By John Detrixhe and Catarina Saraiva - Aug 27, 2011
The dollar slid versus the majority of its most-traded peers as Federal Reserve Chairman Ben S. Bernanke said the economy hasn’t deteriorated enough to need immediate stimulus, fueling appetite for higher-risk assets.
Switzerland’s franc had the biggest weekly drop against the euro since July 1 on speculation policy makers will take new steps to curb its strength. The greenback fell for a second week versus the 17-nation currency as Bernanke said yesterday the Fed still has tools to stimulate the economy, spurring bets it may yet take action and damping the currency’s refuge appeal. Data next week may show U.S. employers added fewer jobs this month.
“Bernanke doesn’t want anyone to think that his finger isn’t on the big red button to do more,” said Stephen Gallo, head of market analysis at Schneider Foreign Exchange in London. “September could bring the trigger for whatever more is going to be.”
The dollar fell against 10 of its 16 major counterparts, dropping 0.7 percent versus the euro to $1.4499 yesterday in New York, from $1.4397 on Aug. 19. It was little changed versus the yen at 76.64, compared with 76.55 a week earlier. Europe’s shared currency appreciated 0.9 percent to 111.17 yen, from 110.20 yen.
New Zealand’s dollar gained the most against the greenback as stocks climbed after Bernanke, in a speech in Jackson Hole, Wyoming, sought to reassure investors that U.S. growth is safe in the long run and the Fed can aid the recovery if needed. The Standard & Poor’s 500 Index rose 1.5 percent yesterday.
The South Pacific currency strengthened 1.7 percent yesterday to end the week at 84.07 U.S. cents, up 2.8 percent over five days, the most since May.
Canada’s Dollar
The Canadian dollar, another currency of a commodities exporter, rose for the first time in five weeks, gaining 0.9 percent to 98.14 cents per U.S. dollar.
The greenback traded within a two-cent range against the euro this week before Bernanke’s speech at the Kansas City Fed’s annual conference in Jackson Hole, between $1.4328 and $1.45, as investors speculated what the Fed chief would say.
At last year’s conference, Bernanke foreshadowed the second round of quantitative easing to spur growth, the purchase of $600 billion of Treasuries from November through June.
The Fed still “has a range of tools that could be used to provide additional monetary stimulus,” Bernanke said yesterday, without specifying when or whether it might deploy them.
A second day has been added to the bank’s next policy meeting in September to “allow a fuller discussion” of the economy and possible responses, Bernanke said.
‘Continue to Ease’
“The Fed will continue to ease, most likely at its next meeting,” Diane Swonk, chief economist at Mesirow Financial Holdings Inc. in Chicago, wrote on the firm’s website. “Ben didn’t specify what they would do at their next meeting, as he still needs to deal with internal opposition to additional easing, but that will not stop him.”
The U.S. economy grew more slowly from April through June than first estimated, Commerce Department data showed yesterday 90 minutes before the Fed chief’s address. That capped the weakest six months of the economic recovery that began in mid- 2009. Gross domestic product gained at a 1 percent annual rate, versus the earlier estimate of 1.3 percent.
U.S. payroll growth slowed in August to 75,000 jobs, from 117,000 in July, economists in a Bloomberg News survey forecast before the Labor Department reports the data Sept. 2.
European Crisis
The euro gained this week versus the yen and greenback even amid concern Europe’s sovereign-debt crisis is worsening. Greek government two-year note yields climbed 46 percent, a euro-era record. The European Central Bank bought Italian and Spanish government bonds, according to people familiar with the transactions, to hold down borrowing costs and keep the crisis from spreading to the two countries.
The shared currency dropped against most major counterparts on Aug. 25 as French, Italian and Spanish stock-market regulators extended temporary short-selling bans they introduced this month in a bid to stem stock-market volatility.
Short investors sell borrowed shares with plans to buy them back later at a lower price, a practice politicians and some investors blame for roiling markets.
The euro appreciated 0.6 percent over the past three months against nine developed-nation peers, according to Bloomberg Correlation-Weighted Currency Indexes, while the dollar declined 2.1 percent. The Swiss franc strengthened the most, 5.9 percent, and the yen gained 4.5 percent as investors sought refuge amid the slowing U.S. economy and Europe’s debt crisis.
Yen Trading
Japanese Finance Minister Yoshihiko Noda said he’s examining how much speculative trading is influencing the yen, which surged to a post-World War II record of 75.95 per dollar on Aug. 19.
Japan last intervened in the currency market, selling yen to try to curb its climb, on Aug. 4, when it touched 76.97 to the dollar. The yen weakened as much as 4.1 percent that day. It was trading at pre-intervention levels within a week.
The franc tumbled versus all of its 16 most-traded peers this week amid speculation the Swiss National Bank will introduce new measures to damp demand for the currency. Policy makers cut borrowing costs to zero earlier this month, increased bank sight deposits almost sevenfold and left the door open for additional measures.
The Swiss currency fell against the euro and the dollar for a third week, sliding 3.4 percent to 1.1690 per euro in the biggest drop in almost two months, and weakening 2.7 percent to 80.63 centimes per greenback.
To contact the reporters on this story: John Detrixhe in New York at jdetrixhe1@bloomberg.net; Catarina Saraiva in New York at asaraiva5@bloomberg.net.
To contact the editor responsible for this story: Dave Liedtka at dliedtka@bloomberg.net
®2011 BLOOMBERG L.P. ALL RIGHTS RESERVED.
Saturday, August 27, 2011
Friday, August 26, 2011
Swaps Below RBI Rate for First Time in 15 Month Signal Halt: India Credit
By Unni Krishnan - Aug 26, 2011
For the first time in 15 months, traders in the swap market are anticipating the Reserve Bank of India will stop raising interest rates and may start to ease policy in the next year as the economy slows.
The cost to lock in one-year borrowing costs dropped below the central bank’s 8 percent benchmark rate this month for the first time since May 2010 and was 7.73 percent today, according to data compiled by Bloomberg. The gap has narrowed 58 basis points in August, compared with 110 in Brazil and 37 in China.
India’s central bank has boosted borrowing costs 11 times since March 2010, the most of the biggest emerging nations known as the BRICs. The bid to contain inflation will probably cut economic growth, according to Morgan Stanley and Standard Chartered Plc, which have both reduced their forecasts for India this year. Gross domestic product rose 7.6 percent in the three months through June, the least since the fourth quarter of 2009, according to the median estimate of economists surveyed by Bloomberg ahead of data next week.
“Swaps are signifying that the market is expecting the end of the rate-hike cycle as growth slows,” Vivek Rajpal, a Mumbai based fixed-income strategist at Nomura Holdings Inc., said in an interview yesterday. “Easing at some point of time is possible, but it may be in the form of liquidity-easing measures, not necessarily a cut in interest rates.”
Swap Movements
India’s swap rates, which are pegged to the overnight money-market rate, climbed to a three-year high of 8.37 percent on July 27, a day after the Reserve Bank unexpectedly raised borrowing costs by 50 basis points, or 0.50 percentage point. The cost needed to receive floating payments for one year dropped the most this month since December 2008 after traders pared expectations for rate increases on signs the global economy is slowing.
The one-year swap rate in Brazil is at 11.5 percent, one percentage point below the nation’s benchmark rate. In China, the 3.80 percent swap rate compares with the one-year deposit rate of 3.50 percent. In Russia, which doesn’t target one policy rate, the gauge is 5.31 percent, 52 basis points above the three-month MosPrime interbank rate, data compiled by Bloomberg show. Traders use swaps to guard against fluctuations in borrowing costs.
India’s bonds have rallied amid evidence Asia’s third- biggest economy is slowing. Manufacturing grew in July at the slowest pace in 20 months, the Purchasing Managers’ Index compiled by HSBC Holdings Plc and Markit Economics showed this month. Car sales fell in July from a year earlier for the first time since January 2009, the Society of Indian Automobile Manufacturers said on Aug. 10.
Bond Returns
The yield on benchmark 7.8 percent rupee-denominated notes due in April 2021 has dropped 17 basis points this month to 8.28 percent, according to the central bank’s trading system. The yield rose three basis points today before a debt auction, where the central bank will sell 110 billion rupees ($2.4 billion) of securities due in 2018, 2021 and 2027, according to the government’s debt calendar.
India’s bonds due in 10 years yielded 600 basis points more than similar-maturity U.S. Treasuries yesterday, down from a record-high 621 basis points reached on Aug. 18. Sovereign rupee notes returned 1.7 percent this month, outperforming four of 10 Asian debt markets, according to indexes compiled by HSBC.
The central bank may signal it is equally concerned over slowing growth and inflation when it meets next on Sept. 16, according to Mumbai-based Religare Capital Markets.
Growth Outlook
India’s economy may expand 7.2 percent in the year through March, compared with an earlier prediction of 7.7 percent, Morgan Stanley said on Aug. 1. Standard Chartered cut its forecast on July 26 to 7.7 percent from 8.1 percent. Increases in wholesale prices, which have held above 9 percent for eight months, will retreat to 7 percent by March, the Reserve Bank said in a statement on July 26.
“The RBI’s predominant concern until now was inflation, but now growth is also suddenly coming on the radar,” Jay Shankar, a Mumbai-based chief economist at Religare Capital, said in an interview on Aug. 24. “I hope they won’t raise rates in September.”
Policy makers will need to raise borrowing costs aggressively to attract global investors, according to Mumbai- based IndusInd Bank Ltd. International funds’ holdings of rupee debt totaled $21.7 billion as of Aug. 24, according to the Securities & Exchange Board of India, below the $50 billion ceiling set by the government.
‘No Option’
“To attract global investors you need to keep inflation below the growth rate,” J. Moses Harding, a Mumbai-based executive vice president at IndusInd Bank, said in an interview on Aug. 24. “I think the RBI has no option but to deliver a half percentage point rate hike in September.”
Harding predicts that the 10-year bond yield will be about 8.15 percent by December.
The rupee has dropped 4 percent this month, headed for the biggest slide since May 2010, as exchange data show global funds reduced holdings of Indian stock by $2 billion. The currency was little changed at 46.0738 per dollar today, according to data compiled by Bloomberg.
The cost of insuring the debt of State Bank of India against default using five-year credit-default swaps has climbed this month. The contracts rose 81 basis points to 273, according to data provider CMA, which is owned by CME Group Inc. and compiles prices quoted by dealers in privately negotiated markets.
The swaps pay the buyer face value in exchange for the underlying securities or the cash equivalent should a government or company fail to adhere to its debt agreements.
The central bank will raise borrowing costs by 25 basis points in September before pausing for the rest of the year, Shubhada Rao, chief economist at Mumbai-based Yes Bank Ltd., said in an interview on Aug. 23.
“While we expect RBI to remain significantly hawkish in its tone, we believe that the interest-rate cycle is close to peaking,” Rao said.
To contact the reporter on this story: Unni Krishnan in New Delhi at ukrishnan2@bloomberg.net
To contact the editor responsible for this story: Stephanie Phang at sphang@bloomberg.net
For the first time in 15 months, traders in the swap market are anticipating the Reserve Bank of India will stop raising interest rates and may start to ease policy in the next year as the economy slows.
The cost to lock in one-year borrowing costs dropped below the central bank’s 8 percent benchmark rate this month for the first time since May 2010 and was 7.73 percent today, according to data compiled by Bloomberg. The gap has narrowed 58 basis points in August, compared with 110 in Brazil and 37 in China.
India’s central bank has boosted borrowing costs 11 times since March 2010, the most of the biggest emerging nations known as the BRICs. The bid to contain inflation will probably cut economic growth, according to Morgan Stanley and Standard Chartered Plc, which have both reduced their forecasts for India this year. Gross domestic product rose 7.6 percent in the three months through June, the least since the fourth quarter of 2009, according to the median estimate of economists surveyed by Bloomberg ahead of data next week.
“Swaps are signifying that the market is expecting the end of the rate-hike cycle as growth slows,” Vivek Rajpal, a Mumbai based fixed-income strategist at Nomura Holdings Inc., said in an interview yesterday. “Easing at some point of time is possible, but it may be in the form of liquidity-easing measures, not necessarily a cut in interest rates.”
Swap Movements
India’s swap rates, which are pegged to the overnight money-market rate, climbed to a three-year high of 8.37 percent on July 27, a day after the Reserve Bank unexpectedly raised borrowing costs by 50 basis points, or 0.50 percentage point. The cost needed to receive floating payments for one year dropped the most this month since December 2008 after traders pared expectations for rate increases on signs the global economy is slowing.
The one-year swap rate in Brazil is at 11.5 percent, one percentage point below the nation’s benchmark rate. In China, the 3.80 percent swap rate compares with the one-year deposit rate of 3.50 percent. In Russia, which doesn’t target one policy rate, the gauge is 5.31 percent, 52 basis points above the three-month MosPrime interbank rate, data compiled by Bloomberg show. Traders use swaps to guard against fluctuations in borrowing costs.
India’s bonds have rallied amid evidence Asia’s third- biggest economy is slowing. Manufacturing grew in July at the slowest pace in 20 months, the Purchasing Managers’ Index compiled by HSBC Holdings Plc and Markit Economics showed this month. Car sales fell in July from a year earlier for the first time since January 2009, the Society of Indian Automobile Manufacturers said on Aug. 10.
Bond Returns
The yield on benchmark 7.8 percent rupee-denominated notes due in April 2021 has dropped 17 basis points this month to 8.28 percent, according to the central bank’s trading system. The yield rose three basis points today before a debt auction, where the central bank will sell 110 billion rupees ($2.4 billion) of securities due in 2018, 2021 and 2027, according to the government’s debt calendar.
India’s bonds due in 10 years yielded 600 basis points more than similar-maturity U.S. Treasuries yesterday, down from a record-high 621 basis points reached on Aug. 18. Sovereign rupee notes returned 1.7 percent this month, outperforming four of 10 Asian debt markets, according to indexes compiled by HSBC.
The central bank may signal it is equally concerned over slowing growth and inflation when it meets next on Sept. 16, according to Mumbai-based Religare Capital Markets.
Growth Outlook
India’s economy may expand 7.2 percent in the year through March, compared with an earlier prediction of 7.7 percent, Morgan Stanley said on Aug. 1. Standard Chartered cut its forecast on July 26 to 7.7 percent from 8.1 percent. Increases in wholesale prices, which have held above 9 percent for eight months, will retreat to 7 percent by March, the Reserve Bank said in a statement on July 26.
“The RBI’s predominant concern until now was inflation, but now growth is also suddenly coming on the radar,” Jay Shankar, a Mumbai-based chief economist at Religare Capital, said in an interview on Aug. 24. “I hope they won’t raise rates in September.”
Policy makers will need to raise borrowing costs aggressively to attract global investors, according to Mumbai- based IndusInd Bank Ltd. International funds’ holdings of rupee debt totaled $21.7 billion as of Aug. 24, according to the Securities & Exchange Board of India, below the $50 billion ceiling set by the government.
‘No Option’
“To attract global investors you need to keep inflation below the growth rate,” J. Moses Harding, a Mumbai-based executive vice president at IndusInd Bank, said in an interview on Aug. 24. “I think the RBI has no option but to deliver a half percentage point rate hike in September.”
Harding predicts that the 10-year bond yield will be about 8.15 percent by December.
The rupee has dropped 4 percent this month, headed for the biggest slide since May 2010, as exchange data show global funds reduced holdings of Indian stock by $2 billion. The currency was little changed at 46.0738 per dollar today, according to data compiled by Bloomberg.
The cost of insuring the debt of State Bank of India against default using five-year credit-default swaps has climbed this month. The contracts rose 81 basis points to 273, according to data provider CMA, which is owned by CME Group Inc. and compiles prices quoted by dealers in privately negotiated markets.
The swaps pay the buyer face value in exchange for the underlying securities or the cash equivalent should a government or company fail to adhere to its debt agreements.
The central bank will raise borrowing costs by 25 basis points in September before pausing for the rest of the year, Shubhada Rao, chief economist at Mumbai-based Yes Bank Ltd., said in an interview on Aug. 23.
“While we expect RBI to remain significantly hawkish in its tone, we believe that the interest-rate cycle is close to peaking,” Rao said.
To contact the reporter on this story: Unni Krishnan in New Delhi at ukrishnan2@bloomberg.net
To contact the editor responsible for this story: Stephanie Phang at sphang@bloomberg.net
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