WASHINGTON — Six months after the revelation of a secret nuclear enrichment site in Iran, international inspectors and Western intelligence agencies say they suspect that Tehran is preparing to build more sites in defiance of United Nations demands.
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The United Nations inspectors assigned to monitor Iran’s nuclear program are now searching for evidence of two such sites, prompted by recent comments by a top Iranian official that drew little attention in the West, and are looking into a mystery about the whereabouts of recently manufactured uranium enrichment equipment.
In an interview with the Iranian Student News Agency, the official, Ali Akbar Salehi, head of Iran’s Atomic Energy Organization, said President Mahmoud Ahmadinejad had ordered work to begin soon on two new plants. The plants, he said, “will be built inside mountains,” presumably to protect them from attacks.
“God willing,” Mr. Salehi was quoted as saying, “we may start the construction of two new enrichment sites” in the Iranian new year, which began March 21.
The revelation that inspectors from the International Atomic Energy Agency, the United Nations’ nuclear watchdog, now believe that there may be two new sites comes at a crucial moment in the White House’s attempts to impose tough new sanctions against Iran.
When President Obama publicly revealed the evidence of the hidden site at Qum last September, his aides had hoped the announcement would make it easier to win international support for a fourth round of economic sanctions, particularly from a reluctant China and Russia. Since then, however, the White House has been struggling to persuade those countries to go along with the toughest sanctions and the administration is now being forced to scale back its proposed list of sanctions.
The United Nations inspectors operate separately from the diplomats who are developing sanctions. Still, the disclosures may be intended, at least in part, to underscore the belief of Western officials that the Iranian efforts are speeding ahead, and the assertions could aid in efforts to press Iran to open up locations long closed to inspectors.
This article was based on interviews with officials of several governments and international agencies deeply involved in the hunt for additional nuclear sites in Iran, and familiar with the work of the I.A.E.A., the only organization with regular access to Iran’s known nuclear facilities. All the officials insisted on anonymity because the search involves not only satellite surveillance, but also intelligence gleaned from highly classified operations.
American officials say they share the I.A.E.A.’s suspicions and are examining satellite evidence about a number of suspected sites. But they have found no solid clues yet that Iran intends to use them to produce nuclear fuel, and they are less certain about the number of sites Iran may be planning.
In any case, no new processing site would pose an immediate threat or change the American estimates that it will still take Iran one to four years to obtain the capability to build a nuclear weapon. Given the complexity of building and opening new plants, it would probably take several years for the country to enrich uranium at any of the new sites.
One European official noted that “while we have some evidence,” Iran’s heavy restrictions on where inspectors can travel and the existence of numerous tunneling projects were making the detection of any new enrichment plants especially difficult.
Iran boasted several months ago, after the disclosure of the Qum site, that it would build 10 more enrichment plants in coming years. That number was dismissed by American officials and others as a fantasy, far beyond Iran’s abilities, or its budget.
But I.A.E.A. inspectors in Vienna now believe that Mr. Salehi was probably accurate when he referred to two sites.
According to American officials, in recent weeks Israel — which uncovered some of the evidence about Qum — has pressed the case with their American counterparts that evidence points to what one senior administration official called “Qum look-alikes.”
The most compelling circumstantial evidence, people familiar with the inspectors’ view say, is that while Iran appears to be making new equipment to enrich uranium, that equipment is not showing up in the main plant that inspectors visit regularly. Nor is it at the Natanz site in the desert, or the new facility at Qum, which inspectors now visit periodically.
That has heightened suspicions that the equipment, produced in small factories around Iran, is being held in a clandestine storage area for later shipment or installed elsewhere.
Saturday, March 27, 2010
Freed Guantanamo Inmate Likely With Taliban, U.S. Official Says
Abdul Hafiz, a terror suspect released from the Guantanamo Bay prison last December, likely has joined the Taliban in Afghanistan, a U.S. counterterrorism official said.
If true, it would be the first known case of a former detainee at the facility in Cuba enlisting with a terrorist group after being released by President Barack Obama’s administration.
The official, who spoke on condition of anonymity, said Hafiz’s role in the Taliban hasn’t been determined. And an administration official, also speaking on condition of anonymity, said the intelligence on Hafiz’s status remains unclear and incomplete.
The likelihood that Hafiz is with the Taliban was first reported by the Long War Journal, a Mount Laurel, New Jersey- based publication that reports on intelligence matters.
In a Feb. 1 letter to House Speaker Nancy Pelosi, White House counterterrorism adviser John Brennan said all former detainees suspected or confirmed to have joined militant groups had been set free under President George W. Bush. In his letter, Brennan said 20 percent of freed Guantanamo detainees were known or suspected of having terrorist ties after their release.
The Bush administration released more than 530 detainees while the Obama administration has freed 57 so far. Guantanamo still holds 183 detainees.
Congressional Republicans have been trying to get confirmation about Hafiz.
If he has joined the Taliban, “it would tell you this is one colossal mistake” to have released him, said Representative Pete Hoekstra of Michigan, ranking Republican on the House Intelligence Committee. “It typically takes a pretty extended period of time” to confirm such information, he said.
Linked to Murder
Hafiz, a citizen of Afghanistan, had been linked to the murder of an International Red Cross worker in Afghanistan and was working with the Taliban, according to a Defense Department memo obtained by the New York Times. When captured in April 2003, he was trying to call an al-Qaeda member involved in the Red Cross worker’s death, according to the memo.
Hafiz was sent to Guantanamo in July 2003, according to court papers filed on his behalf that sought his release and said he was denied due process. In December of 2009, he was transferred to Afghanistan with four other former detainees, according to the Justice Department.
In his letter, Brennan repeated the administration’s position that closing Guantanamo “will help our troops by eliminating a potent recruiting tool.”
If true, it would be the first known case of a former detainee at the facility in Cuba enlisting with a terrorist group after being released by President Barack Obama’s administration.
The official, who spoke on condition of anonymity, said Hafiz’s role in the Taliban hasn’t been determined. And an administration official, also speaking on condition of anonymity, said the intelligence on Hafiz’s status remains unclear and incomplete.
The likelihood that Hafiz is with the Taliban was first reported by the Long War Journal, a Mount Laurel, New Jersey- based publication that reports on intelligence matters.
In a Feb. 1 letter to House Speaker Nancy Pelosi, White House counterterrorism adviser John Brennan said all former detainees suspected or confirmed to have joined militant groups had been set free under President George W. Bush. In his letter, Brennan said 20 percent of freed Guantanamo detainees were known or suspected of having terrorist ties after their release.
The Bush administration released more than 530 detainees while the Obama administration has freed 57 so far. Guantanamo still holds 183 detainees.
Congressional Republicans have been trying to get confirmation about Hafiz.
If he has joined the Taliban, “it would tell you this is one colossal mistake” to have released him, said Representative Pete Hoekstra of Michigan, ranking Republican on the House Intelligence Committee. “It typically takes a pretty extended period of time” to confirm such information, he said.
Linked to Murder
Hafiz, a citizen of Afghanistan, had been linked to the murder of an International Red Cross worker in Afghanistan and was working with the Taliban, according to a Defense Department memo obtained by the New York Times. When captured in April 2003, he was trying to call an al-Qaeda member involved in the Red Cross worker’s death, according to the memo.
Hafiz was sent to Guantanamo in July 2003, according to court papers filed on his behalf that sought his release and said he was denied due process. In December of 2009, he was transferred to Afghanistan with four other former detainees, according to the Justice Department.
In his letter, Brennan repeated the administration’s position that closing Guantanamo “will help our troops by eliminating a potent recruiting tool.”
Pakistan Keeps Benchmark Rate Unchanged for Second Time in 2010
March 28 (Bloomberg) -- Pakistan’s central bank refrained from cutting its benchmark interest rate as inflation of above 13 percent prevents it from reducing borrowing costs to spur economic growth.
The State Bank of Pakistan maintained its discount rate at 12.5 percent, the central bank said in an e-mailed statement from Lahore yesterday. The decision was expected by 13 of 14 economists in a Bloomberg News survey.
“Inflation is expected to stay on the higher side as commodity prices remain high and subsidies are ended,” Sayem Ali, an economist at Standard Chartered Pakistan in Karachi, said before the decision.
Pakistan wants to keep borrowing costs low to revive consumer and investment demand, derailed by terrorist attacks that claimed 3,000 lives in 2009. Risks to economic growth have “increased considerably” due to the country’s deteriorating security situation, according to the central bank.
“An upward adjustment in the policy rate at this juncture runs the risk of impeding the still nascent recovery,” the central bank said in its statement yesterday. “A downward adjustment runs the risk of fuelling already high inflation.”
The central bank’s next move may be to reduce interest rates, Governor Salim Raza indicated in a Feb. 5 interview, saying he expects the effect of higher energy costs to wear off. Inflation slowed in February for the first time in four months.
Power Rates
The government will increase domestic fuel and electricity rates from April 1, the Dawn Newspaper reported on March 24, without saying where it got the information. Fuel costs will rise by about 5 percent and power rates will be increased by more than 16 percent, the newspaper said.
Pakistan increased gas and electricity tariffs by an average 13.5 percent on March 1 as part of a directive by the International Monetary Fund to end subsidies.
The economy grew 2 percent in the last financial year ended June 30, the slowest pace in eight years. Gross domestic product may expand 3.4 percent this year, the government forecasts. The South Asian economy needs to grow at an average annual pace of 6 percent over the next five years to reduce poverty, according to the government.
Raza kept the benchmark interest rate unchanged on Jan. 31 after cutting it three times in 2009 by a cumulative 2.5 percentage points.
Consumer Prices
Consumer prices in Pakistan rose 13.04 percent in February from a year earlier after climbing 13.68 percent in January, after the government raised electricity and gas tariffs.
The central bank’s efforts to accelerate growth will be a boost to Abdul Hafeez Shaikh, who was appointed Pakistan’s finance adviser by Prime Minister Yousuf Raza Gilani this month after Finance Minister Shaukat Tarin resigned to pursue his business interests.
Shaikh became the fourth person to take charge of Pakistan’s finance ministry in the past two years and faces the challenge of attracting investment to accelerate economic growth amid terrorism and political instability. He also has to tackle food and power shortages that have caused riots in the nation of 170 million people.
Demand for power in Pakistan is three times the supply, forcing factories to shut. Food shortages have caused inflation to average 16.6 percent since January 2008.
Foreign direct investment in Pakistan dropped 53 percent to $1.32 billion in the first eight months of the fiscal year that started July 1.
More than 300 people have died since Jan. 1 as militants retaliated against the army’s offensive that targeted Taliban extremists in the country’s northwest.
The State Bank of Pakistan maintained its discount rate at 12.5 percent, the central bank said in an e-mailed statement from Lahore yesterday. The decision was expected by 13 of 14 economists in a Bloomberg News survey.
“Inflation is expected to stay on the higher side as commodity prices remain high and subsidies are ended,” Sayem Ali, an economist at Standard Chartered Pakistan in Karachi, said before the decision.
Pakistan wants to keep borrowing costs low to revive consumer and investment demand, derailed by terrorist attacks that claimed 3,000 lives in 2009. Risks to economic growth have “increased considerably” due to the country’s deteriorating security situation, according to the central bank.
“An upward adjustment in the policy rate at this juncture runs the risk of impeding the still nascent recovery,” the central bank said in its statement yesterday. “A downward adjustment runs the risk of fuelling already high inflation.”
The central bank’s next move may be to reduce interest rates, Governor Salim Raza indicated in a Feb. 5 interview, saying he expects the effect of higher energy costs to wear off. Inflation slowed in February for the first time in four months.
Power Rates
The government will increase domestic fuel and electricity rates from April 1, the Dawn Newspaper reported on March 24, without saying where it got the information. Fuel costs will rise by about 5 percent and power rates will be increased by more than 16 percent, the newspaper said.
Pakistan increased gas and electricity tariffs by an average 13.5 percent on March 1 as part of a directive by the International Monetary Fund to end subsidies.
The economy grew 2 percent in the last financial year ended June 30, the slowest pace in eight years. Gross domestic product may expand 3.4 percent this year, the government forecasts. The South Asian economy needs to grow at an average annual pace of 6 percent over the next five years to reduce poverty, according to the government.
Raza kept the benchmark interest rate unchanged on Jan. 31 after cutting it three times in 2009 by a cumulative 2.5 percentage points.
Consumer Prices
Consumer prices in Pakistan rose 13.04 percent in February from a year earlier after climbing 13.68 percent in January, after the government raised electricity and gas tariffs.
The central bank’s efforts to accelerate growth will be a boost to Abdul Hafeez Shaikh, who was appointed Pakistan’s finance adviser by Prime Minister Yousuf Raza Gilani this month after Finance Minister Shaukat Tarin resigned to pursue his business interests.
Shaikh became the fourth person to take charge of Pakistan’s finance ministry in the past two years and faces the challenge of attracting investment to accelerate economic growth amid terrorism and political instability. He also has to tackle food and power shortages that have caused riots in the nation of 170 million people.
Demand for power in Pakistan is three times the supply, forcing factories to shut. Food shortages have caused inflation to average 16.6 percent since January 2008.
Foreign direct investment in Pakistan dropped 53 percent to $1.32 billion in the first eight months of the fiscal year that started July 1.
More than 300 people have died since Jan. 1 as militants retaliated against the army’s offensive that targeted Taliban extremists in the country’s northwest.
India falls short of China’s Olympic glory
India bid for the Commonwealth Games hoping to showcase the country’s emergence as a rising economic powerhouse, much as the Olympic Games were seen as a coming out party for China.
But the combined effort of mass remodelling of ageing sports facilities, widespread improvement of roads and frenzied construction of athletes’ hostels has transformed India’s capital city into a giant, dusty and chaotic building site, prompting protracted grumbling by its residents.
EDITOR’S CHOICE
Analysis: India: Potholes in the road - Feb-04
India expels Commonwealth Games CEO - Oct-15
India raises key rate to help fight inflation - Mar-19
India races to match China’s double digit - Mar-07
China profits from Olympics - Jun-20
Now residents have another reason to complain: this week, New Delhi authorities slapped city residents with a bill for costs that have spiralled as a result of delays, raising taxes on 32 different commodities – ranging from tea to diesel to mobile phones – while rolling back subsidies on cooking gas.
Already reeling under the burden of skyrocketing food prices, many city residents are now questioning the entire endeavour to host the games, a project now estimated at about $2.1bn, even as officials admit that it will be down to the wire to finish in time.
“I just feel disgusted and ashamed that we are incapable of doing even small things,” said Veena Sharma, a retired government servant. “If they really wanted the prestige of having the Commonwealth Games, they should have prioritised it beforehand and done it in time. They should not hit people at the last moment.”
Adding to the disquiet, the tax rise came just days after a panel appointed by the Delhi High Court reported that at least 40 construction workers had died on games sites, due to lack of safety gear and poor working conditions.
The panel also found that the tens of thousands of migrant workers involved in games preparations were not being paid the legal minimum wage – let alone overtime for the long hours, and were living in squalor on games sites.
“Outrageous,” was how Arundhati Ghose, India’s former ambassador to the UN and a member of the court-appointed panel, described the conditions. “In one stadium, there were four toilets for 150 workers. For workers on the roadside working on road projects, there are no toilets at all – they are just given plastic sheets.”
In its travails, New Delhi’s efforts to prepare for the Commonwealth Games – to be held this October – have highlighted one of the biggest problems still impeding India’s faster economic progress: its inability quickly to roll-out infrastructure projects, which routinely get bogged down in bureaucratic red tape, leading to long delays and huge cost overruns.
Last October, Indian authorities and Commonwealth Games Federation officials had a nasty public spat over what India interpreted as humiliating public criticism by the federation over India’s lack of preparedness for the games. Relations appear smoother now, at least in public, and Sheila Dixit, the chief minister of New Delhi, said in a television interview this week that she was confident that all venues would be ready in time for the games.
But among New Delhi residents – already grappling with more frequent power cuts as the summer heat sets in – anger remains. “It’s a huge pity that our government doesn’t plan infrastructure development for its people in the normal course of things, and they get scrunched around international events and how others perceive us,” said Madhu Mehra, a New Delhi-based lawyer. “It’s literally cleaning the house and sprucing up the living room so your guests are happy, even while the loo and drainage stink.”
But the combined effort of mass remodelling of ageing sports facilities, widespread improvement of roads and frenzied construction of athletes’ hostels has transformed India’s capital city into a giant, dusty and chaotic building site, prompting protracted grumbling by its residents.
EDITOR’S CHOICE
Analysis: India: Potholes in the road - Feb-04
India expels Commonwealth Games CEO - Oct-15
India raises key rate to help fight inflation - Mar-19
India races to match China’s double digit - Mar-07
China profits from Olympics - Jun-20
Now residents have another reason to complain: this week, New Delhi authorities slapped city residents with a bill for costs that have spiralled as a result of delays, raising taxes on 32 different commodities – ranging from tea to diesel to mobile phones – while rolling back subsidies on cooking gas.
Already reeling under the burden of skyrocketing food prices, many city residents are now questioning the entire endeavour to host the games, a project now estimated at about $2.1bn, even as officials admit that it will be down to the wire to finish in time.
“I just feel disgusted and ashamed that we are incapable of doing even small things,” said Veena Sharma, a retired government servant. “If they really wanted the prestige of having the Commonwealth Games, they should have prioritised it beforehand and done it in time. They should not hit people at the last moment.”
Adding to the disquiet, the tax rise came just days after a panel appointed by the Delhi High Court reported that at least 40 construction workers had died on games sites, due to lack of safety gear and poor working conditions.
The panel also found that the tens of thousands of migrant workers involved in games preparations were not being paid the legal minimum wage – let alone overtime for the long hours, and were living in squalor on games sites.
“Outrageous,” was how Arundhati Ghose, India’s former ambassador to the UN and a member of the court-appointed panel, described the conditions. “In one stadium, there were four toilets for 150 workers. For workers on the roadside working on road projects, there are no toilets at all – they are just given plastic sheets.”
In its travails, New Delhi’s efforts to prepare for the Commonwealth Games – to be held this October – have highlighted one of the biggest problems still impeding India’s faster economic progress: its inability quickly to roll-out infrastructure projects, which routinely get bogged down in bureaucratic red tape, leading to long delays and huge cost overruns.
Last October, Indian authorities and Commonwealth Games Federation officials had a nasty public spat over what India interpreted as humiliating public criticism by the federation over India’s lack of preparedness for the games. Relations appear smoother now, at least in public, and Sheila Dixit, the chief minister of New Delhi, said in a television interview this week that she was confident that all venues would be ready in time for the games.
But among New Delhi residents – already grappling with more frequent power cuts as the summer heat sets in – anger remains. “It’s a huge pity that our government doesn’t plan infrastructure development for its people in the normal course of things, and they get scrunched around international events and how others perceive us,” said Madhu Mehra, a New Delhi-based lawyer. “It’s literally cleaning the house and sprucing up the living room so your guests are happy, even while the loo and drainage stink.”
Friday, March 26, 2010
Japan’s Bonds Decline as Stock Gains, Recovery Signs Sap Demand
March 27 (Bloomberg) -- Japan’s 10-year bonds dropped, completing a fourth weekly loss, as the yen’s slide to its lowest since January bolstered exporter stocks.
Benchmark yields climbed yesterday to the highest level since November after Treasuries dropped the prior day, boosting U.S. rates to the most since June. Demand for bonds was also limited on speculation the Bank of Japan’s key survey of business confidence and U.S. nonfarm payrolls next week will add to signs the global economy is recovering.
“Japanese and U.S. yields are to test the higher end of their ranges,” said Shinji Nomura, chief debt strategist in Tokyo at Nikko Cordial Securities Inc., part of Japan’s third-largest banking group. “Optimism over the BOJ’s Tankan and U.S. nonfarm payrolls next week are negative factors for bonds.”
The yield on the 1.4 percent security maturing in March 2020 increased 1.5 basis points, or 0.015 percentage point, this week to 1.375 percent in Tokyo at Japan Bond Trading Co., the nation’s largest interdealer debt broker. The price dropped 0.132 yen to 100.219 yen. Yields climbed to as high as 1.385 percent yesterday, the most since Nov. 12.
Ten-year Treasury yields reached 3.92 percent on March 25, the highest since June 11. They were at 3.86 percent yesterday.
Futures MACD
Ten-year bond futures for June delivery slid 0.30 this week to 138.33 as of the close at the Tokyo Stock Exchange. The contracts touched 138.16 yesterday, the lowest since November. The contracts’ moving average convergence/divergence, or MACD, was minus 0.2719 yesterday, below the so-called signal line of minus 0.1569, suggesting that they are in a downtrend.
The Nikkei 225 Stock Average advanced 1.6 percent yesterday, damping demand for the refuge of government debt. Shares gained after Japan’s currency touched 92.96 yen on March 25, the weakest level since Jan. 8.
Japanese bonds were little changed on the month and quarter, according to indexes compiled by Bank of America Corp.’s Merrill Lynch unit. The Nikkei 225 gained 8.6 percent so far this month, advancing 4.3 percent this quarter.
Bonds losses were tempered on expectations lingering deflation will increase the value of coupon payments.
Japan’s consumer prices excluding fresh food slid 1.2 percent in February from a year earlier, after dropping 1.3 percent in each of the past two months, the statistics bureau said yesterday in Tokyo.
Lingering Deflation
“An end to deflation isn’t in sight anytime soon, though the pace of price declines will moderate gradually,” Azusa Kato, economist at BNP Paribas in Tokyo, said before the data.
The difference between yields on five-year notes and similar maturity inflation-linked debt, which reflects the outlook for consumer prices over the term of the securities, was negative 1.05 percentage points yesterday, compared with minus 0.85 percentage points at the end of last year.
Inflation-adjusted securities typically yield less than regular bonds because their principal payments increase at the same rate as inflation.
Ten-year yields may rise to the highest since October 2008 next quarter, following seasonal patterns where they climb on speculation U.S. interest rates will increase, Mizuho Securities Co. said.
Yield Outlook
“The tendency of Japan’s long-term yields to gain in the April-June period will remain intact this year,” said Hajime Takata, Tokyo-based chief strategist at Mizuho. “It wouldn’t be surprising if the yields rose above 1.6 percent.”
The yield on Japan’s 10-year notes increased in the second quarter of each of the past six fiscal years. The rate peaked between April and June in all those periods except for fiscal 2005. In the current year ending on March 31, the yield reached a high of 1.56 percent on June 11.
Recent economic indicators signal a recovery is taking hold in the U.S., aiding a rally in stocks that will likely help to improve investor sentiment, Takata said.
A U.S. report on April 2 will show payrolls rose 187,000 in March after dropping 36,000 the previous month, according to the median estimate of economists surveyed by Bloomberg.
Japan’s Tankan business confidence index will improve to minus 14, from December’s minus 24, according to the median estimate of economists in a Bloomberg News survey before the April 1 report. That would be the best reading since December 2008.
Benchmark yields climbed yesterday to the highest level since November after Treasuries dropped the prior day, boosting U.S. rates to the most since June. Demand for bonds was also limited on speculation the Bank of Japan’s key survey of business confidence and U.S. nonfarm payrolls next week will add to signs the global economy is recovering.
“Japanese and U.S. yields are to test the higher end of their ranges,” said Shinji Nomura, chief debt strategist in Tokyo at Nikko Cordial Securities Inc., part of Japan’s third-largest banking group. “Optimism over the BOJ’s Tankan and U.S. nonfarm payrolls next week are negative factors for bonds.”
The yield on the 1.4 percent security maturing in March 2020 increased 1.5 basis points, or 0.015 percentage point, this week to 1.375 percent in Tokyo at Japan Bond Trading Co., the nation’s largest interdealer debt broker. The price dropped 0.132 yen to 100.219 yen. Yields climbed to as high as 1.385 percent yesterday, the most since Nov. 12.
Ten-year Treasury yields reached 3.92 percent on March 25, the highest since June 11. They were at 3.86 percent yesterday.
Futures MACD
Ten-year bond futures for June delivery slid 0.30 this week to 138.33 as of the close at the Tokyo Stock Exchange. The contracts touched 138.16 yesterday, the lowest since November. The contracts’ moving average convergence/divergence, or MACD, was minus 0.2719 yesterday, below the so-called signal line of minus 0.1569, suggesting that they are in a downtrend.
The Nikkei 225 Stock Average advanced 1.6 percent yesterday, damping demand for the refuge of government debt. Shares gained after Japan’s currency touched 92.96 yen on March 25, the weakest level since Jan. 8.
Japanese bonds were little changed on the month and quarter, according to indexes compiled by Bank of America Corp.’s Merrill Lynch unit. The Nikkei 225 gained 8.6 percent so far this month, advancing 4.3 percent this quarter.
Bonds losses were tempered on expectations lingering deflation will increase the value of coupon payments.
Japan’s consumer prices excluding fresh food slid 1.2 percent in February from a year earlier, after dropping 1.3 percent in each of the past two months, the statistics bureau said yesterday in Tokyo.
Lingering Deflation
“An end to deflation isn’t in sight anytime soon, though the pace of price declines will moderate gradually,” Azusa Kato, economist at BNP Paribas in Tokyo, said before the data.
The difference between yields on five-year notes and similar maturity inflation-linked debt, which reflects the outlook for consumer prices over the term of the securities, was negative 1.05 percentage points yesterday, compared with minus 0.85 percentage points at the end of last year.
Inflation-adjusted securities typically yield less than regular bonds because their principal payments increase at the same rate as inflation.
Ten-year yields may rise to the highest since October 2008 next quarter, following seasonal patterns where they climb on speculation U.S. interest rates will increase, Mizuho Securities Co. said.
Yield Outlook
“The tendency of Japan’s long-term yields to gain in the April-June period will remain intact this year,” said Hajime Takata, Tokyo-based chief strategist at Mizuho. “It wouldn’t be surprising if the yields rose above 1.6 percent.”
The yield on Japan’s 10-year notes increased in the second quarter of each of the past six fiscal years. The rate peaked between April and June in all those periods except for fiscal 2005. In the current year ending on March 31, the yield reached a high of 1.56 percent on June 11.
Recent economic indicators signal a recovery is taking hold in the U.S., aiding a rally in stocks that will likely help to improve investor sentiment, Takata said.
A U.S. report on April 2 will show payrolls rose 187,000 in March after dropping 36,000 the previous month, according to the median estimate of economists surveyed by Bloomberg.
Japan’s Tankan business confidence index will improve to minus 14, from December’s minus 24, according to the median estimate of economists in a Bloomberg News survey before the April 1 report. That would be the best reading since December 2008.
Fed’s Sack Says Financial System Needs Leverage
March 27 (Bloomberg) -- Brian Sack, head of the markets group at the New York Fed, said the financial system can’t operate well without leverage and signaled that he supports the return of a “properly” structured securitization market.
“Securitization is a powerful vehicle that should play an important role in the intermediation of credit in the economy,” Sack said in a speech delivered by video conference from New York to an audience in Sydney. “We should also understand that a reduction in leverage to near zero in the financial system is not desirable.”
Sack’s comments come as U.S. lawmakers revamp regulation to prevent a recurrence of the financial crisis, which began with the collapse of the U.S. subprime-lending market in 2007 and led to about $1.76 trillion in losses and writedowns by banks and other financial institutions worldwide. Fed Governor Kevin Warsh, speaking yesterday in New York, said the securitization market will ultimately come back.
“To be sure, the expansion of securitized credit was much too extensive and its subsequent collapse was terribly disruptive, contributing significantly to the damage to the economy,” said Sack, 39, a former Fed economist and section head who returned to the central bank system last year.
“Those developments do not mean that securitized credit, if structured properly, should not return in size,” he said during the speech at the ACI 2010 World Congress. Derivatives are also “integral” to the functioning of financial markets, allowing risks to be redistributed, Sack said.
‘Operate Efficiently’
“The financial system cannot operate efficiently without leverage,” he said.
“Of course, much of the turmoil we witnessed across financial markets was due to the build-up of excessive leverage in the system, and we cannot miss the chance to learn from this painful lesson,” Sack said. Even so, the focus now should be in part “on how to make the use of leverage less pro-cyclical.”
Since December 2008, the Federal Open Market Committee has held the federal funds rate target for overnight loans between banks in a range of zero to 0.25 percent. Policy makers have also created unprecedented emergency programs to revive credit.
The FOMC in its public comments has “retained its flexibility” to extend the programs, Sack said in response to an audience question.
“It has not clarified under what conditions it would do so and presumably those conditions would depend on the behavior of long-term interest rates and on economic conditions more broadly,” he said. “I don’t think anything has been taken off the table.”
“Securitization is a powerful vehicle that should play an important role in the intermediation of credit in the economy,” Sack said in a speech delivered by video conference from New York to an audience in Sydney. “We should also understand that a reduction in leverage to near zero in the financial system is not desirable.”
Sack’s comments come as U.S. lawmakers revamp regulation to prevent a recurrence of the financial crisis, which began with the collapse of the U.S. subprime-lending market in 2007 and led to about $1.76 trillion in losses and writedowns by banks and other financial institutions worldwide. Fed Governor Kevin Warsh, speaking yesterday in New York, said the securitization market will ultimately come back.
“To be sure, the expansion of securitized credit was much too extensive and its subsequent collapse was terribly disruptive, contributing significantly to the damage to the economy,” said Sack, 39, a former Fed economist and section head who returned to the central bank system last year.
“Those developments do not mean that securitized credit, if structured properly, should not return in size,” he said during the speech at the ACI 2010 World Congress. Derivatives are also “integral” to the functioning of financial markets, allowing risks to be redistributed, Sack said.
‘Operate Efficiently’
“The financial system cannot operate efficiently without leverage,” he said.
“Of course, much of the turmoil we witnessed across financial markets was due to the build-up of excessive leverage in the system, and we cannot miss the chance to learn from this painful lesson,” Sack said. Even so, the focus now should be in part “on how to make the use of leverage less pro-cyclical.”
Since December 2008, the Federal Open Market Committee has held the federal funds rate target for overnight loans between banks in a range of zero to 0.25 percent. Policy makers have also created unprecedented emergency programs to revive credit.
The FOMC in its public comments has “retained its flexibility” to extend the programs, Sack said in response to an audience question.
“It has not clarified under what conditions it would do so and presumably those conditions would depend on the behavior of long-term interest rates and on economic conditions more broadly,” he said. “I don’t think anything has been taken off the table.”
Thursday, March 25, 2010
RBA Says Leading Economies Need to Reduce Spending
March 26 (Bloomberg) -- The world’s largest economies, including the U.S., U.K. and Europe, face “difficult fiscal decisions” in coming years to curb debt levels, according to Australian central bank Governor Glenn Stevens, the only Group of 20 policy maker to boost borrowing costs this year.
“At some point, significant discretionary tightening will be required,” Stevens told a conference in Sydney today. Without a “credible path to fiscal sustainability” economic growth “could easily be stunted by rising risk premia built into interest rates as markets worry about long-run solvency.”
Stevens, who didn’t address domestic monetary policy in his speech, said financial market turmoil triggered by Greece’s debt levels is a “reminder of the challenges facing many governments.” By contrast, Australia’s debt-to-gross domestic product ratio is a “conspicuous exception.”
The governor also said differences in the speed of economic recoveries between regions such as Asia and advanced economies “are likely to put strains on the relative settings of macroeconomic policies and exchange rate arrangements.”
“This will need careful management, by all concerned, over the next few years,” Stevens said.
Mounting evidence that Australia’s economy, which skirted last year’s global recession, is likely to expand at or close to trend this year prompted Stevens and his Reserve Bank of Australia board to increase borrowing costs this month for the fourth time in five meetings.
Best Performer
The central bank has boosted the benchmark rate to 4 percent from 3 percent in early October, making the Australian dollar the best performing currency among the 16 most traded in the past year. The local dollar has gained 29 percent since March 2009.
The Australian dollar fell to 90.71 U.S. cents at 9:19 a.m. in Sydney from 90.78 cents just before a copy of the speech was released. The two-year government bond yield gained 2 basis points, or 0.02 percentage point, to 4.95 percent.
Traders are betting there is a 42 percent chance of a quarter-point rate increase when the central bank next meets on April 6, according to Bloomberg calculations based on interbank futures on the Sydney Futures Exchange at 9:20 a.m. Prior to the speech, chances of a move stood at 44 percent.
‘Tissue Damage’
“It is helpful that the global financial system is gradually recovering its poise, after a near-death experience eighteen months ago,” Stevens said today. “Perhaps like a patient that has suffered an acute cardiac event, there has been some lasting tissue damage, but quick intervention avoided something much worse.”
Australia is also “more advanced in this regard,” as local policy makers have moved to end measures introduced at the height of the global financial crisis in 2008 to stabilize the domestic financial system.
“The expansion in the RBA’s balance sheet was unwound nearly a year ago and the policy rate has been increased somewhat, reflecting the very different circumstances facing the Australian economy,” the governor said.
“At some point, significant discretionary tightening will be required,” Stevens told a conference in Sydney today. Without a “credible path to fiscal sustainability” economic growth “could easily be stunted by rising risk premia built into interest rates as markets worry about long-run solvency.”
Stevens, who didn’t address domestic monetary policy in his speech, said financial market turmoil triggered by Greece’s debt levels is a “reminder of the challenges facing many governments.” By contrast, Australia’s debt-to-gross domestic product ratio is a “conspicuous exception.”
The governor also said differences in the speed of economic recoveries between regions such as Asia and advanced economies “are likely to put strains on the relative settings of macroeconomic policies and exchange rate arrangements.”
“This will need careful management, by all concerned, over the next few years,” Stevens said.
Mounting evidence that Australia’s economy, which skirted last year’s global recession, is likely to expand at or close to trend this year prompted Stevens and his Reserve Bank of Australia board to increase borrowing costs this month for the fourth time in five meetings.
Best Performer
The central bank has boosted the benchmark rate to 4 percent from 3 percent in early October, making the Australian dollar the best performing currency among the 16 most traded in the past year. The local dollar has gained 29 percent since March 2009.
The Australian dollar fell to 90.71 U.S. cents at 9:19 a.m. in Sydney from 90.78 cents just before a copy of the speech was released. The two-year government bond yield gained 2 basis points, or 0.02 percentage point, to 4.95 percent.
Traders are betting there is a 42 percent chance of a quarter-point rate increase when the central bank next meets on April 6, according to Bloomberg calculations based on interbank futures on the Sydney Futures Exchange at 9:20 a.m. Prior to the speech, chances of a move stood at 44 percent.
‘Tissue Damage’
“It is helpful that the global financial system is gradually recovering its poise, after a near-death experience eighteen months ago,” Stevens said today. “Perhaps like a patient that has suffered an acute cardiac event, there has been some lasting tissue damage, but quick intervention avoided something much worse.”
Australia is also “more advanced in this regard,” as local policy makers have moved to end measures introduced at the height of the global financial crisis in 2008 to stabilize the domestic financial system.
“The expansion in the RBA’s balance sheet was unwound nearly a year ago and the policy rate has been increased somewhat, reflecting the very different circumstances facing the Australian economy,” the governor said.
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