Bloomberg
“Bond Traders Haven’t Been So Leery of U.S. Auctions Since the Crisis.”
Add one more thing to the list of worries for the world’s most indebted nation: weakening demand at its bond auctions. While there’s no danger of the U.S. being unable to borrow as much as it needs, over the past two years, the drop-off has been unmistakable. Based on the number of bids that investors submitted versus the amount sold, average demand for 10-year notes has fallen to the lowest since October 2009.
Now for bond traders, there’s little in the data to suggest that weak auctions lead to losses in Treasuries, but it’s an early sign some investors are backing away from funding America’s obligations as U.S. budget deficits balloon and the Federal Reserve is raising interest rates. It’s a potentially toxic mix that could erode demand even more in the months ahead.
“There’s no good playbook, unfortunately,” said Thomas Simons, a money-market economist at Jefferies. “Treasury supply is further exacerbating what should be a natural move away from the market” as interest rates climb.
The government’s financing needs have already started to grow. As a result of the Trump administration’s tax cuts, the deficit is set to widen and reach almost $1 trillion next fiscal year. The shortfall is on top of the almost $21 trillion of debt the U.S. already owes, more than any other country. (Roughly 70 percent of that total is in the form of Treasuries.)
Excluding short-term bills, the U.S. government plans to borrow $62 billion at debt auctions this week by offering Treasuries due in 3, 10 and 30 years. The total is about $6 billion more than auctions of the same maturities in January. The first batch of enlarged sales last month were “noticeably worse” by most measures, Simons said.
Economists have questioned the value of Trump’s debt-financed tax cuts this far into the post-crisis economic cycle, in part because the stimulus is a departure from prevailing theory and the norm in recent decades. Borrowing has tended to decrease when the Fed is raising rates, and vice versa.
Reuters
“Dropbox sees IPO price between $16 and $18 per share.”
Data-sharing business Dropbox Inc (DBX.O) on Monday filed for an initial public offering of 36 million shares, giving the company a value of more than $7 billion at the high end of the pricing range. A series of funding rounds had valued Dropbox at $10 billion, but investment bankers were doubtful about matching that valuation. Dropbox, which plans to raise $648 million at the top end of the range, expects its debut price to be between $16 and $18 per share, the company said in a filing.
The venture capital arm of Salesforce.com Inc has agreed to buy $1 million of Dropbox’s Class A common stock in a private placement at a price per share equal to the IPO. Dropbox along with music streaming service company Spotify are the year’s two most anticipated tech IPOs.
San Francisco-based Dropbox, which started as a free service to share and store photos, music and other large files, competes with much larger technology firms such as Alphabet Inc’s Google, Microsoft Corp and Amazon.com Inc as well as cloud-storage rival Box Inc.
In its regulatory filing with the Securities and Exchange Commission, Dropbox reported 2017 revenue of $1.11 billion, up 31 percent from $844.8 million, a year earlier. The company’s net loss narrowed to $111.7 million in 2017 from $210.2 million in 2016.
Dropbox, which has 11 million paying users across 180 countries, said that about half of its 2017 revenue came from customers outside the United States. Goldman Sachs & Co, JPMorgan, Deutsche Bank Securities, BofA Merrill Lynch are the lead underwriters for the public offer.
BBC News
“Trump-Russia: Putin criticised for Jewish election meddling comments.”
The Russian president faces a backlash after suggesting minority groups, including Jews, may be responsible for meddling in the 2016 US election. Vladimir Putin made the comments during a US TV interview with Megyn Kelly. US lawmakers and Jewish groups are among those criticising him.
Some are publicly asking US President Donald Trump to push Mr Putin for a clarification on what he meant when questioning whether certain groups were actually Russian. Mr Putin was being asked during the NBC interview about charges of alleged Russian meddling in the 2016 election after 13 nationals were charged by the US special counsel’s office last month.
«I couldn’t care less because they do not represent the government, I could not care less. They do not represent the interests of the Russian state,» Mr Putin said. «Maybe they’re not even Russians, but Ukrainians, Tatars, Jews, just with Russian citizenship. Even that needs to be checked.
«Maybe they have dual citizenship. Or maybe a green card. Maybe it was the Americans who paid them for this work. How do you know? I don’t know.» Julia Davis, a Russian media analyst, said the comments made clear that Mr Putin only considers «ethnically Russian» people nationals, which she labelled a «disturbing distinction».
Others suggested that Mr Putin was not blaming any group for the interference comments, rather just dismissively running through a list.
Bloomberg
“Hedge Funds That Use AI Just Had Their Worst Month Ever.”
Hedge funds that use artificial intelligence and machine learning in their trading process posted the worst month on record in February, according to a Eurekahedge index that’s tracked the industry from 2011. The first equity correction in two years upended their strategies as once-reliable cross-asset correlations shifted.
While computerized programs are feared for their potential to render human traders obsolete, the AI quants lagged behind their discretionary counterparts. The AI index fell 7.3 percent last month, compared to a 2.4 percent decline for the broader Hedge Fund Research index.
The slump even surpassed a more traditional category of quants, commodity trading advisers or CTAs, which posted near-record losses as the equity reversal hammered the automated trend-following strategies.
The degree to which quant funds can exacerbate selloffs has been hotly contested, with some managers arguing they are too small to spur such an impact. JPMorgan Chase & Co., however, suggests last month might be an exception, citing their torrid performance of late.
Strategies tooled for one-direction markets may have doomed managers, according to Quest Partners’ Nigol Koulajian. Practitioners likely turned complacent after optimizing models to a calm bull market, creating strategies ill-suited to market shifts, the $1.4 billion quant fund’s chief investment officer said in a recent interview with Bloomberg News.
Still, the Eurekahedge index — which tracks about 15 funds — is only a partial representation of the industry. Since artificial intelligence and machine learning are somewhat broad categories, the funds may employ vastly different techniques. Some draw from traditional statistics but can analyze more complex data sets, while others, like deep learning, parse data through multiple layers of analysis akin to the workings of the human brain, the theory goes.
Regardless, there’s tentative evidence that AI funds tracked by Eurekahedge are, for now, anchored to ride the trend of rising markets. JPMorgan notes that AI funds have become increasingly correlated to trend-following CTAs, with lock-step moves over the past 12 months rising to about 80 percent.