Thursday, May 12, 2005
Treasuries rise on hedge fund rumours
US Treasury prices rose pushing yields lower, as investors were forced to cover short positions on general market unease following rumours about hedge fund troubles in the aftermath of General Motors’ credit downgrade.
The problems were thought to centre around a derivatives position hit hard by the double volitile blow of billionaire investor Kirk Kerkorian’s investment in the struggling carmaker last Wednesday causing a 18% rise in the share price and the unexpected timing of Standard & Poor’s downgrade of GM to junk the very next day.
Unexpectedly strong demand for the first leg of the Treasury’s three big quarterly refunding sales helped lift prices further and by late trade in New York, the yield on the benchmark 10-year Treasury was 6.4 basis points lower at 4.2224 per cent, while the two-year bond yield dipped 7bp to 3.691 per cent.
The US Treasury sold $22bn in three-year paper at a high yield of 3.821 per cent – the highest since May 2003 – attracting bids worth 2.38 times the amount on offer.
Sales of $15bn in five-year paper and $14bn in 10-year notes are scheduled for Wednesday and Thursday, respectively.
Elsewhere, the same market rumours together with investors’ positioning in the markets and weakened equities conspired to push eurozone government bond yields to historic lows. As prices surged, bond yields fell to 3.34 per cent before rising again to 3.364 per cent.
But other factors, including the heavy buying of long-dated bonds, were also pushing up prices.
The yield on the 30-year Bund was down 5bp at 3.915 per cent after earlier hitting 3.894 per cent, the lowest since February. The yield on the two-year Schatz slumped 5bp to 2.209 per cent.
The bullish sentiment also carried gilt prices higher in the UK, where a set of dismal economic data provided further support.
The British Retail Consortium reported like-for-like retail sales were down 4.7 per cent on the year in April for the worst performance in a decade.
The yield on the benchmark 10-year Japanese government bond rose half a basis point to 1.285 per cent. Prices came under pressure as hedge funds sold to clear space for a 10-year bond government bond auction.
The problems were thought to centre around a derivatives position hit hard by the double volitile blow of billionaire investor Kirk Kerkorian’s investment in the struggling carmaker last Wednesday causing a 18% rise in the share price and the unexpected timing of Standard & Poor’s downgrade of GM to junk the very next day.
Unexpectedly strong demand for the first leg of the Treasury’s three big quarterly refunding sales helped lift prices further and by late trade in New York, the yield on the benchmark 10-year Treasury was 6.4 basis points lower at 4.2224 per cent, while the two-year bond yield dipped 7bp to 3.691 per cent.
The US Treasury sold $22bn in three-year paper at a high yield of 3.821 per cent – the highest since May 2003 – attracting bids worth 2.38 times the amount on offer.
Sales of $15bn in five-year paper and $14bn in 10-year notes are scheduled for Wednesday and Thursday, respectively.
Elsewhere, the same market rumours together with investors’ positioning in the markets and weakened equities conspired to push eurozone government bond yields to historic lows. As prices surged, bond yields fell to 3.34 per cent before rising again to 3.364 per cent.
But other factors, including the heavy buying of long-dated bonds, were also pushing up prices.
The yield on the 30-year Bund was down 5bp at 3.915 per cent after earlier hitting 3.894 per cent, the lowest since February. The yield on the two-year Schatz slumped 5bp to 2.209 per cent.
The bullish sentiment also carried gilt prices higher in the UK, where a set of dismal economic data provided further support.
The British Retail Consortium reported like-for-like retail sales were down 4.7 per cent on the year in April for the worst performance in a decade.
The yield on the benchmark 10-year Japanese government bond rose half a basis point to 1.285 per cent. Prices came under pressure as hedge funds sold to clear space for a 10-year bond government bond auction.
# posted by Dr Search- Principal Consultant at the Search Clinic @ 10:17 AM 0 comments
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Wednesday, May 11, 2005
ECB worried about economic weakness
For much of its short history, the European Central Bank, perched in one of Frankfurt's highest skyscrapers, has worried about inflationary dangers, earning itself a reputation for monetary hawkishness.
But in a feat rare even in the stable world of central banking, the ECB will next month mark two years since its last interest rate change. And with the eurozone economy slowing again, few expect action any time soon.
Financial markets point to a quarter percentage point increase only in the second quarter of next year - making a third anniversary of no change a distinct possibility.
The long period of inactivity - the ECB last week again left its main rate at 2 per cent - highlights how, for all the central bank's monetarist instincts, the weakness of European growth is proving more important to the ECB than fears of a possible asset bubble or its desire to follow the US Federal Reserve in moving rates back to more "normal" levels.
An economist at a well-known bank quips that the inactivity is putting European economists out of a job. Even ECB insiders joke that their families ask them what they do all day.
Official rates have been zero in deflation-ridden Japan for years.
Central bank watchers have to go back to the early 1960s to find a comparable period of interest rate stability in the US.
However, the ECB, which took over responsibility for eurozone monetary policy in 1999, has some way to go before it matches the three years and eight months of unchanged rates notched up by Germany's Bundesbank before it offered financial markets something to talk about in January 1965.
The talk last year was of a possible ECB rate rise by the end of 2004, then the favoured date slipped into 2005. Now any change appears to have been pushed even further into the future by a string of disappointing economic figures.
But a more important reason for its inaction has been the weak data. Eurozone gross domestic product figures this week covering the first three months of this year are expected to show a rebound after a weak second half of 2004. But more recent business and consumer confidence surveys have pointed to a marked slowdown in the second quarter of 2005.
German industrial production data for March yesterday came in below expectations, and a slowdown in the UK and US would further dim eurozone export prospects. Meanwhile, eurozone inflation shows little sign of wandering significantly from the ECB's definition of price stability - a rate "below but close" to 2 per cent.
One hope for ECB excitement would be if the central bank responded to demands from politicians in Germany and Italy for a cut in rates to boost growth.
Jean-Claude Trichet, ECB president, attempted to rule out such a move last week, describing a cut as "not an option". The ECB believes lower interest rates would add to the problem of excess liquidity in the eurozone, without boosting growth - and its preference is to raise rates as soon as possible.
Otherwise the consensus view is that the ECB will not be able to indulge its hawkish instincts and raise rates until an economic recovery has become self-sustaining.
But in a feat rare even in the stable world of central banking, the ECB will next month mark two years since its last interest rate change. And with the eurozone economy slowing again, few expect action any time soon.
Financial markets point to a quarter percentage point increase only in the second quarter of next year - making a third anniversary of no change a distinct possibility.
The long period of inactivity - the ECB last week again left its main rate at 2 per cent - highlights how, for all the central bank's monetarist instincts, the weakness of European growth is proving more important to the ECB than fears of a possible asset bubble or its desire to follow the US Federal Reserve in moving rates back to more "normal" levels.
An economist at a well-known bank quips that the inactivity is putting European economists out of a job. Even ECB insiders joke that their families ask them what they do all day.
Official rates have been zero in deflation-ridden Japan for years.
Central bank watchers have to go back to the early 1960s to find a comparable period of interest rate stability in the US.
However, the ECB, which took over responsibility for eurozone monetary policy in 1999, has some way to go before it matches the three years and eight months of unchanged rates notched up by Germany's Bundesbank before it offered financial markets something to talk about in January 1965.
The talk last year was of a possible ECB rate rise by the end of 2004, then the favoured date slipped into 2005. Now any change appears to have been pushed even further into the future by a string of disappointing economic figures.
But a more important reason for its inaction has been the weak data. Eurozone gross domestic product figures this week covering the first three months of this year are expected to show a rebound after a weak second half of 2004. But more recent business and consumer confidence surveys have pointed to a marked slowdown in the second quarter of 2005.
German industrial production data for March yesterday came in below expectations, and a slowdown in the UK and US would further dim eurozone export prospects. Meanwhile, eurozone inflation shows little sign of wandering significantly from the ECB's definition of price stability - a rate "below but close" to 2 per cent.
One hope for ECB excitement would be if the central bank responded to demands from politicians in Germany and Italy for a cut in rates to boost growth.
Jean-Claude Trichet, ECB president, attempted to rule out such a move last week, describing a cut as "not an option". The ECB believes lower interest rates would add to the problem of excess liquidity in the eurozone, without boosting growth - and its preference is to raise rates as soon as possible.
Otherwise the consensus view is that the ECB will not be able to indulge its hawkish instincts and raise rates until an economic recovery has become self-sustaining.
# posted by Dr Search- Principal Consultant at the Search Clinic @ 10:43 AM 0 comments
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Tuesday, May 10, 2005
UK interest rates held at 4.75%
The Bank of England has left UK interest rates unchanged at 4.75% for the ninth month in a row.
Concerns about an accelerating rate of inflation were outweighed by evidence that the UK economy may be going through a sticky patch, analysts said.
Government figures on Monday showed a drop in manufacturing and industrial output, while consumer demand is slack and house price growth has cooled.
Analysts said that UK interest rates were now more likely to drop than rise.
With interest rate rises now largely off the agenda, attention will soon turn to when the Bank of England is likely to start cutting interest rates.
On Monday, figures from the Office for National Statistics showed that manufacturing production fell 1.6% in March - the biggest drop since June 2002 - while industrial production slid by 1.2%.
That data comes after mortgage lender Halifax said UK house prices were unchanged in April, adding there had been no movement since January.
Its report showed that annual price inflation had fallen to 7.8% in April - its lowest level since June 2001 - down from 9.7% in March.
The confusing state of the UK housing market was underlined on Monday when the Office of the Deputy Prime Minister said that according to its figures - which lag behind other surveys - the annual rate of price inflation was 12.6% in March.
Analysts said that even though the figures were out of kilter, it was not enough to signal a change in the softening of house prices nationwide.
The uncertainty surrounding the housing market has prompted many consumers to curb their spending, according to the CBI.
The business lobby group's monthly trade survey showed UK retail sales fell at their fastest pace in almost 13 years during April, prompting it to urge the Bank of England to leave rates on hold.
Company statements have made for equally sobering reading, with home improvement firm Kingfisher, general retailer Argos and music seller HMV all reporting falling sales.
Even budget stores are feeling the pinch - discount retailer Matalan reported sales plunged in March and April.
On top of that, economic data from the US and Europe, key trading partners, have shown a decidedly mixed picture.
Concerns about an accelerating rate of inflation were outweighed by evidence that the UK economy may be going through a sticky patch, analysts said.
Government figures on Monday showed a drop in manufacturing and industrial output, while consumer demand is slack and house price growth has cooled.
Analysts said that UK interest rates were now more likely to drop than rise.
With interest rate rises now largely off the agenda, attention will soon turn to when the Bank of England is likely to start cutting interest rates.
On Monday, figures from the Office for National Statistics showed that manufacturing production fell 1.6% in March - the biggest drop since June 2002 - while industrial production slid by 1.2%.
That data comes after mortgage lender Halifax said UK house prices were unchanged in April, adding there had been no movement since January.
Its report showed that annual price inflation had fallen to 7.8% in April - its lowest level since June 2001 - down from 9.7% in March.
The confusing state of the UK housing market was underlined on Monday when the Office of the Deputy Prime Minister said that according to its figures - which lag behind other surveys - the annual rate of price inflation was 12.6% in March.
Analysts said that even though the figures were out of kilter, it was not enough to signal a change in the softening of house prices nationwide.
The uncertainty surrounding the housing market has prompted many consumers to curb their spending, according to the CBI.
The business lobby group's monthly trade survey showed UK retail sales fell at their fastest pace in almost 13 years during April, prompting it to urge the Bank of England to leave rates on hold.
Company statements have made for equally sobering reading, with home improvement firm Kingfisher, general retailer Argos and music seller HMV all reporting falling sales.
Even budget stores are feeling the pinch - discount retailer Matalan reported sales plunged in March and April.
On top of that, economic data from the US and Europe, key trading partners, have shown a decidedly mixed picture.
# posted by Dr Search- Principal Consultant at the Search Clinic @ 11:13 AM 0 comments
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Monday, May 09, 2005
ECB holds rates at 2% as growth remains weak
The European Central Bank held its main refinancing rate at 2 per cent for the 23rd straight month last week.
The decision was widely expected with all economists forecasting that the ECB would leave rates unchanged.
While several members of the ECB’s governing council are believed to be keen to raise rates from their historic low at their first available opportunity, a run of weak economic data has so far prevented them from doing so.
Indeed there are signs that the language of a number of influential ECB members has actually softened in recent weeks, with Jean-Claude Trichet, the president of the ECB, Lucas Papademos, the vice president, and Axel Weber, the president of the Bundesbank, all stating that eurozone rate levels are “appropriate”.
Eurozone growth remains weak, with unemployment in the 12-nation bloc rising to 8.9 per cent in March. Forward-looking sentiment indicators have been weaker still, with Germany’s Ifo index of business sentiment sliding to a 19-month low.
This reading came just a day before Germany’s six leading economic institutes revised down their expectations for German growth in 2005 to just 0.7 per cent, from 1.5 per cent previously. The European Commission had previously downgraded its forecast for economic growth in the wider eurozone to 1.6 per cent in 2005, from 2 per cent, pinning the blame on high oil prices and a strong euro.
German consumer confidence has also fallen for the first time in eight months, while the eurozone-wide manufacturing purchasing managers’ index has fallen below the break-even 50-level, signalling contraction.
“The risks to real activity are clearly on the downside. There will be a ‘weak spot’ in the second quarter,” said Otmar Issing, the ECB’s chief economist.
Inflation remains under control with the flash estimate for the year to April unchanged at 2.1 per cent, a fraction above the ECB’s target level. Core inflation, which strips out energy costs, is softer still, at 1.6 per cent.
Although the weak economic picture has led some analysts to conclude that the ECB’s next move will be downwards, the majority of commentators still believe an eventual hike is a more likely outcome.
The remaining hawks also point to M3 money supply growth, the ECB’s gauge of future inflation, which has exceeded the bank’s reference value since May 2001.
The decision was widely expected with all economists forecasting that the ECB would leave rates unchanged.
While several members of the ECB’s governing council are believed to be keen to raise rates from their historic low at their first available opportunity, a run of weak economic data has so far prevented them from doing so.
Indeed there are signs that the language of a number of influential ECB members has actually softened in recent weeks, with Jean-Claude Trichet, the president of the ECB, Lucas Papademos, the vice president, and Axel Weber, the president of the Bundesbank, all stating that eurozone rate levels are “appropriate”.
Eurozone growth remains weak, with unemployment in the 12-nation bloc rising to 8.9 per cent in March. Forward-looking sentiment indicators have been weaker still, with Germany’s Ifo index of business sentiment sliding to a 19-month low.
This reading came just a day before Germany’s six leading economic institutes revised down their expectations for German growth in 2005 to just 0.7 per cent, from 1.5 per cent previously. The European Commission had previously downgraded its forecast for economic growth in the wider eurozone to 1.6 per cent in 2005, from 2 per cent, pinning the blame on high oil prices and a strong euro.
German consumer confidence has also fallen for the first time in eight months, while the eurozone-wide manufacturing purchasing managers’ index has fallen below the break-even 50-level, signalling contraction.
“The risks to real activity are clearly on the downside. There will be a ‘weak spot’ in the second quarter,” said Otmar Issing, the ECB’s chief economist.
Inflation remains under control with the flash estimate for the year to April unchanged at 2.1 per cent, a fraction above the ECB’s target level. Core inflation, which strips out energy costs, is softer still, at 1.6 per cent.
Although the weak economic picture has led some analysts to conclude that the ECB’s next move will be downwards, the majority of commentators still believe an eventual hike is a more likely outcome.
The remaining hawks also point to M3 money supply growth, the ECB’s gauge of future inflation, which has exceeded the bank’s reference value since May 2001.
# posted by Dr Search- Principal Consultant at the Search Clinic @ 9:35 AM 0 comments
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