Market 02/27: Bond demand continues to decline

Auction of USD 42 billion 7Y bonds: continues to show slightly reduced demand

Auction of USD 42 billion 7Y Treasury bonds continues to show slightly reduced demand for intermediate-term bonds (though not as bad as yesterday's 5Y bond session):

Ratio of bidders at High Yield and dealer bidder ratio both increased higher than in January.

High Yield: 4.327% (< market yield: 4.329% | > January session: 4.109%)
- High Yield award ratio: 59.81% (much higher than January: 44.45%)
Bid-to-Cover ratio: 2.58 (>January session: 2.57)

Of which:

Foreign bidders awarded: 69.57% (>January: 69.06%)
Dealer bidders: 14.83% (>January: 13.94%)

Statements by Fed officials: Barr, Schmid

Fed Barr:

Statement on the importance of counterparty credit risk (with stress test).

No comments on monetary policy.

Fed Kansas President Schmid

Fed should wait for signs of sustainably declining inflation + 'no rush' to stop QT
- QT is Fed's top priority now that the crisis is over.

Market news: Bitcoin hits 57,000 USD + Alarming commercial real estate crisis

Bitcoin surpasses 57,000 USD for the first time since November 2021

Bitcoin price has increased +700 billion USD in ~2 years, +30% in the first 2 months of the year.

Total market cap reaches 2.25 trillion USD.

Some main reasons:

Favorable regulatory environment after Spot Bitcoin ETF approval.
Technological improvements: Taproot upgrade for Bitcoin network.
Increased demand from institutions:
- MicroStrategy just bought +3,000 Bitcoin (~155 million USD) yesterday, raising total holdings value to ~10.3 billion USD.

Upcoming halving event.

Update on commercial real estate crisis

A Canadian pension fund just sold 29% stake a 6-story office building in New York (360 Park Avenue South) for 1 USD.
- Previously, the fund invested 71 million USD in this building. Currently, the building has a mortgage debt of 220 million USD.

Estimated >929 billion USD in commercial real estate loans will mature this year.

Home prices rise again as demand increases

S&P CoreLogic Home Price Index: 20 major cities highest +6.13% YoY (> estimate 6.05%) | Nationwide +5.53% YoY (> previous 5.03%).

Home prices rising again mainly due to:

Mortgage rates cooling early in the year + Inventory shortage.

→ Home prices expected to fall again in the short term after mortgage rates rise again.

Durable goods orders (durable goods) drop the most in nearly 4 years: -6.1% MoM

Non-defense orders: +0.1% MoM (> Dec adjusted: -0.6% MoM).

Orders excluding transportation equipment down -0.3% MoM (< expected +0.2%).
In particular: Durable goods orders down -6.1% MoM (> expected -4.5%), lowest in nearly 4 years due to Boeing orders down.

Boeing aircraft incidents caused non-military aircraft orders to drop -58.5% MoM (lowest level since 2019).
Meanwhile, military spending up +24.2% MoM.

Fed Richmond Manufacturing Index and Fed Dallas Services Outlook improve from previous month

Fed Richmond composite manufacturing index (blue) rises to -5 (> estimate -9).

Employment (orange) rises to +7.

Fed Dallas February Services sector outlook also improves to -3.9 (> previous -9.3). This index has continuously maintained a negative level since 2022.

Conference Board: Consumer confidence falls for the first time in 4 months

February consumer confidence index drops to 106.7 (< estimate 115).

1-year inflation: 5.2% (same as previous).

→ 1-year inflation expectations ease slightly but still higher than pre-Covid.

Labor survey: confidence that the market has plenty of jobs has weakened; while confidence that jobs are hard to find has increased.

Earnings reports: Zoom, iRobot, Macy’s

Zoom ER: Earnings report beats expectations

Trailing 12-month sales (Enterprise DBNE) reached 101% (-4% QoQ).
Number of enterprise customers: +3% YoY, up to 220,000 customers.
Revenue: +3% YoY, reached 1.147 million USD (> expected 20 million USD).
Non-GAAP EPS: 1.42 USD (> expected 0.27 USD).

FY25 sales forecast: ~4.630 million USD (+2% YoY).

iRobot ER: Stock cools off after net loss report

Revenue: 307.5 million USD (< previous year 357.9 million USD).
- Q4 net loss: 63.6 million USD.
Net loss per share: -1.82 USD (> estimate -1.97 USD).

Macy’s ER: Sales continue to decline

EPS: 2.45 USD (> expected 1.96 USD).
Revenue: 8.12 billion USD (< expected 8.15 billion USD).
- Sales fell nearly 2% in the holiday quarter.

FY2024 outlook:

Net sales: ~22.2 - 22.9 billion USD (down from 23.09 billion USD in 2023).

Macy’s announces closure of 5 stores and layoffs of > 2,300 employees in January.

Recently also plans to close another 150 stores… only expanding well-performing store chains.

Other news:

5 Chinese coast guard ships enter Taiwan's waters: tensions escalate after 2 Chinese citizens killed while trying to flee Taiwan's coast guard forces.
Sony cuts 8% of PlayStation workforce (~900 employees) after cutting PlayStation 5 sales forecast due to low demand.
Chevron's $53 billion merger with Hess threatened as Exxon claims it may exercise right of first refusal to buy Hess's 30% stake in Guyana oil block.