July 27 (Bloomberg) -- The highest inflation-adjusted yields in 15 years are helping provide the Treasury with record demand at auctions as the U.S. prepares to sell $115 billion of notes this week.
Treasuries are the cheapest relative to inflation since 1994 after consumer prices fell 1.4 percent in June from a year earlier. The real yield, or the difference between rates on government securities and inflation, for 10-year notes was 5.06 percent on July 24, compared with an average of 2.74 percent over the past 20 years.
The gap helps explain why investors are buying bonds after losing 4.8 percent this year, the steepest decline on record, according to Merrill Lynch & Co. indexes that date back to 1978. While Treasury will probably sell an unprecedented $2 trillion of debt this year, Federal Reserve Chairman Ben S. Bernanke said last week that limited inflation pressures will allow policy makers to keep interest rates near zero.
“Concerns surrounding rising Treasury supply to fund the various U.S. stimulus programs are overblown,” strategists led by Brad Henis in New York at Citigroup Inc., one of the Fed’s 17 primary dealers required to bid at the auctions, wrote in a July 23 research report.
The government is selling $6 billion of 20-year Treasury Inflation Protected Securities, $42 billion of 2-year notes, $39 billion due in 5 years, and $28 billion of 7-year notes through July 30. It’s only the second time that three so-called coupon issues and TIPS will be sold in a single week since the regular sales began in 1976. The previous record was $104 billion in 2-, 5-, and 7-year debt the week of June 22.
Bernanke Rally
Bernanke’s testimony on the economy and monetary policy before Congress last week helped ease concern that efforts by the central bank and the administration of President Barack Obama to end the worst recession in half a century will spark faster inflation.
Treasuries rallied as Bernanke’s spoke, with the yield on the benchmark 3.125 percent note due May 2019 declining 12 basis points, or 0.12 percentage point, to 3.48 percent on July 21. Bonds ended the week little changed at 95 19/32 to yield 3.66 percent in New York, according to BGCantor Market Data.
Citigroup recommends buying 10-year notes when yields approach 4 percent and selling them when they move closer to 3.25 percent. Rates on benchmark 10-year notes fell 34 basis points from this year’s high of 4 percent on June 11.
Bernanke “helped to restore confidence in the market about exit strategies,” said Brian Weinstein, who runs the $9 billion TIPS fund in New York at BlackRock Inc., the largest publicly traded U.S. money manager. “The risk of inflation is longer term.”
Most Since 1950
While the economy is showing “tentative signs of stabilization,” the central bank intends to maintain a “highly accommodative” monetary policy for “an extended period,” Bernanke said in semi-annual testimony before the House Financial Services Committee.
Consumer prices have stabilized, after surging in the year earlier period on rising food and energy costs, as demand cooled following the collapse of global credit markets. Crude oil declined 54 percent to $68.05 a barrel on the New York Mercantile Exchange on July 24, from the record high of $147.27 set on July 11, 2008. The 1.4 percent drop in consumer prices last month was the biggest since January 1950.
Ten-year notes handed investors a loss of 1.6 percent last July once consumer prices were taken into account.
Sales Doubled
The U.S. more than doubled bond and note offerings to $963 billion in the first half of 2009 in an effort to end the recession and finance a budget deficit that the Congressional Budget Office projects will reach $1.85 trillion this year. It may sell another $1.1 trillion in the second half, according to London-based Barclays Plc, another primary dealer.
Including bills, the Treasury has raised $1.046 trillion in new cash this year, according to government data.
“There’ve been very valid concerns about whether the market would be able to take down that kind of supply consistently,” said Christopher Sullivan, who oversees $1.5 billion as chief investment officer at United Nations Federal Credit Union in New York. “Given the demand seen at many of the auctions, that fear has been a little bit misplaced.”
At the six sales of two-year notes this year, investors offered an average $2.81 of every $1 of debt sold, compared with $2.34 during the same period last year. For five-year notes, the so-called bid-to-cover ratio has risen to $2.22 in six sales, up from $2.07 last year.
New Cash
This week’s auctions will raise a record $96 billion in new cash, up from the previous record of $85 billion during the week of June 22, according to Louis Crandall, chief economist at Wrightson ICAP LLC, a Jersey City, New Jersey-based research firm that specializes in government finance.
Treasuries rallied that week by the most since the period ended March 20, as the yield on the 10-year note tumbled 24.5 basis points to 3.54 percent.
Citigroup expects that demand to continue as sales in other parts of the bond market decline. While the firm forecasts Treasury supply in fiscal 2010 to be $389 billion higher each quarter than the average from 2003 through 2008, it also sees sales from issuers such as government agencies and companies to be $326 billion lower per quarter.
International Demand
Demand from international investors has increased along with the sales. The government relies on foreign buyers to finance the budget deficit and almost 50 percent of the $6.6 trillion in marketable Treasuries are held outside the country, up from 35 percent in 2000, U.S. figures show.
Indirect bidders, a class of investors that includes central banks, purchased 67.2 percent of the record $27 billion in seven-year notes sold on June 25, or double the amount of bids at the last sale in May, according to the Treasury.
The ratio was the highest since 2004 on the sale of $37 billion in five-year notes the day before, while the $40 billion in two-year notes auctioned on June 23 attracted the highest percentage of indirect bids for that maturity in at least six years.
“U.S. short-term to middle-term securities are attractive because the market is pricing in a rate hike,” said Masataka Horii, one of four managers for the $47 billion Kokusai Global Sovereign Open fund in Tokyo. “But I think the U.S. will keep its zero-rate policy.”
International buyers increased their Treasury holdings by 7 percent through May to $3.29 trillion, while China, the biggest lender to the U.S., raised its holdings to $801.5 billion.
Bond Market Positive
Two-year notes are the only U.S. coupon securities to earn money for investors this year because of speculation the Fed won’t raise its target rate for overnight loans between banks from a range of zero to 0.25 percent.
The notes have returned 0.33 percent, including reinvested interest, according to Merrill Lynch indexes. Five-year notes lost 2.86 percent and 10-year securities are down 9.92 percent.
“What Bernanke said is positive for the bond market,” said Michael Cheah, who manages $2 billion in bonds at SunAmerica Asset Management in Jersey City, New Jersey. “Demand should be good because bond investors should take away from Bernanke being very specific that the Federal Reserve is committed to keeping short-term interest rates low.”
Sunday, July 26, 2009
Bernanke Defends Fed’s Response to Financial Crisis
July 26 (Bloomberg) -- Federal Reserve Chairman Ben S. Bernanke defended the central bank’s response to the financial crisis and recession in a forum to be televised this week, saying he sought to avoid a “second Great Depression.”
“The problem we have is that in a financial crisis, if you let the big firms collapse in a disorderly way, it will bring down the whole system,” Bernanke said today at a town- hall-style meeting in Kansas City, Missouri, taped for broadcast on PBS television. “I was not going to be the Federal Reserve chairman who presided over the second Great Depression.”
Bernanke’s appearance indicates he’s stepping up public- relations efforts while confronting criticism from lawmakers over government aid to big financial firms. His first term at the Fed’s helm ends Jan. 31, and President Barack Obama needs to decide whether to reappoint him for another four years.
“People still have big questions, which are, how did we get in this mess, how do we get out of this mess, how are we going to make sure this mess never happens again?” said Gregory Hess, an economics professor at Claremont McKenna College in California and a member of the Shadow Open Market Committee, a group of economists that critiques the Fed.
Participating in today’s meeting is an “enormously smart decision” for Bernanke, 55, Hess said before the event. “It’s a time where he can really leverage his ability to communicate.”
‘Understand’ Frustration
The Fed rescued Bear Stearns Cos. and American International Group Inc. last year while backing creation of the $700 billion Troubled Asset Relief Program. Bernanke, responding to a small-business owner “frustrated” over billions of dollars in aid provided to large financial firms, said, “I understand your frustration.”
“We’re working really hard to try to make it better,” Bernanke said, referring to Fed efforts to improve credit for small businesses.
The questioner, David Huston, said in an interview after the forum that he hasn’t yet seen positive results. “They can say they’re putting money into the banks to help distribute loans, but I don’t see it,” said Huston, 56, president of Olson Manufacturing and Distribution Inc. in Shawnee, Kansas.
‘Don’t Overstimulate’
At the one-hour event moderated by Jim Lehrer, a PBS news anchor, Bernanke said he expects the U.S. economy to grow at an annual rate of 1 percent in the second half of 2009, while unemployment will exceed 10 percent before beginning to decline. At the same time, “we want to make sure that we don’t overstimulate the economy” and spur inflation, Bernanke said.
For the next couple of years, “inflation will be quite low,” Bernanke said. Asked about the dollar, he said that “the best way to have a strong dollar is to have a strong economy.”
“I have a lot of confidence that within a few years that we will be not only back on track but that we will be growing strongly again,” Bernanke said.
Lehrer questioned the Fed chief about criticism from Anna Schwartz, the 93-year-old monetary scholar who wrote a New York Times opinion column today arguing against his reappointment. In a companion piece, Nouriel Roubini, the New York University professor who predicted the credit crisis, said Bernanke deserves another term for averting a “near depression.”
Response to Schwartz
“What Ms. Schwartz wanted us to do was to state in advance what our strategy was for saving firms,” Bernanke said. “We had no idea which firm was going to fail and we didn’t have a system, we didn’t have a structure.”
The Fed is “putting the pedal to the metal” with its policy actions, and it’s too early to judge the impact of the $787 billion fiscal stimulus law, he said.
Voter concern that the Fed overstepped its authority prompted a majority of House lawmakers to co-sponsor a measure allowing for audits by the Government Accountability Office of the central bank’s monetary policy and other operations. Bernanke opposes the measure, which was introduced by Representative Ron Paul of Texas, a Republican.
Asked today about the audit bill, Bernanke said it could result in lawmakers issuing subpoenas over potential decisions to raise interest rates. “I don’t think the American people want Congress running monetary policy,” he said.
The central bank chairman said independence from political interference in setting interest rates produces “much better results” for the economy. “We are very, very sensitive to this issue,” Bernanke said at the forum.
Television Interview
The Fed chief appeared on the CBS program “60 Minutes” in March, his first televised interview since becoming Fed chairman in 2006.
Before that, a Fed chairman last gave a broadcast interview in 1987, when Bernanke’s predecessor, Alan Greenspan, appeared on ABC’s “This Week with David Brinkley.”
Greenspan later said he regretted the interview because he “made some inadvertent news.” Stocks slipped after Greenspan suggested on the program that inflation could become a problem.
Bernanke’s comments are scheduled to air in three segments this week as part of “The NewsHour with Jim Lehrer” on U.S. stations affiliated with PBS, the Public Broadcasting Service.
“The problem we have is that in a financial crisis, if you let the big firms collapse in a disorderly way, it will bring down the whole system,” Bernanke said today at a town- hall-style meeting in Kansas City, Missouri, taped for broadcast on PBS television. “I was not going to be the Federal Reserve chairman who presided over the second Great Depression.”
Bernanke’s appearance indicates he’s stepping up public- relations efforts while confronting criticism from lawmakers over government aid to big financial firms. His first term at the Fed’s helm ends Jan. 31, and President Barack Obama needs to decide whether to reappoint him for another four years.
“People still have big questions, which are, how did we get in this mess, how do we get out of this mess, how are we going to make sure this mess never happens again?” said Gregory Hess, an economics professor at Claremont McKenna College in California and a member of the Shadow Open Market Committee, a group of economists that critiques the Fed.
Participating in today’s meeting is an “enormously smart decision” for Bernanke, 55, Hess said before the event. “It’s a time where he can really leverage his ability to communicate.”
‘Understand’ Frustration
The Fed rescued Bear Stearns Cos. and American International Group Inc. last year while backing creation of the $700 billion Troubled Asset Relief Program. Bernanke, responding to a small-business owner “frustrated” over billions of dollars in aid provided to large financial firms, said, “I understand your frustration.”
“We’re working really hard to try to make it better,” Bernanke said, referring to Fed efforts to improve credit for small businesses.
The questioner, David Huston, said in an interview after the forum that he hasn’t yet seen positive results. “They can say they’re putting money into the banks to help distribute loans, but I don’t see it,” said Huston, 56, president of Olson Manufacturing and Distribution Inc. in Shawnee, Kansas.
‘Don’t Overstimulate’
At the one-hour event moderated by Jim Lehrer, a PBS news anchor, Bernanke said he expects the U.S. economy to grow at an annual rate of 1 percent in the second half of 2009, while unemployment will exceed 10 percent before beginning to decline. At the same time, “we want to make sure that we don’t overstimulate the economy” and spur inflation, Bernanke said.
For the next couple of years, “inflation will be quite low,” Bernanke said. Asked about the dollar, he said that “the best way to have a strong dollar is to have a strong economy.”
“I have a lot of confidence that within a few years that we will be not only back on track but that we will be growing strongly again,” Bernanke said.
Lehrer questioned the Fed chief about criticism from Anna Schwartz, the 93-year-old monetary scholar who wrote a New York Times opinion column today arguing against his reappointment. In a companion piece, Nouriel Roubini, the New York University professor who predicted the credit crisis, said Bernanke deserves another term for averting a “near depression.”
Response to Schwartz
“What Ms. Schwartz wanted us to do was to state in advance what our strategy was for saving firms,” Bernanke said. “We had no idea which firm was going to fail and we didn’t have a system, we didn’t have a structure.”
The Fed is “putting the pedal to the metal” with its policy actions, and it’s too early to judge the impact of the $787 billion fiscal stimulus law, he said.
Voter concern that the Fed overstepped its authority prompted a majority of House lawmakers to co-sponsor a measure allowing for audits by the Government Accountability Office of the central bank’s monetary policy and other operations. Bernanke opposes the measure, which was introduced by Representative Ron Paul of Texas, a Republican.
Asked today about the audit bill, Bernanke said it could result in lawmakers issuing subpoenas over potential decisions to raise interest rates. “I don’t think the American people want Congress running monetary policy,” he said.
The central bank chairman said independence from political interference in setting interest rates produces “much better results” for the economy. “We are very, very sensitive to this issue,” Bernanke said at the forum.
Television Interview
The Fed chief appeared on the CBS program “60 Minutes” in March, his first televised interview since becoming Fed chairman in 2006.
Before that, a Fed chairman last gave a broadcast interview in 1987, when Bernanke’s predecessor, Alan Greenspan, appeared on ABC’s “This Week with David Brinkley.”
Greenspan later said he regretted the interview because he “made some inadvertent news.” Stocks slipped after Greenspan suggested on the program that inflation could become a problem.
Bernanke’s comments are scheduled to air in three segments this week as part of “The NewsHour with Jim Lehrer” on U.S. stations affiliated with PBS, the Public Broadcasting Service.
Saturday, July 25, 2009
Recession Probably Abated Last Quarter: U.S. Economy Preview
July 26 (Bloomberg) -- The worst U.S. recession in five decades probably eased in the second quarter as trade and government stimulus mitigated the damage from declines in housing, inventories and consumer and business spending, economists said before a report this week.
The world’s largest economy shrank at a 1.5 percent pace following a 5.5 percent drop in the first three months of 2009, according to the median forecast of 66 economists surveyed by Bloomberg News ahead of Commerce Department figures due July 31. Other reports may show orders for long-lasting goods fell and sales of new houses rose.
Leaner stockpiles set the stage for a return to growth this quarter as manufacturing and homebuilding stabilize, while efforts to revive demand globally boost exports. Consumer spending, which accounts for 70 percent of the economy, may be slower to recover as unemployment is projected to keep rising and home values are likely to fall further.
“The recession has decelerated sharply and is starting to form a bottom,’ said Joel Naroff, chief economist at Naroff Economic Advisors Inc. in Holland, Pennsylvania. “I think we’ll see some growth in the third quarter.” Naroff was the top forecaster in 2008, according to a survey by Bloomberg Markets magazine.
A drop last quarter would be the fourth consecutive decrease in GDP, the longest losing streak since quarterly records began in 1947. The decline so far has been the deepest since 1957-58.
GDP Revisions
The Commerce report will also include GDP revisions that may affect figures going back to when the government started keeping annual records in 1929.
Stocks rallied last week and bond prices fell on signs the economy was bottoming. The Dow Jones Industrial Average broke above 9,000 for the first time since January, gaining 4 percent over the five days to end the week at 9,093.24. Ten-year Treasury notes posted a second weekly loss, yielding 3.66 percent late on July 24.
Orders for durable goods last month fell 0.6 percent, economists project another report from Commerce on July 29 will show. Bookings rose in the prior two months. Excluding demand for transportation equipment, which is often volatile, orders were forecast to be little changed.
Machinery exporters are among those seeing signs of improvement. Caterpillar Inc., the biggest maker of earthmoving equipment, posted second-quarter profit that exceeded analysts’ highest estimate and raised its full-year forecast, saying stimulus programs are starting to support global demand.
Stimulus Working
“We are seeing signs of stabilization that we hope will set the foundation for an eventual recovery,” Chief Executive Officer Jim Owens said in a statement July 21. “Credit markets have improved significantly. Fiscal policy and monetary stimulus have been introduced around the world, and we are seeing signs, particularly in China, that they are beginning to work.”
The economy will grow at an average 1.5 percent rate in the last six months of the year, according to economists surveyed by Bloomberg in the first week of July. Unemployment, which reached a quarter-century high of 9.5 percent in June, will top 10 percent by the first three months of 2010, the survey showed.
The projections are in line with estimates by Federal Reserve policy makers.
“The pace of decline appears to have slowed significantly, and final demand and production have shown tentative signs of stabilization,” Fed Chairman Ben S. Bernanke told Congress last week. “The labor market, however, has continued to weaken.”
Housing, Manufacturing
Both manufacturing and housing are showing signs of forming a bottom. Existing home sales have risen for three months, while the Institute for Supply Management’s gauge of factory activity has shown a lessening pace of contraction since January.
New-homes sales probably rose 2.9 percent in June, to a 352,000 annual rate, economists surveyed projected a Commerce report on July 27 will show. Purchases reached a record low in January.
Home prices continue to fall, albeit at a slower pace. The S&P/Case Shiller index of 20 major metropolitan areas, due July 28, will probably show property values fell 17.9 percent in May from a year earlier, according to the median forecast. The measure was down 18.1 percent in the 12 months ended April.
Dropping real-estate prices and rising joblessness have tattered household finances. A survey from the New York-based Conference Board on July 28 may show consumer confidence fell in July for a second month, the survey showed.
Finally, the Federal Reserve on July 29 will issue its compendium of regional economic anecdotes known as the Beige Book. Central bankers will use the survey at their next meeting in August to help formulate policy.
The world’s largest economy shrank at a 1.5 percent pace following a 5.5 percent drop in the first three months of 2009, according to the median forecast of 66 economists surveyed by Bloomberg News ahead of Commerce Department figures due July 31. Other reports may show orders for long-lasting goods fell and sales of new houses rose.
Leaner stockpiles set the stage for a return to growth this quarter as manufacturing and homebuilding stabilize, while efforts to revive demand globally boost exports. Consumer spending, which accounts for 70 percent of the economy, may be slower to recover as unemployment is projected to keep rising and home values are likely to fall further.
“The recession has decelerated sharply and is starting to form a bottom,’ said Joel Naroff, chief economist at Naroff Economic Advisors Inc. in Holland, Pennsylvania. “I think we’ll see some growth in the third quarter.” Naroff was the top forecaster in 2008, according to a survey by Bloomberg Markets magazine.
A drop last quarter would be the fourth consecutive decrease in GDP, the longest losing streak since quarterly records began in 1947. The decline so far has been the deepest since 1957-58.
GDP Revisions
The Commerce report will also include GDP revisions that may affect figures going back to when the government started keeping annual records in 1929.
Stocks rallied last week and bond prices fell on signs the economy was bottoming. The Dow Jones Industrial Average broke above 9,000 for the first time since January, gaining 4 percent over the five days to end the week at 9,093.24. Ten-year Treasury notes posted a second weekly loss, yielding 3.66 percent late on July 24.
Orders for durable goods last month fell 0.6 percent, economists project another report from Commerce on July 29 will show. Bookings rose in the prior two months. Excluding demand for transportation equipment, which is often volatile, orders were forecast to be little changed.
Machinery exporters are among those seeing signs of improvement. Caterpillar Inc., the biggest maker of earthmoving equipment, posted second-quarter profit that exceeded analysts’ highest estimate and raised its full-year forecast, saying stimulus programs are starting to support global demand.
Stimulus Working
“We are seeing signs of stabilization that we hope will set the foundation for an eventual recovery,” Chief Executive Officer Jim Owens said in a statement July 21. “Credit markets have improved significantly. Fiscal policy and monetary stimulus have been introduced around the world, and we are seeing signs, particularly in China, that they are beginning to work.”
The economy will grow at an average 1.5 percent rate in the last six months of the year, according to economists surveyed by Bloomberg in the first week of July. Unemployment, which reached a quarter-century high of 9.5 percent in June, will top 10 percent by the first three months of 2010, the survey showed.
The projections are in line with estimates by Federal Reserve policy makers.
“The pace of decline appears to have slowed significantly, and final demand and production have shown tentative signs of stabilization,” Fed Chairman Ben S. Bernanke told Congress last week. “The labor market, however, has continued to weaken.”
Housing, Manufacturing
Both manufacturing and housing are showing signs of forming a bottom. Existing home sales have risen for three months, while the Institute for Supply Management’s gauge of factory activity has shown a lessening pace of contraction since January.
New-homes sales probably rose 2.9 percent in June, to a 352,000 annual rate, economists surveyed projected a Commerce report on July 27 will show. Purchases reached a record low in January.
Home prices continue to fall, albeit at a slower pace. The S&P/Case Shiller index of 20 major metropolitan areas, due July 28, will probably show property values fell 17.9 percent in May from a year earlier, according to the median forecast. The measure was down 18.1 percent in the 12 months ended April.
Dropping real-estate prices and rising joblessness have tattered household finances. A survey from the New York-based Conference Board on July 28 may show consumer confidence fell in July for a second month, the survey showed.
Finally, the Federal Reserve on July 29 will issue its compendium of regional economic anecdotes known as the Beige Book. Central bankers will use the survey at their next meeting in August to help formulate policy.
Bank of Israel May Hold Interest Rate at Record Low: Week Ahead
July 26 (Bloomberg) -- The Bank of Israel will probably hold its benchmark interest rate at a record low tomorrow as the economy contracts and unemployment climbs, a survey showed.
The rate will remain at 0.5 percent for a fifth month, according to eight of the nine economists surveyed by Bloomberg. One economist predicted it would rise to 0.75 percent. The Jerusalem-based central bank will announce its decision at 5:30 p.m. tomorrow.
Governor Stanley Fischer has lowered the base rate by 3.75 percentage points since October to mitigate the effects of the global financial crisis. The economy contracted an annualized 3.7 percent in the first quarter and unemployment rose to 8.4 percent in May, its highest in almost three years.
“The Bank of Israel won’t rush to raise the interest rate due to the uncertainty regarding the degree of recovery in the global market and the worsening in the labor market,” Rafael Gozlan, chief economist at Leader Capital Markets, said by phone from Tel Aviv.
While inflation accelerated to an annual 3.6 percent in June from 2.8 percent the previous month it is likely to moderate beginning in September, Gozlan said. The government’s target range for inflation is 1 percent to 3 percent.
“We believe that the restrained global inflationary environment, together with the weakening of the domestic labor market, will support inflation of about 1 percent or 1.5 percent in the coming year,” Gozlan said.
Inflation Outlook
Inflation will reach 2.5 percent over the next year, according to a Bank of Israel poll of economists released on July 16, up from the 2.4 percent expected in the previous survey.
The shekel traded at 3.8678 late on July 23, compared with 3.8882 on July 17.
Last week, Israel’s benchmark 5.5 percent Mimshal Shiklit bond due in 2017 rose 0.2 shekel to 105.55, with the yield falling 1 basis point to 4.97 percent. The Tel Aviv Stock Exchange’s benchmark TA-25 Index rose 4.7 percent to 915.44
The rate will remain at 0.5 percent for a fifth month, according to eight of the nine economists surveyed by Bloomberg. One economist predicted it would rise to 0.75 percent. The Jerusalem-based central bank will announce its decision at 5:30 p.m. tomorrow.
Governor Stanley Fischer has lowered the base rate by 3.75 percentage points since October to mitigate the effects of the global financial crisis. The economy contracted an annualized 3.7 percent in the first quarter and unemployment rose to 8.4 percent in May, its highest in almost three years.
“The Bank of Israel won’t rush to raise the interest rate due to the uncertainty regarding the degree of recovery in the global market and the worsening in the labor market,” Rafael Gozlan, chief economist at Leader Capital Markets, said by phone from Tel Aviv.
While inflation accelerated to an annual 3.6 percent in June from 2.8 percent the previous month it is likely to moderate beginning in September, Gozlan said. The government’s target range for inflation is 1 percent to 3 percent.
“We believe that the restrained global inflationary environment, together with the weakening of the domestic labor market, will support inflation of about 1 percent or 1.5 percent in the coming year,” Gozlan said.
Inflation Outlook
Inflation will reach 2.5 percent over the next year, according to a Bank of Israel poll of economists released on July 16, up from the 2.4 percent expected in the previous survey.
The shekel traded at 3.8678 late on July 23, compared with 3.8882 on July 17.
Last week, Israel’s benchmark 5.5 percent Mimshal Shiklit bond due in 2017 rose 0.2 shekel to 105.55, with the yield falling 1 basis point to 4.97 percent. The Tel Aviv Stock Exchange’s benchmark TA-25 Index rose 4.7 percent to 915.44
Friday, July 24, 2009
Japan’s 10-Year Bonds Decline as Rising Stocks Damp Demand
July 25 (Bloomberg) -- Japan’s government bonds completed a second weekly loss after the Nikkei 225 Stock Average rose for an eighth day yesterday, the longest rally since November 2005.
Demand for the relative safety of government debt waned after speculation the global recession is easing pushed the yen down to a two-week low against the dollar on July 23, improving the outlook for exporters’ earnings. Foreign investors sold 48.9 billion yen ($515.3 million) in Japanese bonds during the week ended July 17, the Ministry of Finance said in Tokyo this week.
“The weaker yen brightens the short-term economic outlook, pushing up stocks” and that is negative for bonds, said Takashi Nishimura, a Tokyo-based analyst at Mitsubishi UFJ Securities Co., a unit of Japan’s largest bank by assets.
The yield on the 1.4 percent bond due June 2019 rose 5.5 basis points to 1.375 percent this week in Tokyo, according to Japan Bond Trading Co., the nation’s largest interdealer debt broker. The price fell 0.484 yen to 100.217 yen. The yield touched 1.395 on July 23, the highest level since June 29.
Five-year yields gained one basis point this week to 0.675 percent. Ten-year bond futures for September delivery fell 0.18 this week to 138.40 at the Tokyo Stock Exchange.
The Nikkei 225 Stock Average climbed 1.6 percent yesterday.
Moving With Stocks
“Selling will dominate the market given the increasing correlation with stock movements,” said Koji Ochiai, a senior market economist in Tokyo at Mizuho Investors Securities Co., a unit of Japan’s second-largest bank.
Benchmark 10-year yields had a correlation of 0.75 with the Nikkei 225 in the past week, compared to a relationship of 0.42 the prior five-day period, according to data compiled by Bloomberg. A value of 1 means the two moved in lockstep.
Losses in bonds were tempered as 10-year yields near the highest level in more than three weeks attracted investors.
“The feeling of buying on dips seems to be strong,” said Shuntaro Take, a Tokyo-based portfolio manager at Tokio Marine & Nichido Fire Insurance Co., a unit of Japan’s biggest casualty insurer. “There might be a lot of people who are targeting near the 0.7 percent level to buy five-year securities.”
The difference in yield, or the spread, between 20- and 10- year Japanese debt held near the widest level since April 2008. The gap was about 77 basis points yesterday.
“Twenty-year bonds are being bought after the spread widened,” said Akio Kato, leader of a six-member team investing in Japanese bonds in Tokyo at Kokusai Asset Management Co., which runs the $47 billion Global Sovereign Open fund, the world’s second-biggest managed debt fund. “Concerns that the government will issue more bonds to spur an economic growth have pushed yields up for long-term bonds.”
The government is planning to sell a record 130.2 trillion yen in bonds this fiscal year to help pay for 25 trillion yen in stimulus measures. Japan’s bonds maturing in more than 10 years have handed investors a loss of 1.5 percent since April 1, according to indexes compiled by Merrill Lynch & Co.
Demand for the relative safety of government debt waned after speculation the global recession is easing pushed the yen down to a two-week low against the dollar on July 23, improving the outlook for exporters’ earnings. Foreign investors sold 48.9 billion yen ($515.3 million) in Japanese bonds during the week ended July 17, the Ministry of Finance said in Tokyo this week.
“The weaker yen brightens the short-term economic outlook, pushing up stocks” and that is negative for bonds, said Takashi Nishimura, a Tokyo-based analyst at Mitsubishi UFJ Securities Co., a unit of Japan’s largest bank by assets.
The yield on the 1.4 percent bond due June 2019 rose 5.5 basis points to 1.375 percent this week in Tokyo, according to Japan Bond Trading Co., the nation’s largest interdealer debt broker. The price fell 0.484 yen to 100.217 yen. The yield touched 1.395 on July 23, the highest level since June 29.
Five-year yields gained one basis point this week to 0.675 percent. Ten-year bond futures for September delivery fell 0.18 this week to 138.40 at the Tokyo Stock Exchange.
The Nikkei 225 Stock Average climbed 1.6 percent yesterday.
Moving With Stocks
“Selling will dominate the market given the increasing correlation with stock movements,” said Koji Ochiai, a senior market economist in Tokyo at Mizuho Investors Securities Co., a unit of Japan’s second-largest bank.
Benchmark 10-year yields had a correlation of 0.75 with the Nikkei 225 in the past week, compared to a relationship of 0.42 the prior five-day period, according to data compiled by Bloomberg. A value of 1 means the two moved in lockstep.
Losses in bonds were tempered as 10-year yields near the highest level in more than three weeks attracted investors.
“The feeling of buying on dips seems to be strong,” said Shuntaro Take, a Tokyo-based portfolio manager at Tokio Marine & Nichido Fire Insurance Co., a unit of Japan’s biggest casualty insurer. “There might be a lot of people who are targeting near the 0.7 percent level to buy five-year securities.”
The difference in yield, or the spread, between 20- and 10- year Japanese debt held near the widest level since April 2008. The gap was about 77 basis points yesterday.
“Twenty-year bonds are being bought after the spread widened,” said Akio Kato, leader of a six-member team investing in Japanese bonds in Tokyo at Kokusai Asset Management Co., which runs the $47 billion Global Sovereign Open fund, the world’s second-biggest managed debt fund. “Concerns that the government will issue more bonds to spur an economic growth have pushed yields up for long-term bonds.”
The government is planning to sell a record 130.2 trillion yen in bonds this fiscal year to help pay for 25 trillion yen in stimulus measures. Japan’s bonds maturing in more than 10 years have handed investors a loss of 1.5 percent since April 1, according to indexes compiled by Merrill Lynch & Co.
Sri Lanka Gets $2.6 Billion Loan From IMF to Aid its Economy
July 25 (Bloomberg) -- The International Monetary Fund, which has mounted rescues from Iceland to Ukraine in the past year, said it approved a $2.6 billion loan to Sri Lanka.
The Washington-based lender’s executive board voted today on the 20-month arrangement aimed at helping the island nation rebuild its economy after the end of a 26-year civil war and replenish its international reserves. About $322 million will be made available immediately, the IMF said in a statement today.
“This money is mainly for reserves and balance-of- payments,” Jaliya Wickramasuriya, the country’s ambassador to the U.S., said in an interview in Washington.
Sri Lanka’s reserves declined by more than half in the six months that began in September to as little as $1.4 billion as the global recession hurt export earnings, prompting it to start talks with the IMF in March.
The IMF has said Sri Lanka’s government has undertaken a program aimed at rebuilding reserves, reducing the fiscal deficit, strengthening the financial sector and reconstructing areas damaged by the conflict.
“The global financial crisis has had a significant impact on Sri Lanka’s economy,” Takatoshi Kato, IMF deputy managing director, said in the statement. “Persistently high budget deficits forced the government to rely on short-term financing from international markets. The global shock resulted in a sudden stop to this financing.”
Sri Lanka’s central bank this month raised its 2009 growth forecast to as much as 4.5 percent from an earlier estimate of 2.5 percent after the government in May defeated the Liberation Tigers of Tamil Eelam, a separatist group.
Sri Lanka aims to cut its budget deficit to 7 percent of gross domestic product in 2009, from 7.7 percent last year, central bank Governor Nivard Cabraal said in a July 21 interview.
The Washington-based lender’s executive board voted today on the 20-month arrangement aimed at helping the island nation rebuild its economy after the end of a 26-year civil war and replenish its international reserves. About $322 million will be made available immediately, the IMF said in a statement today.
“This money is mainly for reserves and balance-of- payments,” Jaliya Wickramasuriya, the country’s ambassador to the U.S., said in an interview in Washington.
Sri Lanka’s reserves declined by more than half in the six months that began in September to as little as $1.4 billion as the global recession hurt export earnings, prompting it to start talks with the IMF in March.
The IMF has said Sri Lanka’s government has undertaken a program aimed at rebuilding reserves, reducing the fiscal deficit, strengthening the financial sector and reconstructing areas damaged by the conflict.
“The global financial crisis has had a significant impact on Sri Lanka’s economy,” Takatoshi Kato, IMF deputy managing director, said in the statement. “Persistently high budget deficits forced the government to rely on short-term financing from international markets. The global shock resulted in a sudden stop to this financing.”
Sri Lanka’s central bank this month raised its 2009 growth forecast to as much as 4.5 percent from an earlier estimate of 2.5 percent after the government in May defeated the Liberation Tigers of Tamil Eelam, a separatist group.
Sri Lanka aims to cut its budget deficit to 7 percent of gross domestic product in 2009, from 7.7 percent last year, central bank Governor Nivard Cabraal said in a July 21 interview.
Thursday, July 23, 2009
Emerging-Market Stocks Attract Most Funds in 6 Weeks
July 24 (Bloomberg) -- Emerging-market equity funds drew $2.6 billion in the week ended July 22, boosted by optimism that U.S. demand for exports will recover, EPFR Global said.
The inflows into emerging-market stock funds were the most since the period ended June 10, the research firm said in a statement yesterday. Global emerging market equity funds attracted $1.08 billion, while those investing in Asian excluding-Japan shares took in $973 million.
Investors have funneled almost $32 billion into emerging market stock funds this year, helping the MSCI Emerging Markets Index to a 45 percent rally. All 10 of the world’s best- performing stock markets belong to developing nations, with Peru, China and Sri Lanka posting the strongest gains.
“Flows into emerging market equity funds rebounded during the third week of July as optimism about a recovery in U.S. demand helped many individual equity markets gain between 3 percent and 8 percent,” EPFR said.
Funds investing in the so-called BRIC nations of Brazil, China, India and Russia added $2.1 billion for an 18th straight week of gains, EFPR said. Mexico funds also posted their strongest weekly inflows since June 2008, gaining 7.2 percent, the research company said.
Equity funds absorbed a total $3.44 billion while fixed income funds had a “rare” week of inflows, attracting $3.98 billion, EPFR added.
The inflows into emerging-market stock funds were the most since the period ended June 10, the research firm said in a statement yesterday. Global emerging market equity funds attracted $1.08 billion, while those investing in Asian excluding-Japan shares took in $973 million.
Investors have funneled almost $32 billion into emerging market stock funds this year, helping the MSCI Emerging Markets Index to a 45 percent rally. All 10 of the world’s best- performing stock markets belong to developing nations, with Peru, China and Sri Lanka posting the strongest gains.
“Flows into emerging market equity funds rebounded during the third week of July as optimism about a recovery in U.S. demand helped many individual equity markets gain between 3 percent and 8 percent,” EPFR said.
Funds investing in the so-called BRIC nations of Brazil, China, India and Russia added $2.1 billion for an 18th straight week of gains, EFPR said. Mexico funds also posted their strongest weekly inflows since June 2008, gaining 7.2 percent, the research company said.
Equity funds absorbed a total $3.44 billion while fixed income funds had a “rare” week of inflows, attracting $3.98 billion, EPFR added.
Subscribe to:
Posts (Atom)
Posts
