No Greece Comment On The Euro Hopping Away
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Prices of the U.S. Treasuries ended off the day's highs, which had been attained in choppy two-way flows amid on/off safe-haven bid tied to European risk jitters.
Treasuries gained amid flattening trades done in the 2-year/10-year and 2-year/30-year curves, as well as on on/off risk-aversion bid all day.
Treasuries had opened New York weaker then had a wild rumor-filled morning that sideslammed stocks, euro currency up and down, with the U.S. bond market trading inversely to stocks.
European jitters arose as Germany began its ban on naked short sales vs. certain CDSs, European government bonds and about 10 major banks and insurers' shares.
Treasuries saw brisk foreign buying by those wary of European risk and on/off U.S. accounts' taking profits.
There also had been early New York safe-haven buying in T-bills, 2-year and 5-year notes.
There also had been U.S. real money accounts' moving out the curve in Treasuries, a 2-day theme, with U.S. and European accounts moving mainly from 2-year and 5-year notes to 10-year notes.
Sister markets spurred rate-lock selling, and later unwinds.
Later the Greek Finance Ministry denied there had been any comment on a possible EU/EMU exit by Greece.
The market eyed meanwhile a Medley report that was said to note that the G7 was concerned about the speed of the euro May decline, and may be preparing for verbal intervention to support euro if the rout continues.
The report also indicated that actual multilateral foreign exchange intervention could be eyed.
Treasuries had gained in late morning action amid weak stocks.
There also was a big 2-year/5-year steepener trade done in the Treasury futures.
Later on the April 27-28 FOMC minutes showed that the FOMC members eyed an eventual gradual pace of sales of MBS/Agencies over a period of 3-years to 5-years.
In late afternoon, the Treasuries zigzagged after on/off safe-haven buying amid choppy euro currency, European jitters after Germany ban begins on naked short sales vs. certain CDSs, EGBs and about 10 major banks and insurers' shares.
Overnight action Tuesday saw brisk Japanese life insurer selling in the intermediates, deemed partially profit-taking and partly a setup to buy next week's 5-year auction.
U.S. swap spreads ended steady to mixed, with the front end spreads tighter but off early lows.
Agency debt spreads meanwhile took back overnight spread widening.
U.S. stocks had a rollercoaster session that left the Dow and Nasdaq nursing losses at day's end, although well off their lows of the day.
Dow slid 67 points or 0.63% to end at 10,444 while Nasdaq skidded 19 points or 0.82% to finish at 2298.
On a 3:00 p.m. ET Wednesday from 3:00 p.m. ET Tuesday basis, the U.S. 2-year note yield was at 0.769% from 0.745%.
*The 3-year note was 1.255% from 1.223%.
*The 5-year note was 2.114% from 2.086%.
*The 7-year note was at 2.801% from 2.799%.
*The 10-year note yield was at 3.359% from 3.370%.
*The 30-year bond was at 4.238% from 4.251%.
*The 2-year/5-year curve steepened to +134.5 bps from +134.1 bps.
*The 2-year/10-year flattened to +259.0 bps from +262.5 bps.
*The 2-year/30-year flattened to +346.9 bps from +350.6 bps.
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Tags: Bonds, US, Greece, FOMC, Euro, Crisis, Treasuries
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China Cautious On Gold Buying
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China's appetite for gold as a way to diversify its foreign-exchange reserves is limited because of the metal's poor returns over the past 30 years, the nation's foreign-exchange regulator was cited as saying in a report Tuesday.
Yi Gang, director of China's State Administration of Foreign Exchange, said China's gold reserves, at 1,054 metric tons, were the fifth-largest in the world, Dow Jones Newswires reported, citing comments by Yi at a press conference at the National People's Congress.
But Yi downplayed any desire to add the holdings as a strategy to diversity the nation's $2.4 trillion foreign exchange stockpile.
"Gold is not a bad asset, but currently a few factors limit our ability to increase foreign-exchange investment in gold," Yi was quoted as saying.
Calculations by the Dow Jones showed China's gold holdings amounted to 1.6% of its total forex reserves, based on reported bullion holdings at the end of last year.
Yi acknowledged that China's arrival as a gold buyer has had an impact on world markets for the precious metal, adding that moves by Beijing to purchase gold would "certainly" increase prices, according to the report.
China surprised the market in April last year by declaring gold holdings of 1,054 metric tons, 76% higher than its previous declaration, placing it ahead of Switzerland in terms of the size of its bullion stockpile. It also catapulted China into an elite club of six nations, plus the International Monetary Fund, that hold more than 1,000 tons. See related story on increase in China's gold reserves
At the time, Chinese officials did not elaborate on where they had sourced the bullion, but comments have since been interpreted as suggesting the gold came from domestically mined production and the refining of scrap gold.
China is ranked by the World Gold Council as the largest global producer of the metal and the second largest consumer behind India.
Treasury buys not political Yi also discussed China's purchase of U.S. sovereign debt, saying such holdings can be mutually beneficial for both countries.
He said that China doesn't want to politicize its trading in U.S. Treasurys, reiterating that Beijing wants to be a "responsible investor" in the debt, according to the report.
While recent U.S. data showed Japan had overtaken China as the largest foreign holder of Treasurys, some analysts believe the data understate Chinese holdings and that the statistics are not a sign of any dampening in Beijing's investment appetite for the securities.
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Tags: China, Gold, Buy, Exchange
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Japanese Bonds Fall
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Japan's 10-year government bonds fell, ending a three-day gain, as Asian stocks advanced on signs the global economy is recovering.
Demand for debt weakened after reports in Tokyo showed Japan's retail sales unexpectedly rebounded and industrial production expanded. Other data today showed Australian bank lending rose for a third consecutive month and South Korean manufacturers’ confidence climbed to a seven-year high.
“Global stocks seem to be maintaining a firm undertone as the economy recovers,” said Shinji Hiramatsu, senior investment manager at Sompo Japan Asset Management Ltd. in Tokyo, which held 1.4 trillion yen ($15.7 billion) in assets under management. “Bonds will struggle to extend gains.”
The yield of the benchmark 10-year bond rose 1.5 basis points to 1.31 percent at 1:27 p.m. in Tokyo at Japan Bond Trading Co., the nation's largest interdealer debt broker. It earlier touched 1.290 percent, the lowest since Dec. 30. A basis point is 0.01 percentage point.
Ten-year bond futures for March delivery fell 0.12 to 139.81 at the Tokyo Stock Exchange.
The Nikkei 225 Stock Average rose 0.6 percent and the MSCI Asia Pacific Index of regional shares also advanced 0.6 percent.
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Tags: Japan, Yen, Government, Bonds, Down, Decrease, De...
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Market News
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Today's Headlines:
• ECB's Trichet confirms that the ECB will work with the EC in monitoring the implementation of the recommendations by Greece and on proposals for necessary additional measures as one can count on ECB's permanent alertness in this respect
• Obama's Economic Recovery Advisory Board head Volcker says Goldman Sachs and other banks should give up their bank status if they want to avoid the ban on proprietary trading proposed by the White House
• Japan's household sentiment rose for the 1st time in 4 months as the index climbed to 39 in Jan from 37.6 previously, exp 38
• New Zealand retail sales stalled in Dec as excluding vehicle dealers, fuel outlets and workshops, sales fell a record 1.8% against an expected 0.6% rise
• Singapore's retail sales fell more than forecasted in Dec, falling 5% from a year earlier, exp 1% decline
Europe:
ECB's Trichet confirms that the ECB will work with the European Commission in monitoring the implementation of the recommendations by Greece and on proposals for necessary additional measures as one can count on ECB's permanent alertness in this respect.
IMF economists suggested new architecture of post-crisis macroeconomic policy. Suggestions include raising inflation targets from about 2% to about 4% so that monetary policy can better respond to shocks; automatic lump-sum payments for poorer families if unemployment rises above certain thresholds; exchange-rate intervention for smaller economies that depend heavily on trade; and giving central banks huge new regulatory tools so they can smooth the path of the economy.
http://www.ft.com/cms/s/0/f9f4067e-1758-11df-87f6-00144feab49a.html
Sweden's Riksbank left its key interest rate unchanged at a record low of 0.25%, but said it expected to start raising rates in the “summer or early autumn”, having previously indicated the move was unlikely before the autumn. http://www.ft.com/cms/s/0/5007a09a-173e-11df-94f6-00144feab49a.html
US:
Goldman Sachs and other banks should give up their bank status if they want to avoid the ban on proprietary trading proposed by the White House, Volcker, head of President Obama's Economic Recovery Advisory Board, said. He said the US should press ahead with the Volcker Rule unilaterally if necessary, but that a consensus on the plan between the US, UK, Germany and France was both preferable and achievable. http://www.ft.com/cms/s/0/121fe9d0-1753-11df-94f6-00144feab49a.html
Japan:
Japan's household sentiment rose for the first time in 4 months as concerns the economy will slip into another recession receded. The confidence index climbed to 39 in Jan from 37.6 previously against an expected 38.
Australia/ New Zealand:
New Zealand retail sales stalled in Dec adding to signs that the central bank could delay raising interest rates until the Q3 of this year. Excluding vehicle dealers, fuel outlets and workshops, sales fell a record 1.8% against an expectation of a 0.6% rise.
New Zealand REINZ House prices fell 1.6% in Jan from Dec as house sales declined 1.1% from Jan last year.
Asia & RoW:
China Construction Bank said it plans this year to raise the down payment requirement and interest rates for clients buying their 2nd or subsequent homes. Such a move would bring it in line with other major banks that are starting to implement tougher lending requirements for people purchasing homes for speculative purposes rather than for their own use. - RTRS
South Korean exports to China in Jan almost doubled from a year earlier to post their biggest annual growth. The total value of exports last month was revised down to $36.01 billion.
Singapore's retail sales fell more than forecasted in Dec as motor-vehicle purchases slumped after the govt gave out fewer permits for them. The retail sales index slid 5% from a year earlier, against an expected 1% decline, after falling a revised 1.7% in Nov.
Events (London Time):
DEU 07:00 GDP (Q4P) 0.3%(-2.1%)
FRA 07:45 GDP (Q4P)
FRA 07:45 Non-Farm Payrolls (Q4P)
FRA 07:45 Wages (Q4P)
ESP 08:00 HICP (Jan)
ITA 09:00 GDP (Q4P)
EMU 10:00 GDP (Q4A) 0.3%
EMU 10:00 Industrial Production (Dec) 0.5%
CAN 13:30 New Motor Vehicle Sales (Dec) 2.0%
USA 13:30 Retail sales (Jan) 0.5%
USA 13:30 Retail sales less autos (Jan) 0.6%
USA 15:00 Business Inventories (Dec) 0.4%
USA 14:55 U of Michigan Confidence (Feb P) 77.0
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Market Headlines - 29 Jan 2010
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Market Headlines:
$ The S&P 500 fell 1.2% led by a sharp fall in the technology sub index (-3.1%) as Qualcomm Inc. (QCOM, -14.2%, $40.48) issued disappointing forecasts and cited a “subdued” economic recovery; US equity markets had opened the session weaker as several headline economic figures disappointed versus market forecasts
$ At the close of the US session the Senate approved Fed Chairman Bernanke to a 2nd term; Amazon (AMZN, +2.7%, $126.03) reported profits and sales that beat analyst expectations and Microsoft (MSFT, -1.7%, $29.16) reported record revenues
G+ Asian stocks sold off sharply overnight on goring risk aversion: Nikkei -2.1%; KOSPI -2.4%
FI USTs yields fell in a bullish steepening fashion; the 2yr yield declined 6bps to 0.859% but remained above the levels of earlier in the week prior to the release of the more-hawkish FOMC statement; the 2/10s spread stands at 277bps vs 273bps Wed
€ Concerns related to Greece's fiscal situation continued to mount and the sovereign 5yr CDS rose to another record high; the yield on the Greek 10yr bond rose for a third consecutive day, up 40bps on the day to 7.142%;
€ The escalating Greek crisis prompted a statement from the European Commission that Greece would receive last-resort help from Eurozone states (but not the IMF); Spain plans to announce a deficit-reduction plan to stem contagion from Greece
$ The US may exempt Treasury holdings from new bank tax
FX The euro fell against most major currencies on Thursday on pressure related to Greece, ending the day 0.4% lower against the USD at 1.396 after hitting an intraday low of 1.3938 that was the weakest since mid-July; the DXY index rose for a 3rd session, up 0.3% to 78.90 now at the highest levels since August
$ The US Senate confirmed Fed Chairman Bernanke to a second 4-year term in a vote of 70:30
€ ECB's Mersch said the most immediate challenge for the ECB is how to remove extraordinary policy support; "the next round of measures will probably be announced when we will have the next projections of the euro zone at the beginning of March"
$ US durable goods orders rose 0.3%MoM in December and disappointed versus the median economist forecast of +2.0% on a sharp drop in civilian aircraft bookings (-38.2%); excluding transportation goods, orders were up 0.9%
$ US initial jobless claims were lower at 470k in the week to 23 January versus a revised 478k in the week prior (initially 482k) but the figure remained about the 4wk average for a 3rd consecutive weak; continuing claims fell 57k to 4.602m in the week to 16 January and were the lowest since early-Jan’09
€ Eurozone EC industrial confidence rose 2pts to -14 in January and was the highest since Sep’08; the consumer confidence index stalled at -16 in January after nine months of improvement
€ German unemployment rose 6k in January but the result came in below the median economist forecast of 15k; the unemployment rate rose to 8.2% after three months at 8.1%
£ UK GfK consumer confidence index rose for the first month in three, to -17 from -19 before
The Day Ahead
The US Q4 GDP report is the main highlight today. Judging by the labour figures, a continued recovery in whole-economy hours worked in Q4, to a -0.5% annualised pace versus -2.5% in Q3, indicated that productivity growth remained strong and the pace of activity picked up in the final quarter. Yet the composition of growth deserves some caution and a number of core activity indicators for the year-end, including retail, auto and home sales, housing starts and non-residential construction, came in short of expectations. In contrast, inventory and core capital goods orders have picked up. The net result is that real final demand probably rose at a slower pace versus the previous quarter but inventories made a stronger contribution to growth. In light of the softer than expected data available for December, we have revised our forecast for overall Q4 GDP growth from slightly above consensus to a neutral 4.5% saar, but this would still mark a strong pick-up in the pace of activity from Q3. In parallel, employment costs are likely to remain low consistent with strong productivity growth in the economy and company efforts to rebuild internal liquidity in the face of still tight credit conditions. The Chicago PMI and the final University of Michigan consumer survey are also out today.
In the Euro area, we are looking for further weakness in December M3 money supply figures this morning on account of portfolio shifts out of short-term cash holdings and ongoing credit weakness. The disinflationary implications from the data for the medium term are likely to be mitigated in the short term by a continued rise in the Eurozone CPI inflation rate to 1.2% in January from 0.9% in December on the back of higher energy costs. The decline in Germany's January core consumer prices, reported in this week's State CPI figures, and the continued moderation in producer selling price expectations in the European Commission's surveys published yesterday point to subdued domestic demand inflation pressures.
Separately, the Eurozone unemployment rate is expected to rise further to 10.1% in December, compared with 8.2% at the end of 2008 and a cycle low of 7.2%. Highly leveraged economies, such as Spain (unemployment rate of 19.4%, Nov), Ireland (12.9%, Nov), Portugal (10.3%, Nov) and Greece (9.7%, Sep), have been the main drivers behind the deteriorating unemployment trend, highlighting the link between systemic risk and cyclical underperformance. The country with the lowest unemployment rate in Europe is Norway (3.2%, Oct), which is also the economy with the strongest balance sheet.
In policy events, Fed's Kohn (voter) speaks at an FDIC conference on banks’ interest rate risk at 13:15. Former UK PM Tony Blair testifies in Iraq inquiry.
Tags: Daily, Market, News, Headlines, Information, News...
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ECB exiting, BoE selling
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The European Central bank is ready to enforce its exit strategy from liquidity measures. The Bank of England, in a bid to enforce its own multibillion pound scheme of quantitative easing and maximise liquidity, has announced that it will buy and sell off some of its corporate bonds stating that this is not a measure that commits to an exit strategy for quantitative easing, rather an ideal chance for the BoE to offload some of its bonds, take on some gilts and spur on the progression of quantitative easing.
The ECB remains firm with their decision to discard their stimulus, the news of which has not only resulted in the strongest Euro against the dollar for 16 months but also some tension between the ECB and the International Monetary Fund, who have advised banks not to offload their stimulus packages anytime soon.
With Dubai's debt announced, many countries are beginning to hasten down the road to the exit with Europe now leading the way. The announcement from Dubai has been a necessary step for bond markets to see the potential damage that can be done when government debt goes wrong and although many are agreed that the problem will not have a knock-on effect to anywhere outside the Middle-East, the underlying message that eminated from the anouncement was heard loud and clear by the sovereign bonds and fixed-income markets, as well as the ECB and BoE it seems.
Even still, the IMF have expressed concern over the ECB's plan stating that it is still too soon for Europe to be putting an exit strategy in motion. "exiting too early is costlier than exiting too late” Dominique Strauss-Kahn, managing director of the IMF said. The IMF believes the time for easing is approaching and some economies are ready to relinquish the short-term measures enforced to jolt them; but Europe may be headed for a fall if it begins implementation too soon.
Tags: BoE, Bank of England, Bank, ECB, European Central...
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Premium Bonds to increase prizes by 50%
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After enormous pressure from savers, National Savings & Investments, the Government-backed institution that administers Premium Bonds, has increased the payout to attract new savers as well as improve the rate for its existing investors. The prize fund rate – an approximation of the rate of return – has increased from 1 per cent to 1.5 per cent. This is the first time in living memory that the rate of return has been a full percentage point above the Bank of England interest rate.
However, because Premium Bonds are tax-free the rate of return in reality is far better, when compared with all the other savings accounts on the market, which are quoted gross, not net. For a higher rate tax payer, the rate has jumped form 1.66 per cent to 2.5 per cent.
"This really is not a bad rate at all. In fact, it is better than most on the market," said Michelle Slade at the personal finance website MoneyFacts.
She pointed out that 52 per cent of savings accounts on the market paid less than the Bank Rate of 0.5 per cent. "Many savers like the comfort of the Government guarantee that Premium Bonds offer and that is why so many have opted for this product over the last year. It can only be good news that these savers are now more likely to get a payout."
At the height of the financial crisis, following the collapse of Lehman Brothers a year ago, hundreds of thousands of savers took their money out of their savings accounts and put their money into premium bonds, perceived as a "safe haven".
NS&I's savings accounts, including premium bonds, are fully backed by the Government, the only institution to promise this alongside the nationalised Northern Rock.
Tags: NS&I, Savings, Premium, Bonds
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The Basics to understanding Bonds
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1. Bonds are fancy IOUs
Companies and governments issue bonds to fund their day-to-day operations or to finance specific projects. When you buy a bond, you are loaning your money for a certain period of time to the issuer, be it General Electric or Uncle Sam. In return, bond holders get back the loan amount plus interest payments.
2. Stocks do not always outperform bonds.
It is only in the post-World War II era that stocks so widely outpaced bonds in the total-return derby. Stock and bond returns were about even from about 1870 to 1940. And, of course, bonds were well in front in 2000, 2001 and 2002 before stocks once again took charge in 2003 and 2004. By 2008, however, the bond market had far outpaced the stock market once again.
3. You can lose money in bonds.
Bonds are not turbo-charged CDs. Though their life span and interest payments are fixed -- thus the term "fixed-income" investments -- their returns are not.
4. Bond prices move in the opposite direction of interest rates.
When interest rates fall, bond prices rise, and vice versa. If you hold a bond to maturity, price fluctuations don't matter. You will get back the original face value of the bond, along with all the interest you expect.
5. A bond and a bond mutual fund are totally different animals.
With a bond, you always get your interest and principal at maturity, assuming the issuer doesn't go belly up. With a bond fund, your return is uncertain because the fund's value fluctuates.
6. Don't invest all your retirement money in bonds.
Inflation erodes the value of bonds' fixed interest payments. Stock returns, by contrast, stand a better chance of outpacing inflation. Despite the drubbing stocks sometimes take, young and middle-aged people should put a large chunk of their money in stocks. Even retirees should own some stocks, given that people are living longer than they used to.
7. Consider tax-free bonds.
Tax-exempt municipal bonds yield less than taxable bonds, but they can still be the better choice for taxable accounts. That's because tax-frees sometimes net you more income than you'd get from taxable bonds after taxes, provided you're in the 28 percent federal tax bracket or higher.
8. Pay attention to total return, not just yield.
Returns are a slippery matter in the bond world. A broker may sell you a bond that is paying a "coupon" - or interest rate - of 6 percent. If interest rates rise, however, and the price of the bond falls by, say, 2 percent, its total return for the first year - 6 percent in income less a 2 percent capital loss - would be only 4 percent.
9. If you want capital gains, go long.
When interest rates are high, gamblers who want to bet that they'll head lower should buy long-term bonds or bond funds, especially "zeros." Reason: when rates fall, longer-term bonds gain more in price than shorter-term bonds. So you win big - scoring a large potential capital gain in addition to whatever interest the bond may be paying. If rates rise, on the other hand, you lose big, too.
10. If you want steady income, stick with short to medium terms.
Investors looking for income should invest in a laddered portfolio of short- and intermediate-term bonds. For more on laddered portfolios, see our "Sizing up risks."
Tags: Bonds, Basics, 101, Understanding, Information, I...
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