April 15 (Bloomberg) -- Asian stocks rose, driving the MSCI Asia Pacific Index to a 20-month high, as U.S. earnings reports from JPMorgan Chase & Co. to United Parcel Service Inc. bolstered confidence in the global economy.
Mitsubishi UFJ Financial Group Inc. advanced 1.2 percent in Tokyo after JPMorgan said a “broad-based” economic recovery boosted profit. Canon Inc., which got 28 percent of its revenue last year in the Americas, advanced 1.1 percent after a government report showed U.S. retail sales rose. BHP Billiton Ltd., the world’s biggest mining company, gained 0.8 percent after oil and metal prices increased yesterday.
“There’ve been concerns about the stretched nature of valuations, but the stellar earnings season so far has thoroughly justified the performance,” said Chris Weston, a Melbourne-based research analyst at IG Markets. “Economic data has been in line, if not better, and pointing to a clear V- shaped recovery. The biggest risk I see right now is over- confidence.”
The MSCI Asia Pacific Index climbed 0.6 percent to 129.06 as of 9:15 a.m. in Tokyo, headed for its highest close since Aug. 6, 2008. Japan’s Nikkei 225 Stock Average rose 0.8 percent and Australia’s S&P/ASX 200 Index gained 0.5 percent.
New Zealand’s NZX 50 Index advanced 0.4 percent as a report showed the nation’s manufacturing industry expanded for a seventh month in March.
Futures on the U.S. Standard & Poor’s 500 Index were little changed. The gauge climbed 1.1 percent yesterday to the highest level since September 2008 as a Commerce Department report showed U.S. retail sales increased 1.6 percent last month, surpassing the 1.2 percent advance estimated by economists.
Earnings Recovery
JPMorgan, the second-biggest U.S. bank by assets, reported a 55 percent jump in first-quarter net income, helped by record fixed-income trading revenue. Shares of UPS, the world’s largest package-delivery company, jumped 4.5 percent in after-hours trading after boosting its full-year profit forecast.
“With corporate earnings and the global economy getting better, there is potentially substantial demand for shares,” said Mitsushige Akino, who oversees the equivalent of $450 million in assets in Tokyo at Ichiyoshi Investment Management Co. “There are still many investors who haven’t bought yet.”
A gauge of material producers in the MSCI Asia Pacific Index, the best-performing industry group in the past 12 months, rose 0.6 percent after crude oil for May delivery climbed 2.1 percent yesterday, breaking a five-day losing streak. A gauge of six metals advanced 1.2 percent in London.
The MSCI Asia Pacific Index has gained 6.6 percent this year, compared with an 8.6 percent jump by the S&P 500. Companies in the MSCI gauge trade at 1.7 times book value, the highest level since September 2008.
Xstrata Bid
“The market may be pricing in an earnings recovery too fast, and I’m afraid of a recoil afterwards,” said Ichiyoshi Investment’s Akino.
Shares of Australia’s Macarthur Coal Ltd. were bid higher. Xstrata Plc may have offered major shareholders of Macarthur Coal a cash and scrip offer of just under A$16 a share, the Australian Financial Review reported in its Street Talk column, without saying where it got the information.
San Miguel Corp. may move after the largest Philippine food and drinks company said its profit tripled to a record on gains from the sale of a stake in its beer unit.
Telekom Malaysia Bhd. may also be active in Kuala Lumpur. The Employees Provident Fund, Malaysia’s largest pension fund, bought 5.5 million shares in the company, the nation’s biggest fixed-line operator, a stock-exchange filing showed.
Wednesday, April 14, 2010
Monday, April 12, 2010
India hopes high for 3G auction
In India, it is not uncommon to call someone’s mobile only to have to hear the latest Bollywood hit blaring back over the line until the recipient answers the phone.
This is caller ring-back tone, which has been one of the biggest earners for the country’s mobile phone providers at a time when they are struggling with declining revenues in conventional voice call services.
EDITOR’S CHOICE
3G auctions kick off in India - Apr-09
Now, with even this value-added service becoming commoditised, operators and application and content providers are looking towards another potential saviour – third generation mobile services.
Last Friday, the Indian government kicked off what is one of the world’s last great 3G auctions, potentially heralding the beginning of sophisticated mobile applications in India. The auction has attracted industry leaders Bharti Airtel, Reliance Communications, Vodafone Essar and others.
“3G will segment the market, giving carriers a customer who is willing to pay for access and richer content and applications,” said Neeraj Roy, chief executive officer of Hungama Mobile, a mobile entertainment company that claims to be behind 70 per cent of the Bollywood content distributed on cellular phones.
India is the fastest-growing large market in the world for mobile phones, adding nearly 20m subscribers a month and with total user numbers approaching 600m.
Yet, in spite of its progress on this front, the country remains a laggard in terms of internet penetration, with the most optimistic estimates suggesting it has about 70m users.
The launch of the long-delayed 3G auctions on Friday, which are expected to run throughout this week, has therefore been greeted as the beginning of the true internet age in the country.
Nine bidders are competing for slots in the country’s 22 telecom circles, with three pan-India allocations available.
Once the 3G auctions finish, the government will auction two pan India allocations for broadband wireless access spectrum.
Analysts estimate operators might pay up to $3bn for national 3G and BWA spectrum combined. This compares with a reserve price of Rs35bn ($787m) for 3G and Rs17.5bn for BWA national spectrum.
These stakes are understandable given the potential yields for operators from 3G. BDA Connect, a telecoms consultancy, estimated in a report last year that India could have 89.9m 3G subscribers by 2013. They would represent about 12 per cent of the overall wireless subscriber base and contribute nearly $16bn in revenues.
The BDA report predicted that by 2013, 3G will have led to an increase in the share of value added services of overall mobile revenue from 9 per cent to 23 per cent. This is a welcome boost for an industry in which the price of voice calls has fallen to less than one cent a minute.
Industry insiders caution, however, that sophisticated uses of 3G will initially be slow in coming to India.
The leading mobile operators are already so short of spectrum that they will at first use the new airwaves from the auction to improve services for existing users.
“There are lots of dropped calls, calls cut off in the middle and so on.
“The biggest use of 3G spectrum, as I see it unfortunately is going to be to fix those problems,” said Arvind Rao, chief executive officer of OnMobile, one of the country’s biggest developers of value added services.
He said the other problem initially facing 3G is that the people who can afford smartphones tend to be middle-aged businessmen who are less likely to use them for social networking, video television and other advanced applications.
The other challenge for the market is the difficulty of making online payments in India, a market that is under-penetrated for credit cards and in which the internet payment culture is not yet deeply embedded.
Still, many industry operators believe that even a small percentage of the overall user base in India will be enough to amount to a sizeable market. Unlike the west, 3G applications in India are expected to be entertainment driven, with Bollywood again leading the way.
Ronnie Screwvala, the head of the UTV, a film, television and gaming group, said he sees a market for short movie clips and three to five-minute television slots.
“Even 10 per cent of the mobile phone universe is 50m people and they will be substantial spenders,” said Mr Screwvala. “Whether it’s with our gaming or other aspects, such as videos and songs.”
This is caller ring-back tone, which has been one of the biggest earners for the country’s mobile phone providers at a time when they are struggling with declining revenues in conventional voice call services.
EDITOR’S CHOICE
3G auctions kick off in India - Apr-09
Now, with even this value-added service becoming commoditised, operators and application and content providers are looking towards another potential saviour – third generation mobile services.
Last Friday, the Indian government kicked off what is one of the world’s last great 3G auctions, potentially heralding the beginning of sophisticated mobile applications in India. The auction has attracted industry leaders Bharti Airtel, Reliance Communications, Vodafone Essar and others.
“3G will segment the market, giving carriers a customer who is willing to pay for access and richer content and applications,” said Neeraj Roy, chief executive officer of Hungama Mobile, a mobile entertainment company that claims to be behind 70 per cent of the Bollywood content distributed on cellular phones.
India is the fastest-growing large market in the world for mobile phones, adding nearly 20m subscribers a month and with total user numbers approaching 600m.
Yet, in spite of its progress on this front, the country remains a laggard in terms of internet penetration, with the most optimistic estimates suggesting it has about 70m users.
The launch of the long-delayed 3G auctions on Friday, which are expected to run throughout this week, has therefore been greeted as the beginning of the true internet age in the country.
Nine bidders are competing for slots in the country’s 22 telecom circles, with three pan-India allocations available.
Once the 3G auctions finish, the government will auction two pan India allocations for broadband wireless access spectrum.
Analysts estimate operators might pay up to $3bn for national 3G and BWA spectrum combined. This compares with a reserve price of Rs35bn ($787m) for 3G and Rs17.5bn for BWA national spectrum.
These stakes are understandable given the potential yields for operators from 3G. BDA Connect, a telecoms consultancy, estimated in a report last year that India could have 89.9m 3G subscribers by 2013. They would represent about 12 per cent of the overall wireless subscriber base and contribute nearly $16bn in revenues.
The BDA report predicted that by 2013, 3G will have led to an increase in the share of value added services of overall mobile revenue from 9 per cent to 23 per cent. This is a welcome boost for an industry in which the price of voice calls has fallen to less than one cent a minute.
Industry insiders caution, however, that sophisticated uses of 3G will initially be slow in coming to India.
The leading mobile operators are already so short of spectrum that they will at first use the new airwaves from the auction to improve services for existing users.
“There are lots of dropped calls, calls cut off in the middle and so on.
“The biggest use of 3G spectrum, as I see it unfortunately is going to be to fix those problems,” said Arvind Rao, chief executive officer of OnMobile, one of the country’s biggest developers of value added services.
He said the other problem initially facing 3G is that the people who can afford smartphones tend to be middle-aged businessmen who are less likely to use them for social networking, video television and other advanced applications.
The other challenge for the market is the difficulty of making online payments in India, a market that is under-penetrated for credit cards and in which the internet payment culture is not yet deeply embedded.
Still, many industry operators believe that even a small percentage of the overall user base in India will be enough to amount to a sizeable market. Unlike the west, 3G applications in India are expected to be entertainment driven, with Bollywood again leading the way.
Ronnie Screwvala, the head of the UTV, a film, television and gaming group, said he sees a market for short movie clips and three to five-minute television slots.
“Even 10 per cent of the mobile phone universe is 50m people and they will be substantial spenders,” said Mr Screwvala. “Whether it’s with our gaming or other aspects, such as videos and songs.”
Apple Tightens Reins on App Developers
Apple is tightening its already firm grip on what software can run on the iPhone and its other mobile devices, as shown by its recent changes to the rules that outside programmers must follow.
Related
*
Times Topics: iPhone | Apple Inc.
The company is locked in a battle with other cellphone makers, particularly those using Google’s Android operating system, for the latest and best applications that add functions to a phone.
The new rules, released last week, say in part that app developers may only use Apple’s programming tools. That is a problem for Adobe Systems, which announced a new package of tools on Monday that were meant to let developers create apps once and then automatically generate versions for the iPhone and other companies’ devices.
Developers will also no longer be permitted to use outside services to measure how their applications are performing. The company says it will refuse to distribute any apps in the iTunes store that violate the new agreement.
“Apple is doing everything to encourage app development, as long as it’s on their platform,” said Gene Munster, an analyst with Piper Jaffray. “The risk Apple runs is ticking off developers and causing them to want to develop on other platforms,” he said.
But until competing mobile platforms gain more traction, he said, “there’s no other place for developers to go, so Apple can call the terms however they want.”
The changes leave many start-ups and apps developers in limbo, waiting to find out whether their businesses, many of which have built a substantial clientele and taken money from venture capitalists, can still operate under the new rules.
“The truth is that right now, we don’t know a lot,” said Peter Farago, vice president of Flurry, an analytics company with offices in New York and San Francisco. “We have a list of questions.”
Flurry’s software tracks how smartphone applications are used. It has become a popular tool among developers, who have access to details like how long it takes to complete a game or to finish reading a chapter of an electronic book.
Mr. Farago said his company had asked Apple for clarification, but had not heard back.
“We think we can be compliant by doing some modifications,” he said. “We’ll do what we need to do to get that to happen.” Even so, the company is aware that it may have to rethink its business model, Mr. Farago said.
Henry Balanon, lead developer at an iPhone development company called BickBot, said he had no immediate plans to remove Flurry’s software from his applications.
“We’d have to roll our own analytics into the software, which is just a pain,” Mr. Balanon said. “But if we start getting rejections because of the analytics, we may have to reconsider.”
Industry experts like Al Hilwa, an analyst with the research firm IDC, say that Apple is tightening its grip on applications in an attempt to keep rivals at bay.
“There will be a big fistfight for developers and applications over the next few years,” he said. “This is just the early stages of the battle for mobile telephony. Apple’s financial radar is up, and they are trying to close all the holes.”
Mr. Munster, the Piper Jaffray analyst, said that the broader shift in Apple’s core revenue streams, to mobile from desktop computing, was a chief reason for the company to pressure developers. “It’s not about making money on the apps,” he said. “It’s about making money off the hardware.” Mobile devices with more apps, he said, are more attractive to buyers.
By the end of 2011, Mr. Munster said, nearly 50 percent of Apple’s total revenue will come from sales of the iPhone and iPod Touch. In 2001, 80 percent of Apple’s revenue was from its line of Mac laptops and desktop computers. That figure will slip to about 27 percent in 2011, he said.
Apple did not respond to requests for comment. But an iPhone developer named Greg Slepak sent an e-mail message to Apple’s chief executive, Steven P. Jobs, saying that the new rules were “limiting creativity.”
“We’ve been there before,” Mr. Jobs wrote in reply. “Intermediate layers between the platform and the developer ultimately produces substandard apps and hinders the progress of the platform.”
The prohibition on the use of non-Apple programming tools prompted a sharp response from an Adobe employee.
Lee Brimelow, an Adobe evangelist, wrote on his blog last week: “This is a frightening move that has no rational defense other than wanting tyrannical control over developers and more importantly, wanting to use developers as pawns in their crusade against Adobe.”
Related
*
Times Topics: iPhone | Apple Inc.
The company is locked in a battle with other cellphone makers, particularly those using Google’s Android operating system, for the latest and best applications that add functions to a phone.
The new rules, released last week, say in part that app developers may only use Apple’s programming tools. That is a problem for Adobe Systems, which announced a new package of tools on Monday that were meant to let developers create apps once and then automatically generate versions for the iPhone and other companies’ devices.
Developers will also no longer be permitted to use outside services to measure how their applications are performing. The company says it will refuse to distribute any apps in the iTunes store that violate the new agreement.
“Apple is doing everything to encourage app development, as long as it’s on their platform,” said Gene Munster, an analyst with Piper Jaffray. “The risk Apple runs is ticking off developers and causing them to want to develop on other platforms,” he said.
But until competing mobile platforms gain more traction, he said, “there’s no other place for developers to go, so Apple can call the terms however they want.”
The changes leave many start-ups and apps developers in limbo, waiting to find out whether their businesses, many of which have built a substantial clientele and taken money from venture capitalists, can still operate under the new rules.
“The truth is that right now, we don’t know a lot,” said Peter Farago, vice president of Flurry, an analytics company with offices in New York and San Francisco. “We have a list of questions.”
Flurry’s software tracks how smartphone applications are used. It has become a popular tool among developers, who have access to details like how long it takes to complete a game or to finish reading a chapter of an electronic book.
Mr. Farago said his company had asked Apple for clarification, but had not heard back.
“We think we can be compliant by doing some modifications,” he said. “We’ll do what we need to do to get that to happen.” Even so, the company is aware that it may have to rethink its business model, Mr. Farago said.
Henry Balanon, lead developer at an iPhone development company called BickBot, said he had no immediate plans to remove Flurry’s software from his applications.
“We’d have to roll our own analytics into the software, which is just a pain,” Mr. Balanon said. “But if we start getting rejections because of the analytics, we may have to reconsider.”
Industry experts like Al Hilwa, an analyst with the research firm IDC, say that Apple is tightening its grip on applications in an attempt to keep rivals at bay.
“There will be a big fistfight for developers and applications over the next few years,” he said. “This is just the early stages of the battle for mobile telephony. Apple’s financial radar is up, and they are trying to close all the holes.”
Mr. Munster, the Piper Jaffray analyst, said that the broader shift in Apple’s core revenue streams, to mobile from desktop computing, was a chief reason for the company to pressure developers. “It’s not about making money on the apps,” he said. “It’s about making money off the hardware.” Mobile devices with more apps, he said, are more attractive to buyers.
By the end of 2011, Mr. Munster said, nearly 50 percent of Apple’s total revenue will come from sales of the iPhone and iPod Touch. In 2001, 80 percent of Apple’s revenue was from its line of Mac laptops and desktop computers. That figure will slip to about 27 percent in 2011, he said.
Apple did not respond to requests for comment. But an iPhone developer named Greg Slepak sent an e-mail message to Apple’s chief executive, Steven P. Jobs, saying that the new rules were “limiting creativity.”
“We’ve been there before,” Mr. Jobs wrote in reply. “Intermediate layers between the platform and the developer ultimately produces substandard apps and hinders the progress of the platform.”
The prohibition on the use of non-Apple programming tools prompted a sharp response from an Adobe employee.
Lee Brimelow, an Adobe evangelist, wrote on his blog last week: “This is a frightening move that has no rational defense other than wanting tyrannical control over developers and more importantly, wanting to use developers as pawns in their crusade against Adobe.”
Jet Airways Predicts Return of Premium Travel to Bolster Europe
April 13 (Bloomberg) -- Jet Airways (India) Ltd., the carrier that says it was first to offer private suites in first class, predicts that business travelers will return to premium seats, helping fuel the airline’s expansion in Europe.
“We are seeing more confidence in the corporate market, and some of the more draconian travel policies are starting to loosen,” Raja Segran, Jet’s head of European operations, said in an interview. “Last year was a difficult year for us, but the worst is behind us.”
Jet, India’s largest airline, leased out part of its long-haul fleet, delayed plane orders and pared services during the global recession. At the same time, the carrier made improvements in business class, including becoming the first to offer complimentary Dom Perignon champagne.
Corporate flyers are starting to come back to more luxurious -- and expensive -- seats after a slump that followed the bankruptcy of Lehman Brothers Inc. in September 2008, Segran said. The airline, which makes more than half of its revenue from international flights after starting as a domestic carrier in 1993, plans to resume expanding in Europe by 2011, he said.
Segran has seen air traffic rebound from slumps before during a career spanning three decades. The 54-year-old executive worked for Singapore Airlines Ltd. for 26 years and joined Mumbai-based Jet in December 2007.
“In the past there has always been a kneejerk reaction, and then business travelers have always returned,” the executive said.
Filling Planes
Jet’s aircraft are already flying fuller, hitting the 78.8 percent mark in February, compared with 73.8 percent a year ago. The increase in the so-called load factor isn’t coming at the expense of ticket charges. Jet predicted April 9 that prices will rise as much as 15 percent in the next three months, improving profit margins.
“Load factors are becoming stronger but we are also seeing a firming up of prices,” said Segran. “Yields still have some way to go, but they are improving.”
Jet currently offers flights to North American destinations including New York’s John F. Kennedy International airport, from its European hub in Brussels. The airline also offers direct flights to London’s Heathrow airport from Delhi and Mumbai.
Jet may return to profit in the next 12 months as demand improves, according to Kapil Kaul, chief executive officer of the Indian unit of the Centre for Asia Pacific Aviation. The carrier, which hasn’t yet reported earnings for the year just ended, had a loss of 4.7 billion rupees ($106 million) in the fiscal year ended March 31, 2009.
Share Performance
The airline has more than doubled in the past 12 months in Mumbai trading, trailing SpiceJet Ltd., a low-cost carrier whose stock has quadrupled. Kingfisher Airlines Ltd., a Bangalore- based full-service competitor, gained 37 percent in that period. Jet Airways has leased out all but three of its Boeing Co. 777 long-haul aircraft to other carriers and is relying on its fleet of 12 Airbus A330-200 planes to fly the majority of its long-haul services, Segran said. Jet also deferred deliveries of Airbus SAS A350 widebody planes and Boeing’s 787 Dreamliner following the slump in demand.
Air travel in the Asia Pacific region increased by 13.5 percent in February compared to a year earlier, according to the International Air Transport Association. Traffic in the first two months of the year rose by 10 percent, while Europe’s growth rate was 3.5 percent.
Jet Airways started a low-cost domestic brand called Jet Konnect in May last year in response to greater demand for no- frills services, removing business-class seats from the aircraft and replacing them with a larger coach cabin.
Discount Service
Jet, which generates 44 percent of its revenue from the domestic market, also owns the low-cost carrier JetLite, which it rebranded after acquiring Sahara Airlines Ltd. in April 2007.
While premium international service is the carrier’s primary strategy, it needs a low-cost plan as well, Segran said April 9 in London, where the senior vice president is based. “If you’re not a player in that market, your fortunes will be dented.’
The Jet Konnect model may change as demand recovers, the executive said.
“If we wanted to reconvert Konnect back to full-service, it could be done without difficulty,” he said. “We are hopeful as the economy recovers, and demand and businesses grow.”
“We are seeing more confidence in the corporate market, and some of the more draconian travel policies are starting to loosen,” Raja Segran, Jet’s head of European operations, said in an interview. “Last year was a difficult year for us, but the worst is behind us.”
Jet, India’s largest airline, leased out part of its long-haul fleet, delayed plane orders and pared services during the global recession. At the same time, the carrier made improvements in business class, including becoming the first to offer complimentary Dom Perignon champagne.
Corporate flyers are starting to come back to more luxurious -- and expensive -- seats after a slump that followed the bankruptcy of Lehman Brothers Inc. in September 2008, Segran said. The airline, which makes more than half of its revenue from international flights after starting as a domestic carrier in 1993, plans to resume expanding in Europe by 2011, he said.
Segran has seen air traffic rebound from slumps before during a career spanning three decades. The 54-year-old executive worked for Singapore Airlines Ltd. for 26 years and joined Mumbai-based Jet in December 2007.
“In the past there has always been a kneejerk reaction, and then business travelers have always returned,” the executive said.
Filling Planes
Jet’s aircraft are already flying fuller, hitting the 78.8 percent mark in February, compared with 73.8 percent a year ago. The increase in the so-called load factor isn’t coming at the expense of ticket charges. Jet predicted April 9 that prices will rise as much as 15 percent in the next three months, improving profit margins.
“Load factors are becoming stronger but we are also seeing a firming up of prices,” said Segran. “Yields still have some way to go, but they are improving.”
Jet currently offers flights to North American destinations including New York’s John F. Kennedy International airport, from its European hub in Brussels. The airline also offers direct flights to London’s Heathrow airport from Delhi and Mumbai.
Jet may return to profit in the next 12 months as demand improves, according to Kapil Kaul, chief executive officer of the Indian unit of the Centre for Asia Pacific Aviation. The carrier, which hasn’t yet reported earnings for the year just ended, had a loss of 4.7 billion rupees ($106 million) in the fiscal year ended March 31, 2009.
Share Performance
The airline has more than doubled in the past 12 months in Mumbai trading, trailing SpiceJet Ltd., a low-cost carrier whose stock has quadrupled. Kingfisher Airlines Ltd., a Bangalore- based full-service competitor, gained 37 percent in that period. Jet Airways has leased out all but three of its Boeing Co. 777 long-haul aircraft to other carriers and is relying on its fleet of 12 Airbus A330-200 planes to fly the majority of its long-haul services, Segran said. Jet also deferred deliveries of Airbus SAS A350 widebody planes and Boeing’s 787 Dreamliner following the slump in demand.
Air travel in the Asia Pacific region increased by 13.5 percent in February compared to a year earlier, according to the International Air Transport Association. Traffic in the first two months of the year rose by 10 percent, while Europe’s growth rate was 3.5 percent.
Jet Airways started a low-cost domestic brand called Jet Konnect in May last year in response to greater demand for no- frills services, removing business-class seats from the aircraft and replacing them with a larger coach cabin.
Discount Service
Jet, which generates 44 percent of its revenue from the domestic market, also owns the low-cost carrier JetLite, which it rebranded after acquiring Sahara Airlines Ltd. in April 2007.
While premium international service is the carrier’s primary strategy, it needs a low-cost plan as well, Segran said April 9 in London, where the senior vice president is based. “If you’re not a player in that market, your fortunes will be dented.’
The Jet Konnect model may change as demand recovers, the executive said.
“If we wanted to reconvert Konnect back to full-service, it could be done without difficulty,” he said. “We are hopeful as the economy recovers, and demand and businesses grow.”
IPads in India Fetch $2,250 as Apple Fans Refuse to Be Patient
April 13 (Bloomberg) -- Anthony Agius says his decision to pay A$2,500 ($2,300) to travel to New York from Melbourne to buy 20 iPads is something only fellow Apple Inc. fans will fully understand.
“Any sane, rational person shouldn’t do it,” said Agius, 25, who edits a Web log about Apple products. “Some of my friends, who I wasn’t able to get an iPad for, are in pain right now.”
Agius’s passion and the frustration of his friends are shared by technophiles from Mumbai to Germany. The company will begin sales outside the U.S. later this month, though Apple Chief Executive Officer Steve Jobs hasn’t given an exact date.
Amit Jain has capitalized on that uncertainty. Jain, who owns an electronics shop in Mumbai, said he sold five 64- gigabyte iPads for 100,000 rupees ($2,250) each as of April 7 after they reached India through the so-called gray market, or unofficial distributors. That’s triple the $699 the touch-screen tablet computer retails for in the U.S.
“We have customers who are willing to buy,” said 30 year- old Jain. “So we maintain our margins.”
The iPad will be available in Australia, Canada, France, Germany, Italy, Japan, Spain, Switzerland and the U.K. in late April, Apple said March 5. The Cupertino, California-based company sold more than 450,000 iPads in less than a week after its introduction, Apple’s Jobs said April 8.
Outside the U.S.
Consumers outside the U.S. will account for almost half of iPad customers this year, according to Brian Marshall, an analyst at Broadpoint AmTech Inc. in San Francisco, who predicts a total of 4 million of the touch-screen devices will be sold worldwide by year-end.
“The international component for the iPad will be important,” Marshall said in a telephone interview. “This is going to be a wildly successful product.”
Listings for iPads on EBay Inc.’s Web site surged fivefold in the week ended April 3 as early buyers in the U.S. targeted consumers who can’t yet buy the device in their home countries. One purchaser from the U.K. paid $5,500, more than 10 times the $499 asking price for the least-expensive iPad, EBay said.
Apple may sell 7.1 million iPads worldwide in 2010 and double sales to 14.4 million next year and 20.1 million in 2012, researcher ISuppli Corp. said this month. The estimates are conservative and factors such as “swift feature enhancements” may help sales exceed its initial projections, ISuppli said. Sales in North America will account for most iPad shipments in 2010, ISuppli said.
“While non-U.S. sales will contribute a decent amount when you aggregate all of the other regions, the primary driving force will be U.S. sales,” said Francis Sideco, an analyst at El Segundo, California-based ISuppli.
Apple rose 2.5 percent in the five trading days after the U.S. release, compared with a 1.4 percent gain in the S&P 500 index.
Willing to Wait
Not all Apple fans are willing to pay a premium to have an iPad early. Claire Espinoza, 41, who works in marketing in London, plans to wait.
“It’s a very slick-looking device and I’d love to have one,” Espinoza said. Still, “I’ll wait until more people have them and any bugs are worked out.”
Apple began selling three of the six iPad versions it plans to offer, with first buyers getting models that connect to the Web via Wi-Fi. IPads that support so-called third-generation mobile-phone networks will go on sale in the U.S. later this month.
Hong Kong, Germany
Aggole Leung, 35, a graphic designer in Hong Kong and self- professed “big fan” of Apple products, said he ordered one through the www.bundlebox.com Web site, which enables customers overseas to buy products in the U.S., paying about HK$4,000 ($515) including shipping cost.
“I think it will be a hit here,” said Marcel Pimentel, 40, a preschool teacher in Germany who has used other Apple products including the iPod Nano. He said he’s not concerned about the iPad’s release date in the country “as long as they provide it.”
In Mumbai, Jain, the electronics store owner, is in no hurry to have the iPad widely available in India.
“We have the ability to get the product anyway,” said Jain who has a colleague in the U.S. to buy it for him. “The hype will sell.”
He said he had 30 customers waiting for the next shipment.
“Any sane, rational person shouldn’t do it,” said Agius, 25, who edits a Web log about Apple products. “Some of my friends, who I wasn’t able to get an iPad for, are in pain right now.”
Agius’s passion and the frustration of his friends are shared by technophiles from Mumbai to Germany. The company will begin sales outside the U.S. later this month, though Apple Chief Executive Officer Steve Jobs hasn’t given an exact date.
Amit Jain has capitalized on that uncertainty. Jain, who owns an electronics shop in Mumbai, said he sold five 64- gigabyte iPads for 100,000 rupees ($2,250) each as of April 7 after they reached India through the so-called gray market, or unofficial distributors. That’s triple the $699 the touch-screen tablet computer retails for in the U.S.
“We have customers who are willing to buy,” said 30 year- old Jain. “So we maintain our margins.”
The iPad will be available in Australia, Canada, France, Germany, Italy, Japan, Spain, Switzerland and the U.K. in late April, Apple said March 5. The Cupertino, California-based company sold more than 450,000 iPads in less than a week after its introduction, Apple’s Jobs said April 8.
Outside the U.S.
Consumers outside the U.S. will account for almost half of iPad customers this year, according to Brian Marshall, an analyst at Broadpoint AmTech Inc. in San Francisco, who predicts a total of 4 million of the touch-screen devices will be sold worldwide by year-end.
“The international component for the iPad will be important,” Marshall said in a telephone interview. “This is going to be a wildly successful product.”
Listings for iPads on EBay Inc.’s Web site surged fivefold in the week ended April 3 as early buyers in the U.S. targeted consumers who can’t yet buy the device in their home countries. One purchaser from the U.K. paid $5,500, more than 10 times the $499 asking price for the least-expensive iPad, EBay said.
Apple may sell 7.1 million iPads worldwide in 2010 and double sales to 14.4 million next year and 20.1 million in 2012, researcher ISuppli Corp. said this month. The estimates are conservative and factors such as “swift feature enhancements” may help sales exceed its initial projections, ISuppli said. Sales in North America will account for most iPad shipments in 2010, ISuppli said.
“While non-U.S. sales will contribute a decent amount when you aggregate all of the other regions, the primary driving force will be U.S. sales,” said Francis Sideco, an analyst at El Segundo, California-based ISuppli.
Apple rose 2.5 percent in the five trading days after the U.S. release, compared with a 1.4 percent gain in the S&P 500 index.
Willing to Wait
Not all Apple fans are willing to pay a premium to have an iPad early. Claire Espinoza, 41, who works in marketing in London, plans to wait.
“It’s a very slick-looking device and I’d love to have one,” Espinoza said. Still, “I’ll wait until more people have them and any bugs are worked out.”
Apple began selling three of the six iPad versions it plans to offer, with first buyers getting models that connect to the Web via Wi-Fi. IPads that support so-called third-generation mobile-phone networks will go on sale in the U.S. later this month.
Hong Kong, Germany
Aggole Leung, 35, a graphic designer in Hong Kong and self- professed “big fan” of Apple products, said he ordered one through the www.bundlebox.com Web site, which enables customers overseas to buy products in the U.S., paying about HK$4,000 ($515) including shipping cost.
“I think it will be a hit here,” said Marcel Pimentel, 40, a preschool teacher in Germany who has used other Apple products including the iPod Nano. He said he’s not concerned about the iPad’s release date in the country “as long as they provide it.”
In Mumbai, Jain, the electronics store owner, is in no hurry to have the iPad widely available in India.
“We have the ability to get the product anyway,” said Jain who has a colleague in the U.S. to buy it for him. “The hype will sell.”
He said he had 30 customers waiting for the next shipment.
Sunday, April 11, 2010
Euro Strengthens as Stocks, Commodities Gain on Greek Aid Plan
April 12 (Bloomberg) -- The euro gained for a third day against the dollar, stocks climbed and commodities jumped after European governments unveiled a plan to halt Greece’s fiscal crisis.
Europe’s currency strengthened 1 percent against the dollar to $1.3634 at 11:05 a.m. in Tokyo and rose against all 16 of its most-traded counterparts. The MSCI World Index added 0.5 percent, and Standard & Poor’s 500 Index futures advanced 0.4 percent. Oil increased 0.7 percent and copper gained 1.2 percent.
Euro-region finance ministers pledged as much as 45 billion euros ($61 billion) in loans at below-market interest rates to help rescue debt-plagued Greece and restore confidence in the European currency, which weakened 4.8 percent against the dollar this year. The bailout, combined with expectations of faster economic growth in India and South Korea, improved investor sentiment in Asia, where the MSCI Asia Pacific Index jumped 0.8 percent to 129.06, the highest since August 2008.
“The development in Greece is giving market sentiments a boost because it eases concerns of a default among European nations facing debt problems,” said Olan Caperina, a fund manager at Bank of the Philippine Islands, which manages $9.7 billion. “The economic data coming out, like the recent retail trend in the U.S., are also positive. Investors have reasons to turn positive and put in money into the markets.”
Rescue Plan
Europe’s currency rose 1 percent to 127.07 yen after European nations and the International Monetary Fund pledged to provide three-year loans with a rate of about 5 percent, compared with 6.98 percent on Greek three-year securities. The agreement, aimed at stopping Greece’s financial distress from infecting the rest of the region, damped concerns about the viability of the euro, which was created in 1999.
The pact also may remove an impediment to the global economic recovery now being led by Asian nations. South Korea’s won rose 0.5 percent to 1,112.35 per dollar, reaching the strongest level in more than 18 months, as the central bank raised its economic growth forecast and a rescue package for Greece boosted demand for higher-yielding assets.
Copper in London cracked the $8,000-a-ton level and rallied to the highest level since Aug. 1 2008 as the dollar declined and after China’s imports surged in March on rising seasonal demand. The metal for delivery in three months gained as much as $8,043.75 a metric ton. Aluminum advanced 0.8 percent to $2,425 a ton. Gold for immediate delivery rose as much as 0.7 percent to a four-month high of $1,170 an ounce.
Oil rose for the first time in four days as the dollar fell after European governments offered debt-burdened Greece a rescue package and China increased crude imports to meet surging demand.
Oil Rises
Oil advanced 0.7 percent to $85.54 as the weaker dollar bolstered the appeal of commodities as an alternative investment.
“China is playing a key role in underpinning global demand for commodities, including crude,” said Toby Hassall, a research analyst at CWA Global Markets Pty in Sydney. “The Greek rescue plan, which is going to be driving the markets today, resolves a lot of the uncertainty. A weaker dollar is a supportive element for oil prices.”
Advancing stocks beat decliners by more than three to one on the MSCI Asia Pacific Index. Japan’s Nikkei 225 Stock Average increased 1.1 percent, the biggest increase among major equity benchmarks in Asia.
BHP Billiton Ltd., the world’s largest mining company, gained 1.3 percent to A$44.46 in Sydney , and Mitsubishi Corp., Japan’s largest commodities trader, climbed 2 percent to 2,491 yen. Nintendo Co., a game maker that gets 34 percent of its revenue in Europe, increased 3.6 percent to 31,450 yen in Osaka. Toyota Motor Corp., the Japanese carmaker that gets 31 percent of its revenue in North America, rose 1.4 percent to 3,755 yen after U.S. wholesale inventories climbed more than estimated.
Futures on the Standard & Poor’s 500 Index climbed following the index’s 0.7 percent advance on April 9 to the highest close since September 2008. Inventories at U.S. wholesalers rose 0.6 percent in February, suggesting businesses are ramping up orders, a Commerce Department report showed. Economists had estimated a 0.4 percent increase.
Europe’s currency strengthened 1 percent against the dollar to $1.3634 at 11:05 a.m. in Tokyo and rose against all 16 of its most-traded counterparts. The MSCI World Index added 0.5 percent, and Standard & Poor’s 500 Index futures advanced 0.4 percent. Oil increased 0.7 percent and copper gained 1.2 percent.
Euro-region finance ministers pledged as much as 45 billion euros ($61 billion) in loans at below-market interest rates to help rescue debt-plagued Greece and restore confidence in the European currency, which weakened 4.8 percent against the dollar this year. The bailout, combined with expectations of faster economic growth in India and South Korea, improved investor sentiment in Asia, where the MSCI Asia Pacific Index jumped 0.8 percent to 129.06, the highest since August 2008.
“The development in Greece is giving market sentiments a boost because it eases concerns of a default among European nations facing debt problems,” said Olan Caperina, a fund manager at Bank of the Philippine Islands, which manages $9.7 billion. “The economic data coming out, like the recent retail trend in the U.S., are also positive. Investors have reasons to turn positive and put in money into the markets.”
Rescue Plan
Europe’s currency rose 1 percent to 127.07 yen after European nations and the International Monetary Fund pledged to provide three-year loans with a rate of about 5 percent, compared with 6.98 percent on Greek three-year securities. The agreement, aimed at stopping Greece’s financial distress from infecting the rest of the region, damped concerns about the viability of the euro, which was created in 1999.
The pact also may remove an impediment to the global economic recovery now being led by Asian nations. South Korea’s won rose 0.5 percent to 1,112.35 per dollar, reaching the strongest level in more than 18 months, as the central bank raised its economic growth forecast and a rescue package for Greece boosted demand for higher-yielding assets.
Copper in London cracked the $8,000-a-ton level and rallied to the highest level since Aug. 1 2008 as the dollar declined and after China’s imports surged in March on rising seasonal demand. The metal for delivery in three months gained as much as $8,043.75 a metric ton. Aluminum advanced 0.8 percent to $2,425 a ton. Gold for immediate delivery rose as much as 0.7 percent to a four-month high of $1,170 an ounce.
Oil rose for the first time in four days as the dollar fell after European governments offered debt-burdened Greece a rescue package and China increased crude imports to meet surging demand.
Oil Rises
Oil advanced 0.7 percent to $85.54 as the weaker dollar bolstered the appeal of commodities as an alternative investment.
“China is playing a key role in underpinning global demand for commodities, including crude,” said Toby Hassall, a research analyst at CWA Global Markets Pty in Sydney. “The Greek rescue plan, which is going to be driving the markets today, resolves a lot of the uncertainty. A weaker dollar is a supportive element for oil prices.”
Advancing stocks beat decliners by more than three to one on the MSCI Asia Pacific Index. Japan’s Nikkei 225 Stock Average increased 1.1 percent, the biggest increase among major equity benchmarks in Asia.
BHP Billiton Ltd., the world’s largest mining company, gained 1.3 percent to A$44.46 in Sydney , and Mitsubishi Corp., Japan’s largest commodities trader, climbed 2 percent to 2,491 yen. Nintendo Co., a game maker that gets 34 percent of its revenue in Europe, increased 3.6 percent to 31,450 yen in Osaka. Toyota Motor Corp., the Japanese carmaker that gets 31 percent of its revenue in North America, rose 1.4 percent to 3,755 yen after U.S. wholesale inventories climbed more than estimated.
Futures on the Standard & Poor’s 500 Index climbed following the index’s 0.7 percent advance on April 9 to the highest close since September 2008. Inventories at U.S. wholesalers rose 0.6 percent in February, suggesting businesses are ramping up orders, a Commerce Department report showed. Economists had estimated a 0.4 percent increase.
Mortgage Bonds Weather End of Fed’s Purchases: Credit Markets
April 12 (Bloomberg) -- Yields on mortgage bonds with government-backed guarantees fell relative to U.S. government debt in the first full week of trading after the Federal Reserve ended its unprecedented purchase program, bolstering credit for housing as the economy begins to create jobs.
Yields on Fannie Mae’s current-coupon 30-year mortgage bonds declined to within 0.66 percentage point of 10-year Treasuries last week, according to data compiled by Bloomberg. Spreads shrank after widening from a record low 0.59 percentage point on March 29 to 0.69 percentage point April 1, a day after the Fed completed its $1.25 trillion program.
Investors are betting that plans by Washington-based Fannie Mae and Freddie Mac in McLean, Virginia, to buy delinquent loans from securities they guarantee will return cash to holders who will invest the money back in the $5.4 trillion market, said Paul Norris of Dwight Asset Management Co. Spreads averaged 2.08 percentage points on Nov. 24, 2008, the day before the Fed said it would start buying the debt to ease credit for home loans.
“Spreads are probably going to hang in there for a little bit,” said Norris, who oversees $15 billion as a senior money manager at the Burlington, Vermont-based firm he joined from Fannie Mae last year.
Freddie Mac began its buyouts in February by repurchasing most loans already more than 120 days late, with Fannie Mae choosing to move at a slower pace. The initiatives by the government-supported companies, which are meant to cut their expenses, are equivalent to six to seven months of Fed purchases, according to Credit Suisse Group AG.
Spreads, Greece
Elsewhere in credit markets, the cost for companies to sell bonds fell for an eighth straight week, helping to accelerate the pace of debt offerings. Prices of high-yield, high-risk, or leveraged, loans also rose for the eighth week.
European governments put an aid package together worth as much as 45 billion euros ($61 billion) for debt-burdened Greece. Finance ministers from the 16 euro countries agreed they would offer three-year loans at an interest rate of about 5 percent, Luxembourg Prime Minister Jean-Claude Juncker said yesterday at a press conference in Brussels. Part of the total will come from the International Monetary Fund, he said.
Greek bonds climbed on April 9, trimming weekly declines, as speculation mounted a rescue accord was nearing completion. The yield on the two-year note slid 65 basis points to 7.16 percent after surging more than 250 basis points the previous three days. The 10-year bond yield declined 16 basis points to 7.21 percent.
Rising Yields
The extra yield investors demand to own corporate bonds instead of government debt fell 3 basis points last week to 146 basis points, or 1.46 percentage point, Bank of America Merrill Lynch’s Global Broad Market Corporate index shows. The spread is the narrowest since November 2007 and down from 176 basis points on Dec. 31 and the record 511 basis points in March 2009.
Yields overall rose to 4.04 percent from 4.02 percent. Corporate bonds have returned 2.85 percent this year, including reinvested interest, compared with 1.19 percent for government bonds, Bank of America Merrill Lynch indexes show.
Companies worldwide sold $31.2 billion of debt last week, up from $24.4 billion the previous period, according to data compiled by Bloomberg. Sales total $790.1 billion year-to-date, compared with $1.09 trillion at this point in 2009.
Growing Economies
Signs of an improving economy should help “risky” assets continue to outperform, according to debt strategists at New York-based JPMorgan Chase & Co. In a weekly report dated April 9, the bank recommended investment-grade and high-yield company bonds, “top quality” commercial mortgage bonds and securities backed by consumer loans.
“Given strengthening economic fundamentals, as well as limited supply in many asset classes, we remain positive on risky assets broadly,” the analysts including Srinivasan Ramaswamy, wrote in the report.
The economy of the Group of Seven nations grew 1.9 percent in the first three months of the year from the prior period on an annualized basis and will expand 2.3 percent in the current quarter, the Paris-based Organization for Economic Cooperation and Development said April 7.
A benchmark indicator of U.S. corporate credit risk rose last week. The Markit CDX North America Investment Grade Index Series 14, which investors use to hedge against losses on corporate debt or to speculate on creditworthiness, increased 0.4 basis point to a mid-price of 85.5 basis points on April 9, according to Markit Group Ltd.
The index, which has fluctuated between 82.5 and 90 since the start of March after falling from 106.2 on Feb. 8, typically declines as investor confidence improves and rises as it deteriorates.
Russia Returns
Russian officials will meet with investors in Europe, Asia and the U.S. this week as the country seeks to sell foreign- currency bonds for the first time since 1998. The government said last year it may borrow as much as $17.8 billion abroad in 2010 to help plug its budget deficit and establish a new benchmark for corporate borrowing.
Meetings will be held in Frankfurt and Munich on April 13, London and Singapore on April 14 and London and Hong Kong on April 15, according to a banker with knowledge of the plans who declined to be identified because the terms weren’t set. In the U.S., the meetings will be held in Boston on April 16, Los Angeles on April 19, San Francisco on April 20 and will end in New York on April 21.
Loan Market
In the loan market, prices on the Standard & Poor’s/LSTA U.S. Leveraged Loan 100 Index, which tracks the 100 largest dollar-denominated first-lien leveraged loans, ended last week at 92.25 cents on the dollar, the highest level since June 23, 2008, when the gauge closed at 92.28 cents.
Leveraged, or high-yield, loans are rated below Baa3 by Moody’s Investors Service and less than BBB- by S&P. About 20 billion of loans are in the pipeline as the market recovers, according to JPMorgan. About $22.3 billion of institutional loans have been completed since the end of February, compared with $38 billion for all of last year, the firm estimates.
The Fed began buying mortgage bonds in January 2009 to restrain financing costs amid the worst housing slump since the 1930s. Home prices in 20 metropolitan areas tumbled 33 percent from July 2006 through April 2009, then rose for five months before declining by a lesser amount over the next four, according to an S&P/Case-Shiller index.
Mortgage Rates
The market for so-called agency mortgage securities includes those guaranteed by Fannie Mae, Freddie Mac or U.S. agency Ginnie Mae. Yields on current-coupon bonds, or those trading closest to face value, are guiding rates on almost all new U.S. home lending following the collapse of the non-agency market in 2007 and a retreat by banks.
Yields on Fannie Mae’s securities declined to 4.54 on April 9, from an eight-month high of 4.67 percent on April 5, Bloomberg data show.
The average rate on a typical 30-year fixed-rate mortgage fell to a record low of 4.71 percent in the week ended Dec. 3, from last year’s high of 5.59 percent in June, before climbing to 5.21 percent in the week ended April 8, according to McLean, Virginia-based Freddie Mac. Rising yields on benchmark Treasuries amid record U.S. debt auctions and signs of an improving economy drove the advance, before recent drops.
Fannie Mae and Freddie Mac’s buyout programs targeted about $160 billion of loans more than four months delinquent, with “ongoing” purchases from newly soured debt likely to equal $100 billion to $120 billion, according to an April 8 report by Credit Suisse. The purchases most affect securities with higher coupons than current-coupon debt.
“Over the next months, spreads are probably going to head wider,” said Norris at Dwight Asset. “I’m not sure we’re seeing that money come back into the market.”
Seeking CMBS
Spreads for the Fannie Mae current-coupon securities on a so-called option-adjusted basis, a benchmark used by some investors that takes into account prepayment uncertainty, against interest-rate swaps have widened to 0.09 percentage point from as low as negative 0.22 percentage point on Dec. 21, according to Bloomberg data. That suggests some investors may be viewing spreads as more attractive.
Investors including banks and insurers may end up being more interested in using the money to buy commercial-mortgage- backed securities, which carry higher yields, or even Treasuries, whose maturities wouldn’t extend if benchmark rates rise, as happens with home-loan bonds’ cash flows as forecasted refinancing drops, Norris said.
Treasury Yields
Higher Treasury yields, or borrowing costs, often push spreads wider because the expected average lives of home-loan bonds and loan-servicing contracts increase as refinancing becomes less attractive, leaving holders with portfolios of longer-than-expected durations. Investors then may seek to pare durations by selling longer-dated Treasury securities, mortgage bonds and interest-rate swaps.
The most-senior commercial-mortgage securities yield 2.47 percentage points more than 10-year Treasuries, down from 4.25 percentage points at the start of the year, according to Morgan Stanley data.
“The market remains vulnerable” if prices of government notes decline and yields rise, New York-based Credit Suisse analysts led by Mahesh Swaminathan wrote in a report. That’s because Fannie Mae and Freddie Mac, whose on-balance-sheet holdings are capped under their support agreements, have typically been the most active buyers of mortgage bonds trading at “deep” discounts to face value, they said.
Yields on Fannie Mae’s current-coupon 30-year mortgage bonds declined to within 0.66 percentage point of 10-year Treasuries last week, according to data compiled by Bloomberg. Spreads shrank after widening from a record low 0.59 percentage point on March 29 to 0.69 percentage point April 1, a day after the Fed completed its $1.25 trillion program.
Investors are betting that plans by Washington-based Fannie Mae and Freddie Mac in McLean, Virginia, to buy delinquent loans from securities they guarantee will return cash to holders who will invest the money back in the $5.4 trillion market, said Paul Norris of Dwight Asset Management Co. Spreads averaged 2.08 percentage points on Nov. 24, 2008, the day before the Fed said it would start buying the debt to ease credit for home loans.
“Spreads are probably going to hang in there for a little bit,” said Norris, who oversees $15 billion as a senior money manager at the Burlington, Vermont-based firm he joined from Fannie Mae last year.
Freddie Mac began its buyouts in February by repurchasing most loans already more than 120 days late, with Fannie Mae choosing to move at a slower pace. The initiatives by the government-supported companies, which are meant to cut their expenses, are equivalent to six to seven months of Fed purchases, according to Credit Suisse Group AG.
Spreads, Greece
Elsewhere in credit markets, the cost for companies to sell bonds fell for an eighth straight week, helping to accelerate the pace of debt offerings. Prices of high-yield, high-risk, or leveraged, loans also rose for the eighth week.
European governments put an aid package together worth as much as 45 billion euros ($61 billion) for debt-burdened Greece. Finance ministers from the 16 euro countries agreed they would offer three-year loans at an interest rate of about 5 percent, Luxembourg Prime Minister Jean-Claude Juncker said yesterday at a press conference in Brussels. Part of the total will come from the International Monetary Fund, he said.
Greek bonds climbed on April 9, trimming weekly declines, as speculation mounted a rescue accord was nearing completion. The yield on the two-year note slid 65 basis points to 7.16 percent after surging more than 250 basis points the previous three days. The 10-year bond yield declined 16 basis points to 7.21 percent.
Rising Yields
The extra yield investors demand to own corporate bonds instead of government debt fell 3 basis points last week to 146 basis points, or 1.46 percentage point, Bank of America Merrill Lynch’s Global Broad Market Corporate index shows. The spread is the narrowest since November 2007 and down from 176 basis points on Dec. 31 and the record 511 basis points in March 2009.
Yields overall rose to 4.04 percent from 4.02 percent. Corporate bonds have returned 2.85 percent this year, including reinvested interest, compared with 1.19 percent for government bonds, Bank of America Merrill Lynch indexes show.
Companies worldwide sold $31.2 billion of debt last week, up from $24.4 billion the previous period, according to data compiled by Bloomberg. Sales total $790.1 billion year-to-date, compared with $1.09 trillion at this point in 2009.
Growing Economies
Signs of an improving economy should help “risky” assets continue to outperform, according to debt strategists at New York-based JPMorgan Chase & Co. In a weekly report dated April 9, the bank recommended investment-grade and high-yield company bonds, “top quality” commercial mortgage bonds and securities backed by consumer loans.
“Given strengthening economic fundamentals, as well as limited supply in many asset classes, we remain positive on risky assets broadly,” the analysts including Srinivasan Ramaswamy, wrote in the report.
The economy of the Group of Seven nations grew 1.9 percent in the first three months of the year from the prior period on an annualized basis and will expand 2.3 percent in the current quarter, the Paris-based Organization for Economic Cooperation and Development said April 7.
A benchmark indicator of U.S. corporate credit risk rose last week. The Markit CDX North America Investment Grade Index Series 14, which investors use to hedge against losses on corporate debt or to speculate on creditworthiness, increased 0.4 basis point to a mid-price of 85.5 basis points on April 9, according to Markit Group Ltd.
The index, which has fluctuated between 82.5 and 90 since the start of March after falling from 106.2 on Feb. 8, typically declines as investor confidence improves and rises as it deteriorates.
Russia Returns
Russian officials will meet with investors in Europe, Asia and the U.S. this week as the country seeks to sell foreign- currency bonds for the first time since 1998. The government said last year it may borrow as much as $17.8 billion abroad in 2010 to help plug its budget deficit and establish a new benchmark for corporate borrowing.
Meetings will be held in Frankfurt and Munich on April 13, London and Singapore on April 14 and London and Hong Kong on April 15, according to a banker with knowledge of the plans who declined to be identified because the terms weren’t set. In the U.S., the meetings will be held in Boston on April 16, Los Angeles on April 19, San Francisco on April 20 and will end in New York on April 21.
Loan Market
In the loan market, prices on the Standard & Poor’s/LSTA U.S. Leveraged Loan 100 Index, which tracks the 100 largest dollar-denominated first-lien leveraged loans, ended last week at 92.25 cents on the dollar, the highest level since June 23, 2008, when the gauge closed at 92.28 cents.
Leveraged, or high-yield, loans are rated below Baa3 by Moody’s Investors Service and less than BBB- by S&P. About 20 billion of loans are in the pipeline as the market recovers, according to JPMorgan. About $22.3 billion of institutional loans have been completed since the end of February, compared with $38 billion for all of last year, the firm estimates.
The Fed began buying mortgage bonds in January 2009 to restrain financing costs amid the worst housing slump since the 1930s. Home prices in 20 metropolitan areas tumbled 33 percent from July 2006 through April 2009, then rose for five months before declining by a lesser amount over the next four, according to an S&P/Case-Shiller index.
Mortgage Rates
The market for so-called agency mortgage securities includes those guaranteed by Fannie Mae, Freddie Mac or U.S. agency Ginnie Mae. Yields on current-coupon bonds, or those trading closest to face value, are guiding rates on almost all new U.S. home lending following the collapse of the non-agency market in 2007 and a retreat by banks.
Yields on Fannie Mae’s securities declined to 4.54 on April 9, from an eight-month high of 4.67 percent on April 5, Bloomberg data show.
The average rate on a typical 30-year fixed-rate mortgage fell to a record low of 4.71 percent in the week ended Dec. 3, from last year’s high of 5.59 percent in June, before climbing to 5.21 percent in the week ended April 8, according to McLean, Virginia-based Freddie Mac. Rising yields on benchmark Treasuries amid record U.S. debt auctions and signs of an improving economy drove the advance, before recent drops.
Fannie Mae and Freddie Mac’s buyout programs targeted about $160 billion of loans more than four months delinquent, with “ongoing” purchases from newly soured debt likely to equal $100 billion to $120 billion, according to an April 8 report by Credit Suisse. The purchases most affect securities with higher coupons than current-coupon debt.
“Over the next months, spreads are probably going to head wider,” said Norris at Dwight Asset. “I’m not sure we’re seeing that money come back into the market.”
Seeking CMBS
Spreads for the Fannie Mae current-coupon securities on a so-called option-adjusted basis, a benchmark used by some investors that takes into account prepayment uncertainty, against interest-rate swaps have widened to 0.09 percentage point from as low as negative 0.22 percentage point on Dec. 21, according to Bloomberg data. That suggests some investors may be viewing spreads as more attractive.
Investors including banks and insurers may end up being more interested in using the money to buy commercial-mortgage- backed securities, which carry higher yields, or even Treasuries, whose maturities wouldn’t extend if benchmark rates rise, as happens with home-loan bonds’ cash flows as forecasted refinancing drops, Norris said.
Treasury Yields
Higher Treasury yields, or borrowing costs, often push spreads wider because the expected average lives of home-loan bonds and loan-servicing contracts increase as refinancing becomes less attractive, leaving holders with portfolios of longer-than-expected durations. Investors then may seek to pare durations by selling longer-dated Treasury securities, mortgage bonds and interest-rate swaps.
The most-senior commercial-mortgage securities yield 2.47 percentage points more than 10-year Treasuries, down from 4.25 percentage points at the start of the year, according to Morgan Stanley data.
“The market remains vulnerable” if prices of government notes decline and yields rise, New York-based Credit Suisse analysts led by Mahesh Swaminathan wrote in a report. That’s because Fannie Mae and Freddie Mac, whose on-balance-sheet holdings are capped under their support agreements, have typically been the most active buyers of mortgage bonds trading at “deep” discounts to face value, they said.
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