped as much as 50 basis points, markets no longer expect any more rate hikes, and around 75 basis points of easing is priced into the 2024 rates futures curve, starting in June. Citi's U.S. rates strategy team expects Treasuries to continue rallying this week. They cite softer economic data, dovish signals from Fed Chair Jerome Powell, and a better-than-expected refunding outlook from Treasury. "This puts the brake on momentum-driven selling," they wrote on Friday. "The question we're being asked is – have yields peaked? We think so, given our valuation anchors and the extent to which momentum and sentiment has shifted over the last week." (The opinions expressed here are those of the author, a columnist for Reuters) https://www.reuters.com/markets/leveraged-funds-record-short-treasuries-bet-may-be-vulnerable-mcgeever-2023-11-06/

2023-11-06 15:19

TORONTO, Nov 6 (Reuters) - Canadian economic activity expanded at a slightly faster pace in October as a measure of prices fell to its lowest level in six months, Ivey Purchasing Managers Index (PMI) data showed on Monday. The seasonally adjusted index rose to 53.4 from 53.1 in September. It was the third straight month that the index was above the 50 threshold that marks expansion in the sector after dipping below that level in July. The Ivey PMI measures the month to month variation in economic activity as indicated by a panel of purchasing managers from across Canada. The gauge of employment fell to an adjusted 54.7 from 58.5 in September, while the prices index was at 60.0, down from 67.3. It was the lowest level for the prices index since April. The unadjusted PMI fell to 51.9 from 54.2. https://www.reuters.com/markets/canadas-ivey-pmi-shows-activity-expanding-third-month-october-2023-11-06/

2023-11-06 14:45

MUMBAI, Nov 6 (Reuters) - The Indian rupee closed stronger on Monday but underperformed its Asian peers as U.S. dollar demand from local oil companies and importers capped gains. The rupee settled at 83.2150 compared with its close at 83.2850 in the previous session. A weaker dollar and a fall in U.S. Treasury yields sparked a rally among Asian currencies, with the Malaysian ringgit, up by nearly 2%, leading gains. The rupee opened at 83.14 but shed some gains as importers looked to capture the dip on the dollar-rupee pair, traders said. Local oil companies bought dollars, while state-run banks were seen on offer, a foreign exchange trader at a private bank said. U.S. Treasury yields and the dollar retreated after data released Friday signalled the labour market in the world's largest economy was cooling, cementing hopes that the Federal Reserve is done hiking rates. The odds of a Fed rate hike at the December meeting are now at 7%, down from 20% a week earlier, according to FEDWATCH. The dollar index was last quoted lower at 104.89. The 10-year U.S. bond yield inched up to 4.59% in Asia but was well off its multi-year high of over 5% hit in October. "We are inclined to think it is still too early to see another large drop in the dollar because the US activity story simply hasn’t deteriorated enough," ING Bank stated in a note. Meanwhile, the rupee is likely to stay rangebound in the near-term, with the overall bias tilting towards depreciation, said Gaurang Somaiya, a foreign exchange researcher at Motilal Oswal Financial Services. Until recently, the rupee "was stabilising on bad news," so a bit of positive news is unlikely to cause a strong rally, he added. https://www.reuters.com/markets/currencies/india-rupee-ends-higher-oil-companies-dollar-buys-cap-gains-2023-11-06/

2023-11-06 13:25

LONDON, Nov 6 (Reuters) - The Bank of England said on Monday it had appointed one of its senior regulators, Nathanael Benjamin, to its Financial Policy Committee (FPC) after naming him executive director for financial stability strategy and risk. The FPC, which normally has 13 members, sets capital requirements for British banks, issues other guidance such as on mortgage lending and monitors for longer-term risks to financial stability. Benjamin, currently the BoE's executive director for authorisations, regulatory technology and international supervision, will move to his new role in December. Benjamin succeeds Sarah Breeden, who was promoted to deputy governor for financial stability after the end of Jon Cunliffe's term of office last month. "Nathanael has wide-ranging experience and knowledge of financial analysis and risk, as well as supervision," BoE Governor Andrew Bailey said in a statement. https://www.reuters.com/business/finance/bank-england-names-nathanael-benjamin-financial-policy-committee-2023-11-06/

2023-11-06 12:01

LONDON, Nov 6 (Reuters) - The Bank of England told lenders on Monday that they must avoid any risk that customers might confuse new forms of e-money like 'stablecoins' with standard deposits which are guaranteed against bank failures. Stablecoins are a cryptocurrency backed by a traditional currency such as sterling or the U.S. dollar, or an asset. The sector is still tiny compared to the wider financial sector, but regulators are under pressure to keep abreast of private sector developments in retail payments as central banks like the BoE consider issuing a digital version of their currency. The BoE and Financial Conduct Authority on Monday proposed a regulatory regime for systemic retail payment systems using stablecoins and related service providers such as payment companies, marking Britain's initial set of rules in a largely unregulated crypto sector. To the extent that systemic payment systems using stablecoins pose similar risks as other systemic payment systems, they should be subject to equivalent regulatory standards, the BoE said. The proposals focus on payment firms, but the BoE also set out in a letter to bank CEOs how banks should handle tokenised deposits, if they offer them. "If deposit-takers or their groups want to issue e-money or regulated stablecoins to retail customers, then this should be done from separate non-deposit-taking and insolvency-remote entities," the BoE said. Cash deposits are currently covered by insurance if a bank goes bust, but separate e-money or stablecoin accounts would not be. There are no systemic sterling stablecoins, but Tether, issuer of the world's largest stablecoin, pegged to the U.S. dollar and backed by assets including U.S. government debt, said last year it would launch a sterling stablecoin. It had no immediate comment on the UK proposals. The regulators are seeking feedback by Feb. 6. More detailed draft rules will be put out to a further public consultation in the second half of 2024, with final rules issued some time later. REDEMPTION AT PAR The proposals require sterling stablecoins to be fully backed by deposits at the BoE, have capital requirements to make up any potential shortfalls, and safeguards on how they are held by firms on a customer's behalf. Customers would have a right to swift redemptions at par, but there would be a yet-to-be-determined holding limit to avoid stablecoins being used for wholesale purposes. Arrangers of stablecoins issued overseas would have to ensure that UK consumers have the same protections as for UK issued coins. "Stablecoins have the potential to make payments faster and cheaper for all, and that’s why we want to offer firms the ability to utilise this innovation safely and securely," said Sheldon Mills, FCA executive director for consumers and competition. The European Union is already rolling out the world's first set of comprehensive rules for cryptocurrencies, including stablecoins that, like the UK proposals, are aligned with global recommendations. https://www.reuters.com/markets/europe/bank-england-warns-lenders-not-confuse-customers-over-stablecoins-2023-11-06/

2023-11-06 11:53

MOGADISHU, Nov 6 (Reuters) - Floods caused by heavy rains across parts of Somalia have displaced more than 113,000 people and "temporarily affected" hundreds of thousands, the U.N. Office for the Coordination of Humanitarian Affairs (UN OCHA) said on Monday. About 10 people have died in the aftermath of the rains, and the government has declared a statement of emergency, Somali Disaster Management Agency said on its account on social media platform X. The rain comes a year after the Horn of Africa nation suffered its worst drought in four decades, which combined with violence and a rise in food prices caused by the war in Ukraine killed as many as 43,000 people, according to the UN. The current October-December rainfall season has seen intense downpours in Puntland, Galmudug, South West, Hirshabelle states and in areas along the Juba river in Jubbaland State, OCHA said, driven by El Nino. El Nino is a natural climate phenomenon in which surface waters of the central and eastern Pacific become unusually warm and cause changes in weather patterns around the world. "Over 706,100 people have been temporarily affected, with over 113,690 people temporarily displaced from their homes across the country," the office said in its latest update. Southwest and Jubbaland states were the worst hit, with a total of about 536,608 people affected, OCHA said. Amina Mohamed Bobshe, a resident of Lower Shabelle region, said they endured five days of rain and the resulting floods forced her to flee to a camp for internally displaced people outside the capital Mogadishu. "We are suffering. The little things we had were washed away by rain. This morning, I missed a cup of tea for the children. Please help us urgently," Bobshe told Reuters. In the Luuq area of southwest Gedo region, some 2,400 people were trapped by floods, OCHA said, adding that steps were being taken to rescue them. Another 14,000 families had been cut off from the main town in Baardhere, OCHA said. Earlier this year, floods pushed a quarter of a million people from their homes after the Shabelle river in central Somalia broke its banks and submerged the town of Beledweyne. Aid agencies and scientists have warned climate change is among the key factors accelerating humanitarian emergencies, while those impacted are some of the least responsible for CO2 emissions. https://www.reuters.com/world/africa/somalia-floods-displace-more-than-113000-year-after-drought-2023-11-06/