March 11, 2010

(BN) Top Stories: Bonds


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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