Top Stories: Bonds
2010-03-11 08:29:46.274 GMT
March 11 (Bloomberg) -- The following are the day's top stories on bonds:
Treasury Two- to 30-Year Spread Near Record High Before Long Bond Auction
Treasury 30-year yields were near the highest on record compared with two-year rates as the U.S. prepared to sell $13 billion of long bonds amid signs the global recovery is gaining momentum. Investors are seeking higher interest rates on long-term loans to the government as President Barack Obama borrows record amounts to sustain the U.S. economic revival.
Yields show investors added to bets on inflation for a seventh session yesterday, the longest run in a year. ``We're facing an unprecedented level of government borrowing,'' said Satoshi Okumoto, a general manager in Tokyo at Fukoku Mutual Life Insurance Co., which has the equivalent of $60.8 billion in assets. ``Investors are demanding a premium for that. Yields are going to rise a bit more.'' The 30-year bond yielded 4.69 percent as of 7:34 a.m. in London, according to data compiled by Bloomberg. The 4.625 percent security due February 2040 declined 2/32, or 63 cents per $1,000 face amount to 98 27/32.
The rate was 3.78 percentage points more than two-year yields, after increasing to 3.85 percentage points on Feb. 17, the steepest slope to the so- called yield curve since Bloomberg data tracking the figures started in 1980.
El-Erian Says World Economy Faces Threat of Deepening Sovereign Debt Shock
Mohamed A. El-Erian, whose company runs the world's biggest mutual fund, said deteriorating public finances may affect the global economy more than is currently realized. ``The importance of the shock to public finances in advanced economies is not yet sufficiently appreciated and understood,''
El-Erian, co-chief investment officer at Pacific Investment Management Co., wrote in an article on the Financial Times Web site. The potential damage from increased government borrowings is ``at present being viewed primarily -- and excessively -- through the narrow prism of Greece.'' Governments may have to raise taxes and slash spending to cope with swelling deficits after borrowing unprecedented amounts to stave off the global financial crisis, said El-Erian, 51, who shares his job title with Bill Gross. A failure to carry out fiscal measures in time would raise the possibility of governments seeking to eliminate excessive debt through inflation or default, he said. Pimco has said debt strains in Greece, Portugal and Spain underscore its view that 2010 will be a year of slower-than- average growth, and predicts there will be a shrinking global role for the U.S.
Company Bond Spreads at the Narrowest This Year Lure GMAC: Credit Markets
Corporate bond yields fell to the lowest this year relative to benchmark government securities, luring GMAC Inc. to sell its longest-maturity notes since 2004. GMAC, the Detroit-based auto and home lender bailed out by the U.S. after credit markets froze in 2007, sold $1.5 billion of 10-year, 8 percent notes, according to data compiled by Bloomberg. Its second offering in a month was priced to yield 4.532 percentage points more than similar-maturity Treasuries. The extra yield investors demand to own corporate bonds rather than government debt fell yesterday to 159 basis points, or 1.59 percentage point, the lowest this year, from as much as 174 basis points Jan. 4, the Bank of America Merrill Lynch Global Broad Market Corporate Index shows. Yields averaged 4.035 percent. The GMAC sale shows growing optimism that Greece's budget crisis will be contained and won't spread to corporate borrowers. ``The stars are aligning for a company like GMAC, which has a bit of a storied history, to do a big, longer-termed deal,'' said Sabur Moini, who helps manage $1.3 billion at Payden & Rygel Investment Management in Los Angeles. ``The market is looking past the volatility we saw in early to mid-February now that it looks like Greece is not going to default.''
Trade Deficit in U.S. Probably Widened for Third Month as Imports Climbed
The U.S. trade deficit probably widened in January for a third month as imports grew faster than exports, pointing to a rebound in global economic growth, economists said before a report today. The gap increased to $41 billion from $40.2 billion the prior month, according to the median forecast of 73 economists surveyed by Bloomberg News. Another report may show initial claims for jobless benefits fell for a second week.
Imports may keep growing as the world's largest economy improves and companies replenish depleted inventories. Emerging countries are leading a worldwide recovery that, together with a weaker dollar, is helping lift sales at companies including Cisco Systems Inc., which may prevent the deficit from deteriorating much more in coming months. ``Global trade is definitely coming back,'' said David Semmens, an economist at Standard Chartered Bank in New York. ``The U.S. will benefit from rising exports. We can expect overseas economies to improve faster than domestic growth.''
Emerging-Market Reserves Buildup Risks Return of `Imbalance': Chart of Day
Developing nations' foreign reserves are approaching levels reached two years ago, risking a return of the ``imbalances''
that helped spark the global financial crisis, Goldman Sachs Group Inc. said. The Chart of the Day shows the five largest foreign reserves holders in emerging markets excluding China boosted their stockpile by 17 percent in the past year to $1.3 trillion, while the U.S. trade deficit swelled to its widest level in a year in December. The lower panel shows China, the world's largest reserves holder, increased its stock to a record $2.4 trillion in 2009. The trend signals a return to the last global economic expansion when U.S. consumers relied on borrowing from abroad to finance their purchases, contributing to an export boom from Asia. As China and other Asian nations accumulated dollars from trade surpluses, they bought U.S.
Treasury debt and depressed global yields. Lower borrowing costs helped fuel the U.S. housing and credit booms that turned to bust in 2007. ``There's a risk the world could lapse back into a regime in which emerging markets return to export-led growth coupled with an accumulation of reserves,'' Goldman Sachs economists led by London-based Jim O'Neill wrote in a research note yesterday. ``To the extent that global imbalances are making a comeback, they need to be taken seriously. The bottom line is that the accumulation of reserves may have helped create the problem that they ultimately helped to solve.''
Senate Negotiations Said to Advance on Consumer Division Powers, Oversight
Senate negotiators closed in on a deal for strengthening consumer financial protections, giving bank regulators a role in rule-making and enforcement, two Democratic Senate aides briefed on the talks said. The talks have advanced on key sticking points, including how much control prudential regulators -- those responsible for insuring banks are financially sound -- would have over a new consumer division at the Federal Reserve, said the aides, who declined to be identified because the talks are private. ``There will be a mechanism whereby the prudential side has the ability to weigh in to ensure we don't do anything to destabilize the safety and soundness of our financial institutions,'' Senator Bob Corker, a Tennessee Republican working on the legislation, told reporters yesterday after a panel discussion at a Washington conference. Corker and Senate Banking Committee Chairman Christopher Dodd, in meetings over the past week, resolved some differences over the unit's autonomy, although no final decisions have been made. Corker said yesterday the legislation will be introduced ``very soon'' and that the goal is to get the measure through the banking committee by March 29, when the Easter recess begins.
Ex-Bank of America Executives Win Dismissal of Some SEC Claims on Appeal
Two former Bank of America Corp. executives won dismissal of claims by securities regulators that they could be held liable for allegedly false statements made to clients of the bank's Columbia Management Group unit. The U.S. Court of Appeals in Boston yesterday upheld a lower court's ruling throwing out the claims against James Tambone, former co-president of fund distribution at the bank's Columbia unit, and Robert Hussey, a former sales executive. The U.S.
Securities and Exchange Commission sued the men in 2006, claiming they gave clients literature saying Columbia's mutual funds avoided rapid mutual-fund trades, a practice known as market timing. The SEC said Tambone and Hussey knew the funds engaged in the practice, which can hurt long-term shareholders.
The panel rejected the SEC's argument that the two were liable even if the false statements were created by others because, by directing the fund sales, they implied the prospectus documents were truthful.
Naked Credit-Default Swaps Crackdown in Europe Rings Hollow Without U.S.
European politicians and regulators could initiate a continent-wide ban on speculative trading of sovereign credit-default swaps tomorrow. Making it stick without the Americans won't work. New York and London dominate swaps trading, and both have resisted greater regulation. Last year, U.S. regulators and Congress rejected a proposed ban on buying credit-default swaps without owning the underlying debt. Adair Turner, chairman of the U.K. Financial Services Authority, said yesterday that these so-called naked swaps weren't the ``key driver'' of the Greek debt crisis and it would be wrong to rush to ban them. ``You need to get the U.S. on board, otherwise the effect will be minimal because trading will simply move elsewhere,'' said Jan Hagen, head of the financial services group at the European School of Management and Technology in Berlin. ``A ban would allow European politicians to tell voters at least they're doing something.'' The European Union's top regulatory official, European Commission President Jose Barroso, said March 9 that the 27- nation bloc will consider banning ``purely speculative naked'' credit-default swaps after German Chancellor Angela Merkel and French President Nicolas Sarkozy called for a crackdown on derivatives trading to prevent a rerun of the Greek crisis.
Union Investment Favors Lebanon, South Africa Bonds on Local Bank Support
Union Investment Privatfonds, Germany's third-largest money manager, favors bonds sold by developing nations with active local investors in foreign debt on concern the global new-issues market will be ``overcrowded.'' The company with $250 billion in assets will consider purchasing notes due to be offered by Israel, Egypt and Mongolia in the coming weeks or months, said Sergey Dergachev. The Frankfurt-based investor, who helps oversee $6 billion of emerging-market debt, bought securities sold by Lebanon and South Africa this month, he said in an interview late yesterday. ``The pipeline risks being overcrowded,'' Dergachev said. ``Sovereigns with solid macroeconomic metrics, solid support from the local investor base and which aren't frequently traded, limit the sell-off risk,'' he said. Developing nations have raised $24.5 billion from overseas debt sales this year as of yesterday, according to data compiled by Bloomberg. That's the busiest start to a year since emerging- market sovereign issuers borrowed $34 billion over the same period in 2005. Iran and Poland are among at least 10 countries seeking about $7.6 billion of funding in the coming months.
Shun Spain's Bonds on `Death by 1,000 Cuts,' Invesco, Merrill Lynch Say
Investors should avoid Spain's bonds as the euro region's highest levels of joblessness stifle the country's ability to cut its budget deficit, according to Invesco Ltd. and Bank of America Corp.'s Merrill Lynch unit. Spanish debt isn't yielding enough to compensate investors for buying the bonds of a country with the euro region's third- largest budget deficit, according to Axel Blase, a fund manager in Frankfurt at Invesco. Investors receive a 70 basis-point yield premium for holding Spanish 10-year bonds rather than German bunds, compared with 310 basis points for Greek debt. ``It's not a time to increase exposure to Spain,'' said Blase, who helps oversee the company's $423 billion in assets. ``The country is in rather serious difficulties and the risk premium on Spanish bonds isn't that attractive.'' Concern that Europe's most recession-battered nations aren't doing enough to contain their deficits sent Greek bond yields to the highest in more than a decade, and helped push the euro 4.7 percent lower against the dollar this year. While attention focused initially on Greece, Spain may take years to recover from the recession, according to Johan Jooste, a strategist at Merrill Lynch Wealth Management in London.
Latvia Elections May Hamper Austerity, Weigh On Credit Rating, Fitch Says
Latvian elections this autumn threaten to hamper government efforts to push through austerity measures vital to its international bailout, burdening the country's credit rating, Fitch Ratings said. A parliamentary election scheduled for October ``weighs on the rating, the uncertainty that comes with the election, and I think there might be resistance to removing the negative outlook because of that risk,'' Eral Yilmaz, a credit analyst at Fitch, which ranks Latvian debt as junk, said in an interview. Prime Minister Valdis Dombrovskis, who came to office a year ago amid the former Soviet state's worst economic crisis since it abandoned communism two decades ago, has pushed through the toughest austerity package in the European Union to comply with the terms of an International Monetary Fund-led rescue. Fitch, which rates Latvia's debt BB+, wants to see sustained signs of recovery before considering an upgrade, Yilmaz said. ``Cuts may become politically more difficult from now on as the public may want to see the results of the fiscal
belt- tightening in an economic recovery that results in job creation,'' she said.
Japan's 10-Year Bonds Fall, End Two-Day Gain, as Rising Stocks Sap Demand
Japan's 10-year bonds declined, snapping two days of gains, as rising stocks sapped demand for the refuge of government debt. Ten-year yields also climbed from the lowest level in more than a week after Nikkei English News reported the Japanese government is expected to upgrade its overall view of the economy for the first time since July 2009. The government sold 2.4 trillion yen ($26.5 billion) in five-year notes today.
``Market participants had a short bias because of the strong stocks,'' said Takafumi Yamawaki, a senior strategist in Tokyo at BNP Paribas Securities Japan Ltd., a unit of France's largest bank. The yield on the 1.4 percent security maturing in March 2020 increased two basis points, or 0.02 percentage point, to 1.32 percent as of 4:57 p.m. in Tokyo at Japan Bond Trading Co., the nation's largest interdealer debt broker. The price fell 0.178 yen to 100.706 yen.
Japanese Bond Risk Index May Decline on Kawasaki Kisen's Exit, Mizuho Says
The Markit iTraxx Japan index of credit-default swaps, a benchmark for corporate bond risk, may fall March 23 if Kawasaki Kisen Kaisha Ltd. and Shimizu Corp. cease to be members, according to Mizuho Securities Co. Markit Group Ltd.
published a provisional list for its Series 13 of the Japanese iTraxx today, which shows companies that may join or leave the London-based data company's index. Kawasaki Kisen, the country's third-biggest shipping line by market value, and Shimizu, the biggest general contractor, may be removed, the list shows. The index may decline by ``around 8 basis points on a theoretical value basis,'' Mizuho credit analyst Seiichiro Matsumoto said in a telephone interview from Tokyo. A basis point is 0.01 percentage point. Credit-default swap indexes are benchmarks for protecting bonds against default and traders use them to speculate on credit quality. The swap contracts pay the buyer face value in exchange for the underlying securities if a borrower fails to meet its debt agreements, and a drop shows improvement in perceptions of creditworthiness.
For the complete stories summarized here, and for more of the day's top news, see TOP
-0- Mar/11/2010 8:29 GMT
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