December 17, 2009

(BN) Top Stories: Bonds


Top Stories: Bonds
2009-12-17 09:23:46.340 GMT

Dec. 17 (Bloomberg) -- The following are the day's top stories on

Treasuries Rise as Greece Rating Cut, Stock Losses Spur Demand for
Treasuries rose, pushing the yield spread between two- and 10-year
notes to the widest in more than three decades, after Standard & Poor's
cut Greece's debt rating and the Federal Reserve signaled interest
rates will stay low. Yields fell from near a four-month high after S&P
said it would take further action unless Prime Minister George
Papandreou tackles the European Union's largest budget deficit,
spurring demand for the relative safety of U.S. debt. Federal Reserve
policy makers yesterday reiterated a pledge to keep interest rates
``exceptionally low'' for an ``extended period.'' ``The short-end of
the Treasury market is a place to be,'' said David Schnautz, an
interest-rate strategist in Frankfurt at Commerzbank AG. ``The Fed
pledged to keep rates low, and people are looking for the safest place
to park their money as liquidity is drying up into the year end.
There's still a lot of risk out there, and Greece is a good example for
Ten-year yields fell 3 basis points to 3.56 percent as of 8:15 a.m. in
London, according to data compiled by Bloomberg. The
3.375 percent security due November 2019 rose 7/32, or $2.19 per
$1,000 face amount, to 98 14/32. The yield climbed as high as 3.62
percent on Dec. 15, the most since Aug. 13, from the record low of 2.04
percent on Dec. 18, 2008.

California's Bonds Fail on Wall Street Advice Bill Lockyer Couldn't
For California Treasurer Bill Lockyer, the offer from Goldman
Sachs Group Inc., JPMorgan Chase & Co. and Citigroup Inc. was too good
to refuse. If California was willing to forgo competitive bidding for a
$4.5 billion bond offering, the banks promised more orders from
individuals and a lower bill to the taxpayers. The firms insisted that
by negotiating with them, the state would benefit from its special
relationship with the Wall Street troika and wind up with what two
underwriters called a salutary ``buzz'' to boost demand for the debt.
When the October offering failed to sell as planned, California was
forced to accept 8 percent less money than it needed and to pay as much
as $123 million more in interest than the banks said was sufficient for
the market. And the threesome made $12.4 million on the deal,
contributing to record bonuses in the securities industry a year after
getting a total of $80 billion in a federal bailout. ``Just because
someone earns a big wad of money doesn't mean that they can do what
they say they can do,'' said Marilyn Cohen, who watched the sale unfold
from Los Angeles as president of Envision Capital Management, which
oversees $250 million in bonds for individuals. ``And shame on the
state if they were drinking that Kool-Aid.''

Fed Signals Markets Return to Health While Extending Low Rates for
Federal Reserve officials declared financial markets healthy
enough to remove most emergency aid without going as far on their
support for the U.S. economy. The Fed, after concluding a two-day
meeting yesterday, said most of its lending programs would expire as
scheduled Feb. 1 because of ``improvements in the functioning of
financial markets.''
Policy makers said the labor market is stabilizing yet kept a pledge
to keep interest rates ``exceptionally low'' for an ``extended
period.'' The statement reinforced economists'
forecasts that the Fed will wait from six months to a year before
raising borrowing costs. By confirming plans to end its aid to bond
dealers, short-term debt markets and money-market mutual funds, the Fed
signaled it sees a waning in the ``unusual and exigent'' conditions
that prompted creation of the programs in 2008. ``The nastiness of the
storm has dissipated,'' said Paul Ballew, a former Fed economist who's
now a senior vice president at Nationwide Mutual Insurance Co.
in Columbus, Ohio. ``Concern about the financial market has passed,
but they're looking at weak labor markets and sluggishness in the real

LCH.Clearnet Begins Backing Interest-Rate Swaps for Banks, Their
LCH.Clearnet Ltd., Europe's largest clearinghouse, began
guaranteeing trades today between banks and their clients in the $342
trillion interest-rate swaps market. The London-based clearinghouse's
SwapClear Client Clearing Service is the first to back trades between
banks and hedge funds, asset managers and pension funds. SwapClear has
been guaranteeing interest-rate swaps between banks since 1999 and
accounts for more than half that market. About $146 trillion in
notional interest swaps between banks and clients that isn't cleared
could be processed by its new service, LCH.Clearnet said in an emailed
statement. Regulators in the U.S. and Europe are pushing the financial
industry to improve the over-the-counter derivatives market structure
after last year's bankruptcy of Lehman Brothers Holdings Inc., one of
the largest OTC dealers, froze trading and cost investors hundreds of
millions of dollars. Clearing interest swaps may generate $190 million
in annual revenue by 2013, according to Morgan Stanley. ``It's a very
significant market event to get clearing extended out to a wider
audience,'' Chris Willcox, global head of rates trading at JPMorgan
Chase & Co. in London, said in a telephone interview. ``At the core of
the offering is the robust and tested default management process, which
has been through the flames and proven itself to be successful,''
Willcox said.

Peru Poised to Win More Debt Upgrades, Credit Suisse, Societe Generale
Peru is poised to receive more credit-rating increases after
Moody's Investors Service moved it to investment grade because the
country is posting above- average growth while keeping its budget
deficit under control, said Credit Suisse Group AG and Societe Generale
SA. Moody's raised Peru's foreign debt rating one level to Baa3, the
lowest investment-grade level, from Ba1 late yesterday, more than a
year after Standard & Poor's and Fitch Ratings made identical moves.
Moody's said Peru was able to prevent the global recession from sending
the local economy into a ``hard landing'' by bolstering government
spending. ``It sets up a trajectory for more upgrades,'' Igor Arsenin,
an emerging-market strategist at Credit Suisse in New York, said in a
telephone interview. ``The fundamentals look clean when compared with
other investment-grade countries. It reminds everybody of the positive
momentum in Peru.'' The Andean nation's credit-default swaps trade
almost on a par with Israel and Poland, countries that are rated at
least four levels higher by Moody's. It costs 1.21 percentage points to
protect Peru's debt against default for five years, compared with 1.20
points for Israel and Poland, according to CMA Datavision. Peru's cost
was 1.92 points six months ago.

Auction-Rate Investors Get Rematch After First Five Fraud Suits
Auction-rate securities investors who sued banks including
Citigroup Inc. and UBS AG to recoup billions of dollars in losses went
0 for 5 as their first cases were thrown out. Now some are gearing up
for a rematch over part of the $149 billion in securities that remain
outstanding. In three of the class actions, judges allowed the
investors to refile their complaints after finding the initial suits
failed to prove they lost money or satisfy a 1995 federal
securities-fraud law designed to discourage frivolous stock-loss suits.
Citigroup, UBS and Raymond James Financial Inc. have again asked that
the cases be tossed out. ``The private litigation has run into a brick
wall,'' said James Cox, a law professor at Duke University in Durham,
North Carolina. The legal bar for bringing such lawsuits has been too
high for auction-rate investors to surmount, he said. Those investors
may need a change in federal law if the 1995 act proves too big an
obstacle for genuine claims, said Elizabeth Warren, who chairs the
congressional oversight panel monitoring the Troubled Asset Relief
Program. She suggested the idea for a Consumer Financial Protection

U.S. Treasury Delays Sale of Citigroup Stake as Shares Priced at
Citigroup Inc., the last of the four largest U.S. banks to seek
funds to exit a taxpayer bailout, raised $17 billion by selling stock
for a price so low that the U.S. delayed plans to shrink its one-third
stake in the lender. Citigroup sold 5.4 billion shares at $3.15 apiece,
less than the $3.25 the government paid when it acquired its stake in
September. The New York-based bank said the Treasury won't sell any of
its shares for at least 90 days. Investors demanded a bigger discount
from Citigroup than Bank of America Corp. or Wells Fargo & Co., which
together raised more than $31 billion this month to exit the Troubled
Asset Relief Program. Wells Fargo, which trumped Citigroup's bid to buy
Wachovia Corp. last year, leapfrogged its rival by completing a $12.25
billion share sale Dec. 15. JPMorgan Chase & Co. repaid $25 billion in
June. ``The market cast its vote and they're low down on the ballot,''
said Douglas Ciocca, a managing director at Renaissance Financial
Corp. in Leawood, Kansas. ``Citigroup needs to show steps to reinstall
the quality of the brand.''

Greek Government Bonds Decline After S&P Signals It May Add to Rating
Greek bonds fell after Standard & Poor's cut the country's credit
rating and threatened to take further action unless Prime Minister
George Papandreou tackles the European Union's largest budget deficit.
The euro also slid against the dollar and the yen after S&P said in a
statement yesterday it lowered the rating by one level to BBB+ from A-.
Fitch Ratings cut Greece's debt to the same level on Dec. 8. The yield
on the benchmark 10-year Greek government bond has increased 52 basis
points this month to 5.51 percent, the highest among the 16 euro-region
countries. Papandreou pledged on Dec. 14 to implement ``radical''
measures to fix the budget. ``The market is telling you that there's
concern at the implementation of the plans,'' said Steven Major, global
head of fixed-income research at HSBC Holdings Plc in London. ``There's
a lot of positive talk from Greek officials going round, but the market
needs to see some action.'' The yield on Greece's 10-year bond rose 7
basis points to 5.8 percent as of 7:47 a.m. in London.
The 6 percent security maturing in July 2019 dropped 0.5, or 5 euros
per 1,000-euro ($1,441) face amount, to 102.99. The euro weakened 0.9
percent versus both the dollar and the yen.

Germany Plans to Issue Record Amount of Debt Next Year as Deficit Swells
Germany will sell a record amount of debt next year as rising
unemployment costs and weak tax revenue swell the budget deficit. Sales
of government securities will rise to 343 billion euros ($494 billion)
from 329 billion euros this year and 213 billion euros in 2008, the
Federal Finance Agency said today in a statement. The planned issuance
includes 207 billion euros of bonds and 136 billion euros of
money-market instruments, or securities that mature within 12 months.
Chancellor Angela Merkel's draft budget shows net federal borrowing
surging to 86 billion euros in 2010, from 37 billion euros this year.
Finance Minister Wolfgang Schaeuble has said the public-sector deficit
at federal, state and municipal levels will increase to 6 percent of
gross domestic product next year, the biggest since the inception of
the euro in 1999.
The Federal Finance Agency, which holds bond sales on the government's
behalf, said it may sell 3-4 billion euros of index-linked bonds each
quarter. It will also sell 30-year bonds, first issued in 2008, four
times next year.

Corporate Bond Risk Increases in Europe, Credit-Default Swap Prices Show
The cost of insuring European corporate bonds against default
rose, according to traders of credit-default swaps.
Contracts on the Markit iTraxx Crossover Index of 50 companies with
mostly high-yield credit ratings climbed 7 basis points to 478,
according to JPMorgan Chase & Co. prices at 7:32 a.m. in London. The
index is a benchmark for the cost of protecting bonds against default
and an increase signals deterioration in perceptions of credit quality.
The Markit iTraxx Europe Index of 125 companies with investment-grade
ratings rose 1 basis point to 80.5, JPMorgan prices show. A basis point
on a credit-default swap contract protecting 10 million euros ($14.4
million) of debt from default for five years is equivalent to 1,000
euros a year.

NAB to Buy Axa Asia's Australia, N.Z. Units for $4.2 Billion, Trumping
National Australia Bank Ltd. bid A$13.3 billion ($12
billion) for Axa Asia Pacific Holdings Ltd., scuttling AMP Ltd.'s
joint offer with French insurer Axa SA and winning approval from the
wealth manager's independent directors. The bank offered A$6.43 a share
for Axa Asia Pacific, beating the
A$6.22 bid by AMP and Axa SA, which owns 54 percent of Axa Asia
Pacific. The deal is conditional on Axa SA's agreement to buy Axa Asia
Pacific's units in eight Asian countries, according to a statement
today. The deal leaves AMP, Australia's second-largest asset manager,
empty-handed after what it called its ``best and final'' bid was
rejected today. National Australia Bank is paying A$4.6 billion for Axa
Asia Pacific operations in Australia and New Zealand, adding to assets
acquired in its purchase of Aviva Plc's local units in June.
``It will be a lot of work over the next three years digesting this,''
said Prasad Patkar, who helps manage $1.6 billion at Platypus Asset
Management in Sydney. The bank may underperform its rivals as it
integrates the units, he said.

Japan's Bonds Gain a Third Day on Speculation Interest Rates Will Stay
Japan's bonds rose for a third day, the longest winning streak in
a month, after the Federal Reserve's pledge to keep interest rates low
backed speculation the Bank of Japan will hold borrowing costs near
zero next year. Ten-year yields fell to the lowest level in a week as
economists forecast Japan's central bank will leave its benchmark rate
at 0.1 percent at the end of a two-day policy meeting tomorrow. The
Ministry of Finance sold 2.6 trillion yen ($29 billion) in two-year
government notes today. ``The gloomy picture of future deflation will
mean the BOJ will have to stick to lower rates, so bonds are a safe
place to be,'' said Takashi Nishimura, an analyst in Tokyo at
Mitsubishi UFJ Securities Co., a unit of Japan's largest bank by
assets. The yield on the 1.3 percent bond due December 2019 fell one
basis point, or 0.01 percentage point, to 1.245 percent as of 4:23 p.m.
in Tokyo at Japan Bond Trading Co., the nation's largest interdealer
debt broker. The price rose 0.089 yen to 100.488. Yields earlier
declined to
1.24 percent, the lowest since Dec. 10.

Philippine Bonds Rise as Central Bank May Signal Rates to Stay Low Today
Philippine seven-year bonds gained on speculation the central bank
will today signal borrowing costs will remain at a record low to spur
growth. The peso declined. Bangko Sentral ng Pilipinas will hold the
rate it pays lenders for overnight deposits unchanged at 4 percent for
a fourth straight meeting when it announces the decision at 4 p.m.
local time, according to all 16 economists surveyed by Bloomberg News.
Gross domestic product increased 0.8 percent in the third and second
quarters, near the least in a decade. ``Bond yields will benefit if
Bangko Sentral keeps interest rates low for a period of time,''
said Angeline Sia, a fixed- income trader in Manila at BPI Asset
Management, which oversees 440 billion pesos ($9.5 billion). ``Growth
is still quite weak and the government's spending is constrained
because of the widening budget deficit.
The central bank may have to bear the burden of boosting economic
growth.'' The yield on the 7 percent note due January
2016 dropped five basis points to 7 percent as of 9:42 a.m. in Manila,
according to quotes from Tradition Financial Services.
A basis point is 0.01 percentage point.

Philippine Dollar Bond Demand to Rise on Fed's Rate Policy, Tetangco
The Philippines may see a rise in investor demand for its dollar
bonds after the Federal Reserve reiterated U.S. interest rates will
stay low for ``an extended period,'' central bank Governor Amando
Tetangco said today. The Fed's comments should cap U.S. Treasury yields
and ``see some increase in risk appetite toward emerging-market dollar
bonds,'' including the Philippines, Tetangco said in a mobile phone
message. The Philippines last week sought clearance from the U.S.
Securities and Exchange Commission to sell $3 billion of overseas debt.
Officials said previously the nation was looking at selling
euro- and yen-denominated securities in 2010 and to continue tapping
the dollar bond market. The Philippines raised $3.25 billion from three
U.S. currency note offerings this year.
Developing economies including the Philippines ``will take advantage
of opportunities the current low interest-rate environment presents,''
Tetangco said. ``There is appetite for emerging-market debt as was seen
in the way recent bond issuances were received,'' he said.

For the complete stories summarized here, and for more of the day's
top news, see TOP <Go>.

-0- Dec/17/2009 9:23 GMT


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