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By Tyler Durden

If yesterday’s 2 Year auction was at best mediocre, today’s auction of $34 billion in 5 Year paper was downright woeful. The high yield of 1.218% tailed the When Issued by a whopping 1.3bps, suggesting far less interest than the market expected. This was confirmed by a look at the fundamentals, which showed a Bid to Cover of just 2.29, far below last month’s 2.60 and below the 12month average of 2.45%. In fact, the Bid to Cover was the lowest since 2009.

That was not all: the Direct Bid collapsed from 11.6% in May to a puny 3.7%, the lowest since June 2013, and with Indirects taking down a below average 57.2%, this mean that Dealers had to take down 39.1%, the highest since August 2015.

The poor auction promptly repriced the curve, sending 10Y yields to their intraday highs.

One factor that may have contibuted to today’s especially ugly auction is that nothing was trading special in repo, which however is how it should be. A more likely explanation is that having feasted on Treasuries ahead of the Brexit vote, with risk on breaking out, there is suddenly an air pocket in demand for Treasuries.

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Source: Ugly, Tailing 5 Year Auction Sees Lowest Bid To Cover Since 2009

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By Phoenix Capital Research

Stocks exploded higher last week on hopes that the tragedy in Britain would not result in a Brexit.

The ramp job continued into Monday morning… but there it ended. Stocks erupted higher Monday morning but then gradually gave back most of their gains.

The fact of the matter is Brexit or no, the world is facing a huge amount of negative developments.

Globally over $10 trillion in bonds are trading with negative yields. This, in of itself, is the makings of a tremendous crisis. With negative yields, bondholders are forced to pay the issuer for the right to lend money.

However, the far bigger issue is the $200+ trillion in interest rate based derivatives. The big banks use sovereign bonds, such as German Bunds, as collateral to backstop the derivatives markets.

Globally over $10 trillion in bonds are trading with negative yields. This, in of itself, is the makings of a tremendous crisis. With negative yields, bondholders are forced to pay the issuer for the right to lend money.

However, the far bigger issue is the $500+ trillion in interest rate based derivatives. The big banks use sovereign bonds, such as German Bunds, as collateral to backstop the derivatives markets.

With the number of bonds with negative yields growing daily, the derivatives markets are forced to price in yields at levels never before seen by humanity.

This is a ticking time bomb waiting to go off. No less than the Bond King Bill Gross has stated that we're heading for a massive crisis. Investing legends Carl Icahn, George Soros, and Stanley Druckenmiller are all taking out MASSIVE trades to profit from a market collapse.

Say what you will about any of these individuals, ALL of them are masters of the financial markets. And ALL of them are preparing for a CRASH.

On that note, we are already preparing our clients for this with a 21-page investment report titled the Stock Market Crash Survival Guide.

In it, we outline the coming crash will unfold…which investments will perform best… and how to take out “crash” insurance trades that will pay out huge returns during a market collapse.

We are giving away just 1,000 copies of this report for FREE to the public.

To pick up yours, swing by:

https://www.phoenixcapitalmarketing.com/stockmarketcrash.html

Best Regards

Graham Summers

Chief Market Strategist

Phoenix Capital Research

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Source: The Investing Legends Are Preparing For a Crash

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Hyperloop One signed an agreement with Moscow to explore adding “high capacity passenger systems” to the city’s transit. …read more

Source: Hyperloop One wants to expand to Moscow

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By Tyler Durden

In what we are sure will be aggressively spun by the mainstream media, The Fed's full monetary policy report dropped a notable tapebomb this morning…

• *FED: STOCKS' FORWARD P/E RATIOS WELL ABOVE THREE-DECADE MEDIAN
• *FED: STOCKS VULNERABLE TO A TERM PREMIUM RETURN TO NORMAL

Remember, “don't fight The Fed” unless of course she says “sell.”

As The Fed explains:

Valuation pressures have generally stayed at a moderate level since January, though they rose for a few asset classes. Forward price-to-earnings ratios for equities have increased to a level well above their median of the past three decades.

Although equity valuations do not appear to be rich relative to Treasury yields, equity prices are vulnerable to rises in term premiums to more normal levels, especially if a reversion was not motivated by positive news about economic growth.

It appears The Fed has been reading:

Finally, the chart below shows the median price/revenue ratio of S&P 500 component stocks, which recently pushed to the highest level in history, exceeding both the 2000 and 2007 market peaks. In recent quarters, the broad market has deteriorated, even in the most reasonably valued decile of stocks, but the most richly valued decile has held up for a last hurrah, as it did near the peaks of previous bubbles. This dispersion has created a headwind for hedged-equity strategies in U.S. stocks, particularly value-conscious strategies, but investors should understand that beneath the surface of this short-term outcome is singularly the most extreme point of overvaluation for the median stock in history.

* * *

Full monetary policy report:

20160621_mprfullreport

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Source: Fed Warns Stocks Are "Vulnerable", Forward Valuations "Well Above" Norms

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By Tyler Durden

Brazil has had a rough past few months to put it mildly. Ex-president Dilma Rousseff has been suspended and now faces an impeachment trial, interim president Michel Temer is embroiled in corruption allegations already, the economy is crumbling, and Rio has declared a state of “Public Calamity” putting the Olympic games in question. Now, to add insult to injury, we learn that Brazil’s fourth largest telephone company Oi SA filed the largest bankruptcy in the country’s history on Monday, Brazil is in need of a mercy rule, even as investors who have been scrambling to buy Brazilian assets in 2016 realize just how bad things really are.

After talks with creditors to restructure its debt collapsed, Oi and six subsidiaries filed for bankruptcy listing $19.26 billion in debt. In its filing, the company said it chose reorganization in order to preserve the value of its holdings and to continue to serve its customers according to the WSJ.

Oi has low penetration in the mobile phone and broadband markets, and Since 2009 the company had accumulated large amounts of debt in order to complete two mergers, first with Brasil Telecom and later with Portuguese company Portugal Telecom. As the WSJ notes, those deals failed to generate enough cash flow to fund the company’s investment needs.

CEO Bayard Gontijo resigned on June 10, and although no reason was given for Gontijo’s departure, shareholders had been putting significant pressure on the CEO to resist a proposal by creditors to convert debt into equity – a plan which according to the WSJ would have given a 95% stake of the restructured business to existing bondholders, thus significantly diluting shareholders.

As of March 31, Oi had reported gross debt in the amount of $14.72 billion, much of which was held by international bondholders. The bonds, as shown below, have been plunging over the past few months, anticipating precisely this outcome:

Debt negotiations involved Oi’s executives and main shareholder, Bratel BV which controls 22.24% of the company. Representing the creditors was investment bank Moelis & Co who is advising creditors holding roughly 40% of the outstanding bonds. Those creditors being represented by Moelis include Pacific Investment Management Co, Citadel LLC and Wellington Management Co.

Other notable shareholders include the Ontario Teacher’s Pension Plan, with a 4.77% stake; the equity arm of Brazil’s development bank, with 4.63%; and BlackRock, with .96%. Additional notable creditors include commercial banks such as Banco Itau SA Banco Santander SA, Banco do Brasil SA and Caixa Economica Federal. 5% is held by development banks such as the Brazilian Development bank and Banco do Nordeste do Brasil SA.

Just last week, Fitch downgraded Oi by two notches to C from CCC, citing an unsustainable capital structure.

As Bloomberg notes, the impact of Oi SA’s bankruptcy filing will go beyond Brazil, with the company’s euro-denominated bonds comprising 1.8% of Bank of America Merrill Lynch’s euro high-yield index by face value, the 11th-biggest issuer in the index.

<img src="http://www.zerohedge.com/sites/default/files/images/user5/imageroot/2016/06/04/20160621_oi2_0.jpg" width="500" height="313" …read more

Source: Brazilian Telecom Giant Files Largest Bankruptcy In Nation’s History

    

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