G3 Recap 3-25-11

Main Items:

  • Portugal was cut to BBB from A- by S&P. Portuguese 2yr yields hit 7% this morning.
  • US GDP growth was revised to +3.1% in 4Q vs 3.0% expected and 2.8% previously
  • U Michigan Confidence was revised lower to 67.5 in March vs 68 expected and 68.2 previously.
  • SNB Quarterly report: Inflation outlook hasn’t changed significantly since December, but the current monetary policy can’t be maintained over the horizon
  • The UN said late on Thurs that reps from Qadaffi’s government will meet w/opposition members on Fri in Ethiopia to discuss a potential cease-fire. The aim of the talks is “to reach a cease-fire and political solution.”
  • Japan warns that one reactor at Daiichi may be breached and could be leaking radiation. "It’s very possible that there has been some kind of leak at the No. 3 reactor," Hidehiko Nishiyama, a spokesman at the Japan Nuclear and Industrial Safety Agency said in Tokyo today. – BBG No. 3 unit is the only one of the six reactors at the site that uses the mox fuel. – NYT

Overseas Data:

  • German IFO Index of the Business Climate was basically unchanged at 111.1 in March vs 110.5 expected and 111.2 previously
  • EU M3 rose 2.0% YoY in Feb vs 1.7% expected and 1.5% previously. However, M1 growth fell to 2.9% YoY, the weakest level since Nov 2008.
  • The MNI business conditions survey in China increased to 69.33 in March from 58.21 in February.


  • People who say that US corporate profits margins have to come down because they are near all time high and is mean reverting should read this NYT article and check out this graphic. It’s not going to mean revert until corporate tax policies change. And when they change, it will probably take a while to phase in.
  • The end of QE2 is likely to occur with a fair amount of market chatter about how yields are going to jump. Citi calculates that the demand shift will be massive, at 100bn per month:

    However, like other risks the market talks about and digests over a long period, the likely impact of the end of QE is unlikely to be significant for yields, just as the START of QE was not significant. (The low in yields printed the day after the Nov 3rd FOMC meeting. Also note that yields printed the year’s high in early April 2010, shortly after the end of QE1) Note that this is a view shared by the Fed, based on recent communiqués.