basis-points

CMBS Delinquencies Hits Record High 92

by on June 1, 2011

ECB hike interest rates by 25 basis points

by on April 7, 2011

menafn.com…

ECB hike interest rates by 25 basis points

View original post here:
ECB hike interest rates by 25 basis points

Find our Weekly Commercial Real Estate, Private Equity and Fund Newsletters at www.WeeklyBrief.net

Rising inflation pushes the Bank of Korea to increase the rates by 25 basis points in March 

March 10, 2011

Rising inflation pushes the Bank of Korea to increase the rates by 25 basis points in March

Read the full article →

Video: Straszheim Says China Fighting Inflation With Rate Hike

December 27, 2010

Dec. 27 (Bloomberg) — Donald Straszheim, director of China research at International Strategy & Investment Group, talks about the People’s Bank of China’s increase of its key one-year lending and deposit rates by 25 basis points on Christmas Day. He speaks with Carol Massar on Bloomberg Television’s “In the Loop.” (Source: Bloomberg)

Read the full article →

Video: Neumann Says China Should Do More to `Temper’ Inflation

December 27, 2010

Dec. 27 (Bloomberg) — Frederic Neumann, economist at HSBC Holdings Plc, talks about the People’s Bank of China’s effort to stem inflation. China’s central bank increased key one-year lending and deposit rates by 25 basis points on Dec. 25 in its second move since mid-October. The change took effect yesterday. Neumann speaks with Deirdre Bolton on Bloomberg Television’s “InsideTrack.” (Source: Bloomberg)

Read the full article →

Video: China Raises Banks’ Reserve Ratios to Limit Inflation

November 19, 2010

Nov. 19 (Bloomberg) — China ordered banks to set aside larger reserves for the fifth time this year, draining cash from the financial system to limit inflation and asset-bubble risks in the world’s fastest-growing major economy. The ratio will increase 50 basis points starting Nov. 29, the central bank said on its website today. Bloomberg’s Margaret Conley reports. (Source: Bloomberg)

Read the full article →

Australia Utilities Scale Debt Wall as Economy Trumps MBIA Subprime Fall

June 17, 2010

By Sarah McDonald June 18 (Bloomberg) — Bond prices show the pace of Australia’s economic growth may help infrastructure and utility companies to refinance $13 billion of debt without top credit ratings they once bought from insurers such as MBIA Inc. Envestra Ltd. , ElectraNet Ltd. and five more firms raised $2.3 billion from bonds this year, up from $140 million in 2009, according to data compiled by Bloomberg. Brisbane Airport Corp. has A$350 million ($304 million) of MBIA-backed notes due on June 30, while SP AusNet has A$185 million of bonds insured by a unit of Ambac Financial Group Inc. due in September. The nation’s central bank has led Group of 20 policymakers in increasing the benchmark cash rate six times since October on surging Asian demand for commodities and a jobs boom that has pushed down unemployment to around half that of the U.S. and Europe. The extra yield investors demand to own Australian utility debt instead of government bonds has fallen 52 basis points to 206 basis points this year while spreads for firms in the industry widened globally, Bank of America Merrill Lynch indexes show. “Investors are buying into an economy that outperformed the world through the financial crisis,” said Brad Scott , director of debt capital markets at Australia & New Zealand Banking Group Ltd. in Sydney. “Many recognize Australia is a far more attractive place to invest than previously given credit.” Infrastructure and utility firms were Australia’s biggest users of insurers to sell cheaper, longer-dated debt until MBIA and Ambac were stripped of their top ratings in 2008 amid losses on notes backed by subprime mortgages. Since then five straight quarters of growth in the country’s A$1.2 trillion economy have bolstered corporate profits, attracting investors willing to accept lower credit rankings and greater risk. U.S. Placements Investors “show strong appetite for names out of the region,” Lori Pollicino , an executive director of debt capital market private placements at JPMorgan Securities Inc. in New York, said in an e-mailed response to questions. Australian utility companies’ spreads will “modestly tighten throughout the remainder of 2010.” Between 2000 and 2006 Brisbane Airport paid spreads of between 100 basis points and 130 basis points including fees on five bond sales backed by insurers, or so-called monolines, Chief Financial Officer Tim Rothwell said in a telephone interview. While new debt is “certainly going to cost more than it did a few years ago, it’s come down from the very high margins of late 2008 and early 2009” when the airport was told it would have to pay as much as 600 basis points, Rothwell said. Miami Visit The owner of the nation’s third-busiest airport aims to pay about 200 basis points on a sale by early 2011, according to Rothwell, who was “pleasantly surprised” at U.S. interest in Australian bonds when he visited Miami last year. A basis point is 0.01 percentage point. SP AusNet, which manages a A$6.3 billion electricity and gas network and is rated A- by Standard & Poor’s, has sold bonds denominated in Swiss francs, Hong Kong dollars and Australian dollars since February. The company’s Ambac-insured notes yielded 45 basis points more than the bank bill swap rate when they were issued in 2000, according to Bloomberg data, which doesn’t show the insurer’s fee. SP AusNet, based in Melbourne, priced A$300 million of bonds to yield 160 basis points more than the swap rate in March. As companies seek to develop relationships with investors now they’re refinancing without monoline support, Australia’s economic strength is proving to be a “positive factor” in negotiations, SP AusNet Treasurer Alastair Watson said in an interview. Concentration Risk Airports, utilities and infrastructure-related issuers have A$15 billion of debt due by the end of 2011, according to Moody’s Investors Service, while S&P says utilities must refinance a third of their outstanding debt next year. S&P said in a March 5 report that it’s concerned about the concentration of maturing debt, even though companies are arranging refinancing well before their bonds and loans mature. Investors demanded about 60 basis points of extra yield to hold Australian corporate bonds rather than government debt in June 2006, a Bank of America Merrill Lynch index shows. That spread widened to as much as 433 basis points in April 2009 before shrinking to 212 as of yesterday, the index shows. Bond Returns Australia is the world’s biggest exporter of iron ore and coal, and Chinese demand helped the economy expand 2.7 percent in the first quarter of 2010 from a year earlier. Investors have profited from Australian corporate bonds every year for at least the past 13 years, according to Bank of America Merrill Lynch data, and the notes delivered a 4.18 percent return this year. Adelaide Airport Ltd. bought back A$231.5 million of MBIA- insured bonds in April and issued A$235 million of notes without a third-party guarantee. The new bonds yield 255 basis points more than the bank bill swap rate compared with 49 basis points on the insured notes, excluding MBIA’s fee, Bloomberg data show. United Energy Distribution Pty. Ltd. , which provides electricity to more than 600,000 customers in the state of Victoria, sold $435 million of four- and seven-year notes to U.S. investors in April. The bonds were priced to yield 180 basis points more than similar-maturity Treasuries, according to a person familiar with the transaction. The company, rated Baa2 by Moody’s, paid an 83 basis point spread when it sold $260 million of Ambac-insured notes in 2003, according to Bloomberg data which doesn’t show the insurer’s fees. “While these companies are paying more for their debt now than before the crisis, they’re certainly not alone,” said Michael Bush , Melbourne-based head of credit research at National Australia Bank Ltd. “The market’s so different to what it was three years ago, and all borrowers are affected.” To contact the reporter on this story: Sarah McDonald in Sydney at smcdonald23@bloomberg.net .

Read the full article →

Sovereign Credit-Default Swaps Surge on Hungarian Debt Crisis

June 4, 2010

By Kate Haywood June 4 (Bloomberg) — Credit-default swaps on sovereign bonds surged to a record on speculation Europe’s debt crisis is worsening after Hungary said it’s in a “very grave situation” because a previous government lied about the economy. The cost of insuring against losses on Hungarian sovereign debt rose 63 basis points to 371, according to CMA DataVision at 3:30 p.m. in London, after earlier reaching 416 basis points. Swaps on France, Austria, Belgium and Germany also rose, sending the Markit iTraxx SovX Western Europe Index of contracts on 15 governments as high as a record 174.4 basis points. Hungary’s bonds fell after a spokesman for Prime Minister Viktor Orban said talk of a default is “not an exaggeration” because a previous administration “manipulated” figures. The country was bailed out with a 20 billion-euro ($24 billion) aid package from the European Union and International Monetary Fund in 2008. “The comments out of Hungary have really spooked the market,” said Rajeev Shah , a credit strategist at BNP Paribas SA in London. “Investors are interpreting it as bad sign for trying to tackle Europe’s debt crisis.” The euro dropped below $1.21 for the first time since April 2006, stocks tumbled and the cost of insuring against corporate default rose on speculation Hungary will weaken the EU’s willingness to rescue the region’s indebted nations. Credit markets were also roiled after data showed U.S. employers hired fewer workers in May than forecast, signaling slowing economic growth. ‘Something Serious’ Swaps on Spanish government debt were up 22 basis points at 278, after earlier reaching a record 295.5, according to CMA. Contracts on Portugal were 26 basis points wider at 364.8, while Ireland was up 32 basis points at 292, and Italy climbed 30 basis points to an all-time high of 264, before retreating to 253. Contracts on Greece were 57 basis points higher at 783, down from 798 earlier. The Markit iTraxx Crossover Index of swaps linked to 50 companies with mostly high-yield credit ratings jumped 27 basis point to 584, according to Markit Group Ltd. “Are we on the brink of something more serious?” Deutsche Bank AG strategist Jim Reid wrote in a note to clients today. “We’ve little doubt that the authorities have no appetite for imminent peripheral defaults but we do see the situation getting worse before it gets better. This leaves markets vulnerable until there is more certainty surrounding the structure of the peripheral funding bail-out.” Credit-default swaps pay the buyer face value in exchange for the underlying securities or the cash equivalent should a borrower fail to adhere to its debt agreements. A basis point on a contract protecting $10 million of debt from default for five years is equivalent to $1,000 a year. To contact the reporter on this story: Kate Haywood in London at khaywood@bloomberg.net

Read the full article →

Swap Spreads Narrow as Traders Pare Hedges Against Risk After ECB Tender

June 2, 2010

By Oliver Biggadike June 2 (Bloomberg) — U.S. swap spreads narrowed as European banks refrained from seeking dollar-denominated funds at the European Central Bank’s tender today, easing concern financial institutions faced a funding shortage. The difference between yields on two-year Treasuries and the rate to convert fixed payments to floating fell as much as 2 basis points to 44 basis points, or 0.44 percentage point. It was the second day of declines. The ECB said it received no bids for its auctions of dollars today at 1.21 percent interest after allocating $5.4 billion last week at its seven-day tender. “It’s a pullback from the fear risks that were being priced into the banking system,” said Ian Lyngen, a government bond strategist at CRT Capital Group LLC in Stamford, Connecticut. “We are not necessarily at panic-type levels where people believed they need to borrow at the implicit penalty rate to get dollars from the ECB.” Two-year swap spreads were 1 basis point lower at 45.13 basis points at 12:49 p.m. in New York. The five-year swap spread narrowed 1 basis point to 33.25 basis points, and 10-year spreads were little changed. The 30-year differential widened 0.9 basis point to minus 15.63 basis points. To contact the reporter on this story: Oliver Biggadike in New York at obiggadike@bloomberg.net

Read the full article →

Bank of Canada raises interest Rates by 25 basis points to 0.50 percent

June 1, 2010

Bank of Canada raises interest Rates by 25 basis points to 0.50 percent

Read the full article →

China’s Three-Month PBOC Bill Yield Increases for Second Sale, Traders Say

May 26, 2010

By Bloomberg News May 27 (Bloomberg) — The People’s Bank of China sold three-month bills at a yield of 1.4896 percent in the open market operations, the second increase in consecutive sales, according to traders at BOC International Holdings Ltd. and Shenzhen Development Bank Co. The yield rose 4 basis points, or 0.04 percentage points, from a 1.4492 percent in the sale a week ago. The central bank guided the rate higher last week for the first time since Jan. 21 to help drain more cash from the money market. The monetary authority offered 5 billion yuan ($732 million) of the securities at the auction today. To contact the reporter on this story: Belinda Cao in Beijing at lcao4@bloomberg.net

Read the full article →

Swaps Indicators Soar to 10-Month Highs as Investors Cut Exposure to Risk

May 25, 2010

By Abigail Moses and Shannon D. Harrington May 25 (Bloomberg) — Corporate and sovereign credit risk indicators worldwide reached or approached the highest levels in 10 months as heightened military tension in the Korean peninsula and a drop in the euro fueled concern that a global recovery will be derailed. Credit-default swaps benchmarks in Europe and Asia climbed to or near their highest levels since July while a North American credit-swap index approached a 10-month high reached May 7, the day after the Dow Jones Industrial Average plunged almost 1,000 points. Investors are cutting holdings of risk assets after North Korean leader Kim Jong Il ordered the military to prepare for combat and the U.S. said it will hold anti-submarine exercises with South Korea following the March 26 torpedoing of a warship. The euro slumped to near a four-year low after the International Monetary Fund urged Spain to overhaul ailing banks as the nation’s financial sector “remains under pressure.” “Asia is perceived as the growth engine of the recovery,” said Andrea Cicione , a credit strategist at BNP Paribas SA in London. “People are starting to question whether we can have a global recovery if Asia stumbles, and anything pointing in the direction of Asia stumbling is a reason for concern.” Credit-default swaps on the Markit iTraxx Crossover Index of 50 European companies with mostly junk credit ratings climbed as much as 67.9 basis points to a mid-price of 652.1 basis points before falling to 636.7, according to prices from Markit Group Ltd. The index is trading at the highest levels since July 29, end-of-day prices from CMA DataVision show. Recent High The Markit CDX North America Investment Grade Index, which investors use to hedge against losses on corporate debt or to speculate on creditworthiness, rose as much as 9.25 basis points to 134.5 basis points before dropping to 130.9 as of 9:53 a.m. in New York, according to Markit prices. The index approached the 10-month high of 137.4 basis points reached on May 7. The Markit iTraxx Asia index of credit-default swaps on 50 investment-grade borrowers outside Japan surged 21.5 basis points to 170 basis points, the highest since July 17, according to CMA. The credit swaps indexes typically rises as investor confidence deteriorates; a decline signals the opposite. The perception of credit worthiness is fading as global stocks slump, the euro drops to a more than four-year low against the dollar, benchmark German bund yields plunge to their lowest in at least two decades and the 10-year U.S. Treasury note fell to its lowest in more than a year. Stocks Fall The MSCI World Index of 23 developed nations’ stocks fell 1.6 percent to the lowest since August in London. The euro fell for a second day against the dollar, declining 1.2 percent to $1.2224 after earlier reaching the lowest level since April 2006. The yield on the German bund dropped to 2.59 percent while the yield on the 10-year U.S. Treasury note fell 7 basis points to 3.12 percent at 8:36 a.m. in New York. Swaps on Spanish lenders jumped as four of the nation’s savings banks with more than 135 billion euros ($164 billion) in assets plan to combine as regulators push ailing institutions to merge with stronger partners. Spain’s central bank seized CajaSur, a savings bank in Cordoba owned by the Catholic Church, after it refused a merger plan four days ago. Contracts on Banco Santander SA climbed 22 basis points to 211, according to CMA DataVision. Swaps on Banco Bilbao Vizcaya Argentaria SA increased 22.5 basis points to 226, Banco Sabadell rose 11.5 to 296 and Banco Popular Espanol SA was up 25 to 319. Swaps on Morgan Stanley jumped 31 basis points to 270 basis points, according to broker Phoenix Partners Group. That’s the highest since May 15, 2009, CMA prices show. U.S. Banks Contracts on Goldman Sachs Group Inc. , the bank facing fraud allegations from the U.S. Securities and Exchange Commission, rose 13 basis points to 210 basis points, according to Phoenix. Contracts on Citigroup Inc. jumped 18 to 215 and Bank of America Corp. swaps rose 13 to 180. The cost of insuring against losses on South Korean government debt rose 33 basis points to 176, helping push the Markit iTraxx SovX Asia Pacific Index 26 basis points higher to 174, according to CMA. “Deterioration of the political situation on the Korean peninsula” pushed swap prices higher, said Brayan Lai , a Hong Kong-based credit analyst at Credit Agricole CIB. “The Asian credit default-swap indices have many Korean constituents.” Kim put the nation’s military on alert in a May 20 broadcast, the North Korea Intellectuals Solidarity group said in a report on its website, citing a person in the communist country. ITraxx Financial Index Credit-default swaps pay the buyer face value in exchange for the underlying securities or the cash equivalent should a borrower fail to adhere to its debt agreements. The Markit iTraxx Financial Index of swaps linked to 25 banks and insurers rose 14.5 basis points to 179.5 and the subordinated index increased 23.5 to 271, according to JPMorgan Chase & Co. A basis point on a credit-default swap protecting $10 million of debt from default for five years is equivalent to $1,000 a year. The Markit iTraxx SovX Western Europe Index climbed 19 basis points to 158 as contracts on Spain increased 54 basis points to 267, CMA prices show. Greece jumped 62.5 basis points to 758, Portugal climbed 45 to 373, Italy rose 33 to 201 and Ireland was up 20 basis points at 314. To contact the reporters on this story: Abigail Moses in London at Amoses5@bloomberg.net ; Shannon D. Harrington in New York at sharrington6@bloomberg.net

Read the full article →

Worst Brazil Bond Drought Since August Threatens to Impair Economic Growth

May 21, 2010

By Gabrielle Coppola and Veronica Navarro Espinosa May 21 (Bloomberg) — Brazilian companies are avoiding the dollar bond market for a third week, the longest drought since August, as Europe’s debt crisis pushes borrowing costs higher. “This market is closed,” said Guillermo Mondino , head of Latin American research at Barclays Plc in New York. The extra yield investors demand to own Brazilian corporate dollar bonds rather than U.S. Treasuries swelled 21 basis points, or 0.21 percentage point, yesterday to 335, the most since November, according to JPMorgan Chase & Co indexes. Yields on the last two benchmark notes sold before markets seized up — 10-year securities from Marfrig Alimentos SA and Fibria Celulose SA — rose more than 70 basis points since May 3, double the average increase on Brazilian company bonds. Growth in Latin America’s largest economy that analysts forecast at the fastest in two decades will slow should capital markets stay shut for a “much longer” period of time, Mondino said. Brazilian companies are staying out of the market after $15.1 billion of sales from January through April, the best start on record, as Europe struggles to contain its debt crisis. The yield premium on Brazilian dollar government bonds over U.S. Treasuries jumped six basis points to 249 at 10:20 a.m. in New York, the highest in seven months, as concern grew that Europe’s crisis will crimp the global economic recovery. Currency Rout The currency has plunged 4.3 percent this week to 1.8802 per dollar. It’s declined 7.4 percent this month, reversing a 6.3 percent rally in the previous three months. The cost of protecting Brazilian debt against default for five years climbed nine basis points to 151 yesterday, the highest in two weeks, according to data compiled by CMA DataVision. Credit-default swaps pay the buyer face value in exchange for the underlying securities or the cash equivalent should a government or company fail to adhere to its debt agreements. The government sold 28.3 million reais of fixed-rate bonds due in 2021 yesterday, or just 19 percent of the 150 million reais on offer as part of a weekly debt auction. Yields on the notes climbed 23 basis points to 12.83 percent. “It makes no sense to offer large amounts when market conditions are not ideal,” Jose Franco de Morais , debt operations coordinator at Brazil’s Treasury, told reporters in Brasilia. Our strategy is “to not be too aggressive when the market is volatile,” he said. ‘Waiting’ The average yield on Brazil corporate dollar bonds rose 11 basis points yesterday to 6.64 percent, the highest since May 7. “The problem is much more related with price,” said Fabio Mentone , director of investment banking at Sao Paulo-based Banco Bradesco SA, the eighth-biggest underwriter of Brazilian international bond sales. Companies are “waiting for a reading of the market, waiting to return to the rates and the yields before the Greek crisis,” he said. Brazilian borrowers, excluding financial companies, had $41 billion of dollar debt maturing in 2010 as of Dec. 31, 2009. They have $30 billion of debt due in 2011 and $25 billion in 2012, according to Moody’s Investors Service. Companies will likely be able to weather the bond market drought because most will meet their financing needs through bank loans or by tapping local capital markets, said Daniel Kastholm , a managing director at Fitch Ratings in Chicago. Companies have sold 14.7 billion reais of local bonds through April and 14.4 billion reais of shares, according to data from Brazil’s capital markets association and securities regulator. ‘Sidelines’ “Absent these financing sources, companies will simply sit on the sidelines until some calm returns,’” Kastholm said in an e-mailed response to questions. Brazil’s economy will grow 6.3 percent this year, the fastest pace since 1986, according to a central bank survey published this week. Brazilian corporate dollar bond sales dropped to zero in May from a $3.8 billion monthly average in the January-to-April period, according to data compiled by Bloomberg. Total sales in the U.S. corporate market dropped to $20.6 billion this month from a $103 billion average in the first four months. The last two Brazilian companies with plans to sell dollar debt — Odebrecht SA , a Salvador-based engineering and construction company, and Sao Paulo-based Banco Cruzeiro do Sul SA — shelved the offerings on May 7 as borrowing costs surged on concern Greece’s debt crisis was spreading across Europe. Marfrig, Fibria Prices have plunged on the final two benchmark bonds that companies sold. Sao Paulo-based Marfrig’s $500 million of 10- year bonds fell to 92 cents on the dollar yesterday from 98.16 cents on May 3, according to Trace, the bond-price reporting system of the Financial Industry Regulatory Authority. Sao Paulo-based Fibria’s $750 million bonds slumped 5.9 cents since May 3 to 95.85 cents, according to Trace. Brazilian corporate bonds on average lost 2.2 percent over that period, according to JPMorgan. The yield on Marfrig’s bonds jumped 79 basis points since May 3 to 10.57 percent yesterday, according to Trace. The yield on Fibria’s notes rose 86 basis points to 8.12 percent. “The markets just need some reassurance that the sky is not falling,” Kastholm said. “That might just take some time.” To contact the reporters on this story: Gabrielle Coppola in New York at gcoppola@bloomberg.net Veronica Navarro Espinosa in New York at vespinosa@bloomberg.net

Read the full article →

Treasuries Advance on Speculation the Sovereign-Debt Crisis Will Sink Euro

May 15, 2010

By Cordell Eddings and Susanne Walker May 15 (Bloomberg) — U.S. two-year notes had their first three-week winning streak since January as demand for the safest assets rose on speculation Europe’s sovereign-debt crisis will damp growth and lead to disintegration of the euro. Treasuries , which fell the most in nine months May 10 after European leaders announced an almost $1 trillion bailout plan, climbed yesterday even as reports showed America’s economic recovery is building momentum. The euro dropped to its weakest level since 2008, and stocks plunged. A report next week is forecast to show U.S. consumer prices rose 0.1 percent in April. “There is a flight to quality emanating from the issues coming from Europe and the viability of their monetary union going forward,” said Christopher Sullivan , who oversees $1.6 billion as chief investment officer at United Nations Federal Credit Union in New York. “The market has looked past the short-term liquidity solution of last weekend and is looking to the long-term structural issues.” Two-year note yields fell 3 basis points to 0.79 percent, the lowest weekly close since Feb. 5, according to BGCantor Market Data. The 1 percent security due in April 2012 increased 1/32, or 31 cents per $1,000 face amount, to 100 13/32. A basis point is 0.01 percentage point. U.S. 10-year note yields were at 3.45 percent after trimming a rise for the week to 3 basis points. They gained as much as 18 basis points May 10, the most since August, on the bailout package and fell as much as 12 basis points yesterday. Yield Curve The difference between yields on 2- and 10-year notes, known as the yield curve, widened to 2.67 percentage points from 2.62 percentage points on May 7. The Treasury sold $78 billion of 3-, 10- and 30-year securities this week, drawing bids for more than two and a half times the amount on offer at each auction. The European Union’s failure to ease concern some of its nations may default has boosted demand for U.S. securities. The U.S. 10-year note yield touched 3.26 percent May 6, the lowest since Dec. 2, from an 18-month high of 4.01 percent April 5. Treasuries were the world’s top-performing bonds in the past month. U.S. notes due in 10 years and longer gained 3.8 percent on average in the past month, the most of 174 bond indexes after accounting for currency rates, according to data compiled by Bloomberg. ‘Very Serious Situation’ The euro dropped to $1.2354 yesterday, the weakest level since October 2008, as German Chancellor Angela Merkel said Europe is in a “very, very serious situation” even with the bailout package. The Standard & Poor’s 500 Index tumbled 1.9 percent yesterday, paring a weekly rally. Deutsche Bank AG Chief Executive Officer Josef Ackermann said in an interview with ZDF television that Greece, where the crisis began, may not be able to repay its debt in full without “incredible efforts.” Lending between banks has faltered as the crisis has deepened. The dollar London interbank offered rate-OIS spread, a gauge of banks’ reluctance to lend, widened to 22 basis points, from 18 basis points on May 7. Libor, the rate banks say they pay for three-month loans in dollars, rose yesterday to 0.445 percent, the most since Aug. 12, from 0.436 percent on May 13, according to data from the British Bankers’ Association. Morgan Stanley, the most bearish interest-rate forecaster of all the 18 primary dealers that trade with the Federal Reserve, reduced its year-end estimate on May 10 for the yield on Treasury 10-year notes due to euro area concerns. Not Just U.S. Story “On the domestic front, things have gotten a lot better, but the U.S. rates story is more than a U.S. story, given the intensity of the sovereign crisis,” said Richard Berner , co- head of global economics in New York. “Higher real rates due to massive borrowing needs and increasing private credit demand will still be the case. What has happened in the sovereign-debt space has reset the clock for risk assets globally.” U.S. 10-year yields will end the year at 4.5 percent, down from a previous estimate of 5.5 percent, according to revised forecasts issued by Berner and David Greenlaw , Morgan Stanley’s chief fixed-income economist in New York. Retail sales and industrial production in the U.S. climbed more than forecast in April, indicating the economic recovery gained momentum at the start of the second quarter. Sales rose 0.4 percent, after a 2.1 percent gain in March that was larger than previously estimated, a Commerce Department report showed yesterday in Washington. Output at U.S. factories, mines and utilities rose 0.8 percent, the most in three months, data from the Fed showed. “Global uncertainties are overwhelming any domestic economic story,” Larry Milstein , managing director in New York of government and agency debt trading at R.W. Pressprich & Co., a fixed-income broker and dealer for institutional investors, said. “You don’t want to be short Treasuries right now.” A short position is a bet a security will fall. Consumer prices rose 0.1 percent in April, the same as in March, according to the median forecast of 59 economists in a Bloomberg survey. The Labor Department reports the data May 19. To contact the reporters on this story: Cordell Eddings in New York at ceddings@bloomberg.net ; Susanne Walker in New York at swalker33@bloomberg.net

Read the full article →

Insurers Drag Bonds Down to Worst Month Since December ’09: Credit Markets

May 13, 2010

By John Glover May 14 (Bloomberg) — Insurers are leading the first monthly decline for corporate bonds since December on speculation they face losses on sovereign debt just as cleanup costs for the Gulf of Mexico oil spill loom. American International Group Inc. and Axa SA are among insurers whose bonds lost 1.09 percent including reinvested interest, according to Bank of America Merrill Lynch index data. That compares with the negative 0.83 percent return on debt issued by energy companies hit by BP Plc ’s oil rig explosion and the 0.68 percent loss on notes from banks, also big holders of debt of troubled European nations. Europe’s largest insurers hold more than 95 billion euros ($120 billion) of bonds issued by countries in the region whose struggle to fund record budget deficits prompted a $1 trillion international rescue, CreditSights Inc. data show. The Gulf oil leak from the explosion of the Deepwater Horizon rig may cost $12.5 billion to clean up, according to Sanford C. Bernstein & Co. analysts. “The insurers’ declines are primarily down to sovereign debt concerns because they’re investors in government bonds, agencies and so on,” said Luis Maglanoc , head of credit research at UniCredit SpA in Munich. “The costs of the Gulf accident are likely to be indirect, as people claim for injury or loss of livelihood for example, and will be in the future.” The extra yield over Treasuries that investors demand to hold bonds of AIG , the insurer rescued by the U.S. government, increased an average 105 basis points to 355 basis points since April 19, according to Bank of America Merrill Lynch index data. That’s the day before the Deepwater Horizon blew up. The spread on the notes widened 88 basis points this month. Credit Risk Falls Elsewhere in credit markets, the extra yield investors demand to own corporate bonds instead of government debt fell 1 basis point yesterday to 168 basis points, after soaring 28 basis points last week, the Bank of America Merrill Lynch Global Broad Market Corporate Index shows. The spread peaked at 511 on March 30, 2009, and dropped to as low as 142 on April 21. An indicator of U.S. corporate credit risk is on track for the biggest weekly drop since May 2009 after European leaders agreed to the almost $1 trillion aid package to prevent a sovereign-debt collapse. Credit-default swaps on the Markit CDX North America Investment Grade Index, which investors use to hedge against losses on corporate debt or to speculate on creditworthiness, rose 3.4 basis points to a mid-price of 101 basis points as of 5:23 p.m. in New York, according to Markit Group Ltd. The index dropped from 119 basis points on May 7. The retreat shows that investor sentiment has calmed following the Europe-driven rout last week that broadly pushed credit swaps to the highest in at least 10 months. Bond Issuance Rises Credit swaps pay the buyer face value if a borrower fails to meet its obligations, less the value of the defaulted debt. A basis point equals $1,000 annually on a contract protecting $10 million of debt. The contracts typically rise as investor confidence deteriorates and falls as it improves. Global corporate bond issuance this week rose to at least $14.1 billion, compared with $10.3 billion last week, according to data compiled by Bloomberg. CVS Caremark Corp., PNC Financial Services Group Inc. and FPL Group Inc. , owner of Florida’s largest utility, led debt sales in the U.S. yesterday. CVS , the largest U.S. distributor of prescription drugs, sold $1 billion of securities in maturities of 5 and 10 years, Bloomberg data show. The $550 million of 5-year notes yield 100 basis points, or 1 percentage point more than similar maturity Treasuries. The 10-year bonds yield a 125 basis point spread. Leveraged Loans Prices on the Standard & Poor’s/LSTA U.S. Leveraged Loan 100 Index , which tracks the 100 largest dollar-denominated first-lien leveraged loans, rose 0.26 cent on the dollar this week to 91.15 cents. The index has risen 54 percent from 59.2 cents on Dec. 17, 2008 and is down from its April 26 high of 92.9 cents. More than $110 billion in U.S. leveraged loans have been arranged this year, according to Bloomberg data, up from $33.9 billion during the comparable period in 2009. Over $370 billion of U.S. leveraged loans were arranged during the period in 2007. Renal Advantage Inc., a provider of outpatient dialysis services, is seeking $305 million of bank debt to pay a dividend and refinance debt, according to a person familiar with the transaction. Deutsche Bank AG, Barclays Plc, Bank of America Corp. and General Electric Co.’s financing unit are arranging a six-year $245 million term loan and a $60 million revolving credit line for the Brentwood, Tennessee-based company, said the person, who declined to be identified because the terms are private. Emerging-Market Bonds The extra yield investors demand to own emerging-market bonds instead of Treasuries is heading for its biggest weekly drop in nine months. Spreads fell 49 basis points since May 7 to 276, according to JPMorgan Chase & Co.’s Emerging Market Bond index. Gol Linhas Aereas Inteligentes is beating its biggest rival, Tam SA, in the bond market as Brazil’s economic growth accelerates amid a four-month rally in the real. Gol’s 7.5 percent bonds due in 2017 yield 7.72 percent, or 81 basis points less than Tam’s similar-maturity notes, after yielding 476 basis points more a year ago, according Bloomberg data. The relationship between the nation’s two largest airlines reversed because Gol gets 89 percent of its paid passenger miles from domestic business while Tam receives 41 percent of its miles from international business, according to April figures. The real’s 6.8 percent gain since Feb. 1 has reduced fuel and debt-servicing costs for Gol while hampering Tam’s revenue growth. Libor Increase The rate banks pay for three-month loans in dollars rose to the highest in nine months as concern over the quality of collateral needed to secure loans heightened financial institutions’ reluctance to lend. The London interbank offered rate, or Libor , for such loans climbed to 0.436 percent yesterday from 0.43 percent May 12, the most since Aug. 13, according to data from the British Bankers’ Association. Libor rises when banks become more hesitant to lend to potentially risky counterparties. The dollar Libor-OIS spread, a gauge of banks’ reluctance to lend, widened for a fifth consecutive day, reaching the most since Aug. 20. Libor has risen 16 of the past 17 days as the euro-area’s debt crisis stoked concern that regional banks’ holdings of bonds from countries struggling to cut their budget deficits, such as Greece, Portugal and Spain, will deteriorate in quality. The rate stabilized this week after the European Union announced the rescue plan. ‘Upward Drift’ “There is a natural upward drift in rates on a long-term basis,” said Marc Ostwald , a fixed-income strategist at Monument Securities Ltd in London. “There’s an underlying realization that counterparty risk is still there.” AIG said May 7 it paid about $20 million tied to property claims related to the oil spillage. The New York-based insurer said that while it couldn’t estimate casualty losses tied to the event until the cause is determined, the liabilities could have a “material adverse effect” on its results. The spill may cost insurers as much as $1.5 billion in claims, according to Transatlantic Holdings Inc. , the reinsurer sold by AIG. PartnerRe Ltd., the reinsurer that purchased Paris Re Holdings Ltd., faces claims of $60 million to $70 million, it said in an April 29 statement. Rig Explosion “Notably, Deepwater Horizon explosion losses could be an issue” for property and casualty insurers in the second quarter, Jay Gelb , an analyst at Barclays in New York, said in a note on April 30. Gelb called first-quarter earnings “mixed so far,” with premium income declining and price erosion in commercial insurance as underwriters go after new business “aggressively.” Average spreads on bonds of Axa have widened 36 basis points to 259 basis points, according to Bank of America index data. The Paris-based company has 9.6 billion euros of southern European government bonds, including 4 billion euros of Italian debt, according to New York-based CreditSights. Spreads on bonds of Aviva Plc, the U.K.’s second-biggest insurer, have widened 33 basis points to 387 basis points on average this month. Aviva is the U.K. insurer with the largest amount of government bonds, according to Bernstein Research. Insurance companies’ holdings of government bonds are closely linked to where they are based and European companies typically hold a bigger proportion of bonds than equities, said David Prowse, an analyst at Fitch Ratings in London. Of the bond holdings, about half is in government securities, he said. Assicurazioni Generali SpA , Europe’s third-biggest insurer, has 46.5 billion euros of Italian government bonds out of its 48.75 billion euros of southern European government debt, according to CreditSights. Spreads on Trieste, Italy-based Generali’s bonds have widened 46 basis points this month on average. European insurers hold 6 billion euros of bonds sold by Greece, whose debt crisis sparked a plunge in the securities of the region’s so-called peripheral nations, according to CreditSights. To contact the reporter on this story: John Glover in London at johnglover@bloomberg.net

Read the full article →

Euro Erases Gains, Stocks Drop as Optimism Cools; China Enters Bear Market

May 11, 2010

By Justin Carrigan May 11 (Bloomberg) — The euro lost all of yesterday’s gains on concern the $1 trillion bailout will hurt European economic growth. Stocks fell, paring the MSCI World Index’s biggest advance in a year. Chinese shares entered a bear market. The euro weakened 0.8 percent against the dollar at 7:09 a.m. in New York, trading below the level it was at before the European Union-led aid package was announced early yesterday. The Stoxx Europe 600 Index fell 1.8 percent, after rising 7.2 percent yesterday. Futures on the Standard & Poor’s 500 Index dropped 1.1 percent. Copper traded below $7,000 a metric ton. The European Union’s unprecedented bailout package is unlikely to be a “long-term solution” for the region, Marek Belka , the director of the International Monetary Fund’s European department, said in Brussels yesterday. Inflation in China accelerated to an 18-month high, the nation’s statistics bureau said today, increasing pressure on the government to raise interest rates in an economy that has been an engine of growth through the global financial crisis. “The euphoria of 24 hours ago has passed,” Derek Halpenny , European head of global currency research at Bank of Tokyo Mitsubishi UFJ Ltd. in London, wrote in a report today. “We are in little doubt that steps taken will offer the euro little support and the aid package does not change the fact that Spain and Portugal in particular will still have to undergo further painful austerity measures.” Yen, Treasuries Gain The euro fell against 11 of its 16 most-traded peers, dropping as low as $1.2670, compared with the $1.2755 level at which it closed last week. The yen strengthened against all 16 of its major counterparts as investors sought the relative safety of the Japanese currency. The dollar advanced versus 15. U.S. Treasuries rose, snapping a two-day decline, with the 10-year yield sliding 7 basis points to 3.47 percent and the two-year yield dropping 6 basis points to 0.81 percent. German 10-year bund yields fell 5 basis points to 2.90 percent, while two-year yields were also 4 basis points lower, at 0.57 percent. Traders are betting the plan to rescue debt-laden governments from Greece to Portugal will fail to reverse the euro’s worst start to a year since 2000, forcing the European Central Bank will keep interest rates at a record low for longer. Economic growth in the nations that share the euro will lag behind the U.S. by almost 1.5 percentage points next year, Bloomberg surveys of economists show. Greek Debt Insurance The cost of protecting against a default by Greece fell. Credit-default swaps tied to Greek government bonds dropped 22 basis points to 562.5, according to CMA DataVision. The yield on the two-year Greek note fell 99 basis points to 8.16 percent, extending yesterday’s more than 1,000 basis-point decline. Banco Santander SA led European banks lower, falling 5.6 percent in Madrid. Spain’s biggest lender yesterday surged 23 percent, its biggest rally in 20 years. BHP Billiton Ltd. , the world’s largest mining company, retreated 2.7 percent in London. Deutsche Boerse AG slipped 1.6 percent in Frankfurt after reporting earnings that missed analysts’ estimates. The decline in U.S. futures indicated the S&P 500 may pare some of yesterday’s 4.4 percent rally, which was the biggest advance since March 2009. The benchmark gauge for U.S. equities is still down 4.7 percent from its April 23 high. The MSCI Asia Pacific Index fell 1 percent, paring yesterday’s 1.5 percent advance. The MSCI Emerging Markets Index slipped 0.7 percent as the retreat in Chinese shares was offset by gains of at least 3.4 percent in Russian and Philippine equity markets, which were closed for trading yesterday. The Philippine peso strengthened 0.8 percent against the dollar, the most among major emerging-market currencies, after Benigno Aquino headed for a landslide presidential election victory, ending concern that the result would be contested. Chinese Growth The Shanghai Composite Index sank 1.9 percent, bringing its decline from a Nov. 23 high to 21 percent. Investors are concerned that accelerating inflation and surging property prices in China will spur the government to boost interest rates for the first time since 2007, slowing growth in the world’s fastest-expanding major economy and biggest metals user. Copper for delivery in three months fell 2.7 percent to $6,930 a ton on the London Metal Exchange. Aluminum, nickel and zinc also retreated. Gold for immediate delivery advanced 1.1 percent to $1,217 an ounce. Crude oil for June delivery fell 1.6 percent to $75.58 a barrel in New York trading. To contact the reporter for this story: Justin Carrigan in London at jcarrigan@bloomberg.net

Read the full article →

Euro Erases Gains, Stocks Drop as Optimism Cools; China Enters Bear Market

May 11, 2010

By Justin Carrigan May 11 (Bloomberg) — The euro lost all of yesterday’s gains on concern the $1 trillion bailout will hurt European economic growth. Stocks fell, paring the MSCI World Index’s biggest advance in a year. Chinese shares entered a bear market. The euro weakened 0.8 percent against the dollar at 7:09 a.m. in New York, trading below the level it was at before the European Union-led aid package was announced early yesterday. The Stoxx Europe 600 Index fell 1.8 percent, after rising 7.2 percent yesterday. Futures on the Standard & Poor’s 500 Index dropped 1.1 percent. Copper traded below $7,000 a metric ton. The European Union’s unprecedented bailout package is unlikely to be a “long-term solution” for the region, Marek Belka , the director of the International Monetary Fund’s European department, said in Brussels yesterday. Inflation in China accelerated to an 18-month high, the nation’s statistics bureau said today, increasing pressure on the government to raise interest rates in an economy that has been an engine of growth through the global financial crisis. “The euphoria of 24 hours ago has passed,” Derek Halpenny , European head of global currency research at Bank of Tokyo Mitsubishi UFJ Ltd. in London, wrote in a report today. “We are in little doubt that steps taken will offer the euro little support and the aid package does not change the fact that Spain and Portugal in particular will still have to undergo further painful austerity measures.” Yen, Treasuries Gain The euro fell against 11 of its 16 most-traded peers, dropping as low as $1.2670, compared with the $1.2755 level at which it closed last week. The yen strengthened against all 16 of its major counterparts as investors sought the relative safety of the Japanese currency. The dollar advanced versus 15. U.S. Treasuries rose, snapping a two-day decline, with the 10-year yield sliding 7 basis points to 3.47 percent and the two-year yield dropping 6 basis points to 0.81 percent. German 10-year bund yields fell 5 basis points to 2.90 percent, while two-year yields were also 4 basis points lower, at 0.57 percent. Traders are betting the plan to rescue debt-laden governments from Greece to Portugal will fail to reverse the euro’s worst start to a year since 2000, forcing the European Central Bank will keep interest rates at a record low for longer. Economic growth in the nations that share the euro will lag behind the U.S. by almost 1.5 percentage points next year, Bloomberg surveys of economists show. Greek Debt Insurance The cost of protecting against a default by Greece fell. Credit-default swaps tied to Greek government bonds dropped 22 basis points to 562.5, according to CMA DataVision. The yield on the two-year Greek note fell 99 basis points to 8.16 percent, extending yesterday’s more than 1,000 basis-point decline. Banco Santander SA led European banks lower, falling 5.6 percent in Madrid. Spain’s biggest lender yesterday surged 23 percent, its biggest rally in 20 years. BHP Billiton Ltd. , the world’s largest mining company, retreated 2.7 percent in London. Deutsche Boerse AG slipped 1.6 percent in Frankfurt after reporting earnings that missed analysts’ estimates. The decline in U.S. futures indicated the S&P 500 may pare some of yesterday’s 4.4 percent rally, which was the biggest advance since March 2009. The benchmark gauge for U.S. equities is still down 4.7 percent from its April 23 high. The MSCI Asia Pacific Index fell 1 percent, paring yesterday’s 1.5 percent advance. The MSCI Emerging Markets Index slipped 0.7 percent as the retreat in Chinese shares was offset by gains of at least 3.4 percent in Russian and Philippine equity markets, which were closed for trading yesterday. The Philippine peso strengthened 0.8 percent against the dollar, the most among major emerging-market currencies, after Benigno Aquino headed for a landslide presidential election victory, ending concern that the result would be contested. Chinese Growth The Shanghai Composite Index sank 1.9 percent, bringing its decline from a Nov. 23 high to 21 percent. Investors are concerned that accelerating inflation and surging property prices in China will spur the government to boost interest rates for the first time since 2007, slowing growth in the world’s fastest-expanding major economy and biggest metals user. Copper for delivery in three months fell 2.7 percent to $6,930 a ton on the London Metal Exchange. Aluminum, nickel and zinc also retreated. Gold for immediate delivery advanced 1.1 percent to $1,217 an ounce. Crude oil for June delivery fell 1.6 percent to $75.58 a barrel in New York trading. To contact the reporter for this story: Justin Carrigan in London at jcarrigan@bloomberg.net

Read the full article →

Bank Swaps, Libor Show Doubts on Europe Bailout: Credit Markets

May 11, 2010

By Abigail Moses and Shannon D. Harrington May 11 (Bloomberg) — Money markets and the cost of protecting bank bonds from losses show investors are concerned the almost $1 trillion rescue plan announced by European leaders may not be enough to contain the region’s sovereign debt crisis. The Markit iTraxx Financial Index of credit-default swaps on 20 European banks was last at 130.5 basis points compared to 100.25 basis points for the Markit iTraxx Europe Index of 125 investment-grade companies, a benchmark it traded an average 10 basis points below for three years, according to CMA DataVision. The three-month Libor-OIS spread, which widens as banks’ willingness to lend decreases, advanced to 19.17 basis points from 18.92 yesterday and 6 on March 15. The loan package for debt-laden nations including Greece is part of an attempt to stem a decline in the euro, which fell to a 14-month low last week, and stave off a sovereign default that would threaten recovery from the worst global recession since the 1930s. Banks’ potential losses stemming from the crisis are under scrutiny by investors concerned financial institutions are owed too much by Europe’s most-indebted countries. “Sovereign risk hasn’t gone away in the slightest,” said Jim Reid , head of fundamental strategy in London for Deutsche Bank AG, Germany’s biggest bank. “What this package has done is massively reduced the tail risk in European markets without necessarily changing the medium- to long-term dynamics of financial markets.” Investor ‘Euphoria’ Elsewhere in credit markets, the extra yield investors demand to own corporate debt instead of government securities fell 8 basis points to 169 basis points, or 1.69 percentage point, after soaring 28 basis points last week, according to Bank of America Merrill Lynch’s Global Broad Market Corporate Index. It peaked at 511 basis points on March 30, 2009, and dropped to as low as 142 on April 21. Average yields fell 0.5 basis point to 4 percent. The cost of protecting Asia-Pacific bonds from default rose today as investor “euphoria” at the European measures abated, according to Fumihito Gotoh , head of Japan credit research for UBS AG in Tokyo. The Markit iTraxx Asia index of credit-default swaps on 50 investment-grade borrowers outside Japan climbed 3 basis points to 108 as of 11:27 a.m. in Singapore, Royal Bank of Scotland Group Plc prices show. It declined 28 basis points yesterday, according to CMA, after European Union finance chiefs agreed to offer as much as 750 billion euros ($956 billion), including International Monetary Fund backing, to countries facing deep budget deficits and flagging investor confidence. Europe Sovereigns The European Central Bank also said it will buy government and private debt. Credit swaps on Greece tumbled 329.5 basis points to 586, the biggest decline since March 2005, according to CMA. The swaps are still up from 364 on April 12. Contracts on Portugal, which were 152 basis points four weeks ago, dropped 170 to 255. Spain, which declined 65.5 to 173 yesterday, is 48 basis points higher than April 12. Italy, which fell 68.5 to 157 yesterday, was 124 basis points two weeks ago. “Maybe Greece won’t default in the near term or even the medium term, but the debt hasn’t gone away,” said John Anderson , head of credit at Gartmore Investments in London. “Budget deficits still need to be cut for the debt to be paid down.” Credit swaps pay the buyer face value if a borrower fails to meet its obligations, and prices decline as perceptions of creditworthiness improve. A basis point equals $1,000 annually on a contract protecting $10 million of debt. Corporate Sales Xcel Energy Corp. led $1.15 billion of U.S. investment- grade corporate bond sales yesterday, more than double last week’s issuance. The Minneapolis-based operator of utilities in eight U.S. states issued $550 million of 10-year notes, according to data compiled by Bloomberg. Chesapeake Energy Corp., the third-largest U.S. natural gas producer, said it will raise as much as $5 billion to cut debt and achieve investment-grade credit ratings. The company, based in Oklahoma City, said in a statement steps such as issuing preferred stock and selling a stake in a unit will raise cash to cut debt by as much as $3.5 billion and fund increased investment in drilling for oil and gas. Chesapeake is rated BB by Standard & Poor’s, two rungs below investment grade. There were no U.S. sales of high-yield bonds yesterday, as notes rated below Baa3 by Moody’s Investors Service and lower than BBB- by S&P are known. Asset-Backed Notes AmeriCredit Corp., the lender to auto buyers with poor credit, plans to sell $600 million of bonds backed by vehicle loans. Wells Fargo & Co., Deutsche Bank, and JPMorgan Chase & Co. are underwriting the sale for the Fort Worth, Texas-based consumer finance company, according to a person familiar with the transaction. JPMorgan and Deutsche Bank are in talks to provide about $2 billion of financing to a group led by Centerbridge Partners LP and Paulson & Co. that’s committed to investing as much as $905.4 million in bankrupt U.S. hotel chain Extended Stay Inc., two people familiar with the situation said. The extra yield investors demand to own emerging-market bonds instead of government debt declined. The gap fell 38 basis points to 290, the biggest drop since October 2008, after expanding 70 basis points last week, according to JPMorgan’s Emerging Market Bond index. Spreads on Argentine dollar bonds over Treasuries fell 81 basis points to 696, JPMorgan’s EMBI+ index shows. Libor Rates The three-month London interbank offered rate in dollars, the rate banks pay for loans, fell to 42.1 basis points from 42.8 on May 7. The rate climbed 8.2 basis points last week, the biggest increase since October 2008, a month after Lehman Brothers Holdings Inc.’s bankruptcy filing. The difference between it and the overnight indexed swap rate, the so-called Libor-OIS spread, climbed yesterday even after the rescue announcement. Predictions for the spread in the months ahead, based on contracts trading in the forwards market, or so-called FRA/OIS spreads, are for 26.5 basis points by June, down from 38 on May 7 and still almost twice the 14.5 basis points from two weeks ago, according to UBS AG data. “People will remain somewhat on edge,” said David Watts , a London-based strategist at CreditSights Inc. “There are still a lot of hurdles to overcome before we get settled back to where we were a month and a half to two months ago.” The European bailout may unravel if countries fail to meet austerity targets under terms of the loan package, Watts wrote with strategist Louise Purtle in a note to clients yesterday.. “You now have moral hazard at a sovereign level and investors should still be wary of the whole situation,” said Gartmore’s Anderson. “There are record deficits in just about every country in Western Europe and something ultimately needs to be done about them.” To contact the reporters on this story: Abigail Moses in London at Amoses5@bloomberg.net ; Shannon D. Harrington in New York at sharrington6@bloomberg.net

Read the full article →

Default Swaps Tumble After EU Goes `All In’ With Loan Plan: Credit Markets

May 10, 2010

By Abigail Moses and Shannon D. Harrington May 10 (Bloomberg) — Credit markets rallied around the world after the European Union agreed on an aid package worth almost $1 trillion to halt the sovereign debt crisis. “There has been a poker game going on between the markets and the EU,” said Gary Jenkins , head of credit strategy at Evolution Securities Ltd. in London. “This is probably reaching a climax as the EU has just gone ‘all in.’” Credit-default swaps on the Markit iTraxx Europe Index of 125 investment-grade companies tumbled 32 basis points to a mid- price of 101 as of 4:46 p.m. in London, with banks leading the biggest ever one-day decline, according to Markit Group Ltd. Swaps on Greece fell 358.5 basis points to 557, Portugal dropped 178 to 247 and Spain declined 82.5 to 156 basis points, according to CMA DataVision. Contracts on France, Germany and the U.K. also fell. European policy makers stepped up efforts to prevent a sovereign-debt collapse and muffle speculation the 11-year-old euro could break apart. The measures came after contagion from Greece drove the common currency to a 14-month low, infecting the bank-funding system and threatening to slow the global economic recovery as borrowing costs rose from the U.S. to Asia. The loan package offers as much as 750 billion euros ($970 billion), including International Monetary Fund backing, to countries facing instability, while the European Central Bank said it will buy government and private debt. The Federal Reserve authorized temporary currency swaps with other central banks in response to the “re-emergence of strains” in Europe. ‘Nuclear Option’ “Politicians and the ECB have now pressed the nuclear option,” said Padhraic Garvey , a strategist at ING Groep NV in Amsterdam. “The central question from here is whether the cumulative measures can manage to stabilize the system.” Stocks surged around the world, the euro strengthened and commodities gained today on speculation the EU’s aid fund will underpin economic growth and ease the crisis that on May 7 drove the interest rate banks charge each other for three-month loans in dollars to the highest since August. Yields on corporate debt climbed last week by the most relative to government securities since Lehman Brothers Holdings Inc.’s bankruptcy in September 2008, according to Bank of America Merrill Lynch indexes. The Markit CDX North America Investment Grade Index, an indicator of perceived credit risk linked to 125 companies in the U.S. and Canada, fell 17.3 basis points to a mid-price of 101.4 basis points as of 11:49 a.m. in New York, Markit prices show. Swaps on JPMorgan Chase & Co., the second-biggest U.S. bank by assets, fell about 10 basis points to 105, according to broker Phoenix Partners Group. Goldman Swaps Contracts on Goldman Sachs Group Inc., the bank facing fraud allegations from the U.S. Securities and Exchange Commission, fell 18 basis points to a mid-price of 195 basis points, Phoenix prices show. The Markit iTraxx Financial Index of credit-default swaps on 25 European banks and insurers fell 42 basis points to 135 basis points and earlier dropped to 119, the biggest one-day drop ever, JPMorgan prices show. That’s still only the lowest in a week and is higher than the 87 basis-point level on April 13. Credit-default swaps pay the buyer face value in exchange for the underlying securities or the cash equivalent should a borrower fail to adhere to its debt agreements. A decline signals an improvement in investor perceptions of credit quality. Bond Issuance Global corporate bond issuance plummeted to $9.4 billion last week, the least this year, following $30.1 billion in the previous five-day period and $47.9 billion in the week ended April 23, according to data compiled by Bloomberg. JPMorgan said in a May 7 report it’s ending a recommendation that investors own a greater percentage of junk bonds than contained in benchmark indexes. The three-month London interbank offered rate in dollars, which is how much banks pay for loans, fell to 0.421 percent, from 0.428 percent on May 7. That’s after it jumped 8.2 basis points last week, the biggest increase since October 2008. “There were a lot of people who didn’t realize how fully interrelated and large” the problems caused by the sovereign fiscal crisis were, said Brian Yelvington , head of fixed-income strategy at broker-dealer Knight Libertas LLC in Greenwich, Connecticut. Libor-OIS Spread The difference between three-month dollar Libor and the overnight indexed swap rate, the so-called Libor-OIS spread that’s a barometer of the reluctance of banks to lend, jumped to 19.13 basis points today from 18.11 basis points on May 7. The spread, which earlier reached 20 basis points, is more than three times the 6 basis-point spread on March 15 and is at the highest levels since August. The rate at which Royal Bank of Scotland Group Plc told the British Bankers Association it could borrow for three months jumped 14 basis points last week to 0.5 percentage point. Barclays reported rates that increased 11 basis points to 0.45, while Societe Generale SA, France’s second-largest bank by market value, said its rates climbed 8 basis points to 0.45 percentage point. Rates being charged for short-term loans are still more than 90 percent below the record levels in 2008, as banks are in better shape to weather a market seizure than when the U.S. subprime mortgage market collapsed. The Libor-OIS spread reached a record 364 basis points in October 2008. ‘As Bad as ‘08’ “The price action is probably as bad as anything we saw in September ‘08,” James Palmisciano , chief investment officer of the $1.7 billion Gracie Credit Fund in New York, said before European policy makers announced the loan package. The extra yield investors demand to own corporate debt instead of government securities soared 28 basis points to 177 basis points, or 1.77 percentage point, as of May 7, according to Bank of America Merrill Lynch’s Global Broad Market Corporate Index. The index, which peaked at 511 basis points in March 2009, dropped to as low as 142 on April 21. Spreads on European bank bonds widened 48 basis points last week to 238, the highest since September, according to Bank of America Merrill Lynch’s EMU Financial Corporate index. The index’s 1 percent loss this month follows returns of 0.49 percent in April and 1.12 percent in March. Europe’s debt-ridden nations still have to raise almost 2 trillion euros within the next three years to refinance maturing bonds and fund deficits. Led by Italy’s $126 billion, Greece, Spain, Portugal, Ireland and Italy have a total of $215 billion of debt coming due in the next three months, according to JPMorgan. “Credit investors should not overlook that this is more of a sovereign bailout rather than a private-sector bailout,” Philip Gisdakis , the head of credit strategy at UniCredit SpA in Munich, wrote in a note to investors. “The austerity measures that will be part of the program will have a negative impact on corporate spreads.” To contact the reporters on this story: Shannon D. Harrington in New York at sharrington6@bloomberg.net ; Abigail Moses in London at Amoses5@bloomberg.net

Read the full article →

Default Swaps Plummet After EU Goes `All In’ to Save Euro: Credit Markets

May 10, 2010

By Abigail Moses and Shannon D. Harrington May 10 (Bloomberg) — Credit markets rallied around the world after the European Union agreed a sovereign aid package worth almost $1 trillion along with government bond purchases to halt the debt crisis. “There has been a poker game going on between the markets and the EU,” said Gary Jenkins , the head of credit strategy at Evolution Securities Ltd. in London. “This is probably reaching a climax as the EU has just gone ‘all in.’” The Markit iTraxx Europe Index of credit-default swaps on 125 companies with investment-grade ratings tumbled 33.5 basis points to 99.5, with banks leading the biggest one-day decline, according to Markit Group Ltd. Swaps on Greece fell 258.5 basis points to 657, Portugal dropped 162 to 263 and Spain declined 81.5 to 157, according to CMA DataVision. Contracts on France, Germany and the U.K. also fell. European policy makers stepped up efforts to prevent a sovereign-debt collapse and muffle speculation the 11-year-old euro could break apart. The measures came after contagion from Greece drove the common currency to a 14-month low, infecting the bank funding system and threatening to slow the global economic recovery as borrowing costs rose from the U.S. to Asia. The package offers as much as 750 billion euros ($962 billion), including International Monetary Fund backing, to countries facing instability and the European Central Bank said it will buy government and private debt. The Federal Reserve said it authorized temporary currency swaps with other central banks in response to the “re-emergence of strains” in Europe. ‘Nuclear Option’ “EMU politicians and the ECB have now pressed the nuclear option,” said Padhraic Garvey , a strategist at ING Groep NV in Amsterdam. “The central question from here is whether the cumulative measures can manage to stabilize the system.” Bond risk tumbled in Asia, with the cost of protecting corporate and sovereign debt from default dropping the most since Nov. 2008. The Markit iTraxx Asia index declined 35 basis points to 110, CMA prices show. Stocks surged around the world, the euro strengthened and commodities gained on speculation the aid fund will underpin economic growth and ease the crisis that on May 7 drove the interest rate financial companies charge each other for three- month loans in dollars to the highest since August. Yields on corporate debt climbed last week by the most relative to government securities since Lehman Brothers Holdings Inc.’s bankruptcy in September 2008, according to Bank of America Merrill Lynch indexes. Bond Issuance Global corporate bond issuance plummeted to $9.4 billion last week, the least this year, following $30.1 billion in the previous five-day period and $47.9 billion in the week ended April 23, according to data compiled by Bloomberg. JPMorgan Chase & Co. said in a May 7 report it’s ending a recommendation that investors own a greater percentage of junk bonds than contained in benchmark indexes. The three-month London interbank offered rate in dollars, the rate banks pay for loans, jumped 5.5 basis points to 0.428 percent on May 7. It climbed 8.2 basis points on the week, the biggest increase since October 2008. “There were a lot of people who didn’t realize how fully interrelated and large” the problems caused by the sovereign fiscal crisis were, said Brian Yelvington , head of fixed-income strategy at broker-dealer Knight Libertas LLC in Greenwich, Connecticut. The spread between three-month dollar Libor and the overnight indexed swap rate, a barometer of the reluctance of banks to lend, has jumped to 18.1 basis points, three times the 6 basis-point spread on March 15 and the highest since August. Swap Rates Swap rates are typically higher than government yields because the floating payments are based on rates, such as the euro interbank offered rate, or Euribor, that contain credit risk. Swap rates serve as benchmarks for investors in debt including mortgage-backed and auto-loan bonds. The rate at which Royal Bank of Scotland Group Plc told the British Bankers Association it could borrow for three months jumped 14 basis points last week to 0.5 percentage point. Barclays reported rates that increased 11 basis points to 0.45, while Societe Generale SA, France’s second-largest bank by market value, said its climbed 8 basis points to 0.45 percentage point. Rates being charged for short-term loans are still more than 90 percent below the record levels in 2008, as banks are in better shape to weather a market seizure than when the U.S. subprime mortgage market collapsed. The Libor-OIS spread reached a record 364 basis points in October 2008. “The price action is probably as bad as anything we saw in September ‘08,” James Palmisciano , chief investment officer of the $1.7 billion Gracie Credit Fund in New York, said before the European policy makers announced the loan package. Corporate Debt The extra yield investors demand to own corporate debt instead of government securities soared 28 basis points to 177 basis points, or 1.77 percentage point, according to Bank of America Merrill Lynch’s Global Broad Market Corporate Index. The index, which peaked at 511 basis points in March 2009, dropped to as low as 142 on April 21. Spreads on European bank bonds widened 48 basis points last week to 238 as of May 7, the highest since September, according to Bank of America Merrill Lynch’s EMU Financial Corporate index. The index’s 1 percent loss this month follows returns of 0.49 percent in April and 1.12 percent in March. Europe’s debt-ridden nations still have to raise almost 2 trillion euros within the next three years to refinance maturing bonds and fund deficits. Led by Italy’s $126 billion, Greece, Spain, Portugal, Ireland and Italy have a total of $215 billion of debt coming due in the next three months, according to JPMorgan. “Credit investors should not overlook that this is more of a sovereign bailout rather than a private sector bailout,” Philip Gisdakis , the head of credit strategy at UniCredit SpA in Munich, wrote in a note to investors. “The austerity measures that will be part of the program will have a negative impact on corporate spreads.” To contact the reporters on this story: Shannon D. Harrington in New York at sharrington6@bloomberg.net ; Abigail Moses in London at Amoses5@bloomberg.net

Read the full article →

Stocks Rally, U.S. Futures Soar, Euro Strengthens on EU Emergency Measures

May 10, 2010

By Darren Boey and Saeromi Shin May 10 (Bloomberg) — Stocks surged around the world, the euro strengthened and commodities gained as European policy makers unveiled a $960 billion loan plan to end the region’s sovereign-debt crisis. Treasuries plunged and bunds fell. The MSCI World Index climbed rose 1.2 percent to 1,113.81 as of 4 p.m. in Tokyo. Standard & Poor’s 500 Index futures climbed 3.4 percent. The euro appreciated 1.6 percent to $1.2953. South Korea’s won jumped 2 percent against the dollar, while the cost of protecting Asian bonds from default fell the most in more than a year and a half. Oil gained 3.25 percent. Governments of the 16 euro nations today agreed to lend as much as 750 billion euros ($962 billion) to countries under attack from speculators. The European Central Bank said it will counter “severe tensions” in “certain” markets by purchasing government and private debt. Concerns that the Greek financial crisis will spread wiped $3.7 trillion from the value of global stock markets last week. “In the short-term, it may be viewed as a positive and we may recover some of the losses we had in equities last week,” Oscar Pulido , a portfolio specialist at BlackRock Inc., said in a briefing in Seoul today. “In the longer-term, it’s going to be very much dependant on whether governments in these countries can truly take the measures to reduce the deficits they’ve accumulated.” BlackRock managed $3.36 trillion in assets as of March 31, according to its Web site. Equity Movers The MSCI Asia Pacific Index gained 1.6 percent to 120.24. The Stoxx Europe 600 advanced 0.9 percent to 239.41. Gauges of raw-material producers, energy and finance companies in the MSCI Asia Pacific Index all rose at least 1.9 percent, the most among 10 industry groups . The three industry measures posted the MSCI index’s biggest declines last week. HSBC Holdings Plc, Europe’s largest bank, climbed 2.8 percent to HK$75.60 in Hong Kong, following last week’s 9.1 percent tumble. Commonwealth Bank of Australia , the nation’s biggest bank by market value, climbed 4.7 percent to A$55.51. Rio Tinto Group , the world’s third-largest mining company, rose 5.7 percent to A$68.68 as copper increased 2 percent in London to $7,082 a metric ton. Korea Zinc Co. gained 3.8 percent to 191,500 won in Seoul. Under the loan package, euro-area governments pledged 440 billion euros in loans or guarantees, with 60 billion euros more in loans from the European Union’s budget and as much as 250 billion euros from the International Monetary Fund. The ECB said it will conduct “interventions” to ensure “depth and liquidity” in markets. ‘Stability, Order’ “A coordinated effort by ECB and the EU member nations is exactly what was needed to bring back stability and order,” said Prasad Patkar , who helps manage $1.7 billion at Platypus Asset Management Ltd. in Sydney. “This may well end the crisis in Europe as the fears of policy inertia from disunity and domestic political priorities of the member nations recede.” The steps came after failure to contain Greece’s fiscal crisis triggered a 4.1 percent tumble last week in the euro versus the dollar, the most since the five days ended Oct. 24, 2008. Europe concerns, exacerbated by waves of computerized trades, caused the Dow Jones Industrial Average to briefly plunge by 1,000 points on May 6. The euro today soared 3.1 percent to 120.43 yen. The British pound strengthened 0.6 percent to $1.488, snapping a six-day loss. Japan’s currency declined against all 16 of its most-traded counterparts and Treasuries slumped as demand for safer assets waned. Treasury Yields Rise The yield on the benchmark 10-year Treasury note rose 14 basis points to 3.57 percent, according to data compiled by Bloomberg. It was the biggest increase since March 24. Yields on 10-year Japanese government bonds climbed as high as 1.305 percent, the highest level since April 27. Germany’s 10-year notes fell the most in nine months and yield advanced 13 basis points to 2.93 percent, the sharpest gain since August. “EU finance ministers have rushed to ‘shock and awe’ the markets,” Mitul Kotecha , head of global currency strategy at Credit Agricole CIB, wrote in a note to clients. “The package will likely lead to stabilization of markets in the next day or so but the question further out is whether it will lead to a sustained improvement in confidence.” The South Korean won climbed 2 percent to 1,132.08 per dollar, while the Malaysian ringgit advanced 2.1 percent to 3.2054 per dollar. Overseas investors sold more Korean shares than they bought for a fifth straight day, following net sales of $2 billion last week. South Korea’s benchmark Kospi stock index rose 1.8 percent, the biggest gain since April 21. Currency Swaps Currency swaps in South Korea showed an easing in hoarding of dollars, the leading currency for global finance and trade. The one-year basis swap, in which two parties exchange floating interest rates for the dollar and the won, narrowed three basis points to minus 159 basis points. It’s still up from as low as 99 basis points a month ago, signaling that investors are willing to receive reduced won interest payments to obtain dollars. “Asian currencies and markets are recovering on news of the European package,” said Richard Yetsenga , a global currency strategist at HSBC Holdings Plc in Hong Kong. “This a normalization process. But we are not out of the woods yet.” The Markit iTraxx Asia index of credit-default swaps on 50 investment-grade borrowers outside Japan fell 35 basis points to 110 basis points, according to Deutsche Bank AG. The index is on course for its first fall in seven days and its biggest drop since Nov. 4, 2008, according to CMA DataVision in New York. Lower Risk Australia’s risk benchmark also plunged the most in 12 months, tumbling 32 basis points to 100, according to Nomura Holdings Inc. and CMA. The Markit iTraxx Japan index fell 19 basis points to 111, the most in more than seven months, Morgan Stanley and CMA prices show. Crude oil rose for the first time in five days, rising to $77.55 a barrel in New York. Oil prices will likely return to $80-to-$85 a barrel once the debt crisis in Greece is resolved, Algerian Energy Minister Chakib Khelil said yesterday. Concerns over Europe’s debt dragged the Reuters/Jefferies CRB Index of 19 raw materials down by 5.9 percent last week, the biggest weekly slide since Dec. 5, 2008. Europe’s “showing of solidarity is a positive development,” said Toby Hassall , commodity analyst at CWA Global Markets Pty in Sydney. “It brings back some risk appetite that certainly got pounded last week.” To contact the reporter for this story: Darren Boey at in Hong Kong or dboey@bloomberg.net ; Saeromi Shin in Seoul at sshin15@bloomberg.net .

Read the full article →

Asia-Pacific Bond Risk Drops Most in a Year on EU Package to Stop Crisis

May 9, 2010

By Sarah McDonald May 10 (Bloomberg) — The cost of protecting Asia-Pacific bonds from default fell the most in a year after the European Union unveiled a plan worth almost $1 trillion aimed at halting a sovereign-debt crisis. The Markit iTraxx Asia index of credit-default swaps on 50 regional borrowers fell 22 basis points to 115 basis points as of 8:33 a.m. in Singapore, its biggest drop since May 7, 2009, according to Deutsche Bank AG and CMA DataVision in New York. The iTraxx bond risk benchmark for Australia also plunged the most in 12 months, while Japan’s dropped the most in five months. European policy makers announced an unprecedented loan package for debt-swamped governments and a program of securities purchases today after the euro slid to a 14-month low last week amid a global market rout. The Federal Reserve said it authorized temporary currency swaps with other central banks “in response to the re-emergence of strains” in Europe. “The strong package plus coordinated efforts with the Fed are providing major support to the market,” said Jason Watts , head of credit trading at National Australia Bank Ltd. in Sydney. “Credit-default swap indexes are snapping right back in as investors unwind the short positions they put on last week when markets blew out.” The Markit iTraxx Australia index plummeted 30 basis points to 101.5 as of 10:28 a.m. in Sydney, the most since May 7 last year, prices from Nomura Holdings Inc. and CMA show. It climbed 44 basis points in the week beginning May 3 as investor concerns about Greece’s fiscal woes mounted, according to CMA. The Markit iTraxx Japan index fell 16 basis points to 114 as of 9:39 a.m. in Tokyo, the most since Dec. 1, according to Morgan Stanley and CMA. Sovereign Risk The Markit iTraxx SOVX Asia-Pacific index dropped 31 basis points to 120.5 as of 9:55 a.m. in Hong Kong, according to Deutsche Bank. The index tracks swaps on the debt of China, Malaysia, Thailand, South Korea, Vietnam, the Philippines, Indonesia, Japan, Australia and New Zealand. The 16 euro governments pledged to make 440 billion euros ($569 billion) available, with 60 billion euros more from the EU’s budget, Spanish Economy Minister Elena Salgado said at a news conference in Brussels today. The International Monetary Fund may provide a further 250 billion euros, she said. The European Central Bank will also embark on “very significant operations,” according to EU Economic and Monetary Commissioner Olli Rehn . “The ECB has taken a decision to intervene in the secondary markets of government securities,” he said. Credit-default swap indexes are benchmarks for protecting debt against default and traders use them to speculate on credit quality. An increase suggests deteriorating perceptions of creditworthiness and a drop shows improvement. The swap contracts pay the buyer face value in exchange for the underlying securities if a borrower fails to meet its debt agreements. A basis point is 0.01 percentage point. To contact the reporter on this story: Sarah McDonald in Sydney at smcdonald23@bloomberg.net .

Read the full article →

Bank Risk Soars to Record, Default Swaps Overtake Lehman Crisis

May 7, 2010

By Abigail Moses May 7 (Bloomberg) — The cost of insuring against losses on European bank bonds soared to a record, surpassing levels triggered by the collapse of Lehman Brothers Holdings Inc., as the sovereign debt crisis deepened. The Markit iTraxx Financial Index of credit-default swaps on 25 banks and insurers soared as much as 40 basis points to 223, according to JPMorgan Chase & Co. The index closed at 212 basis points March 9, 2009. Swaps on Greece, Portugal, Spain and Italy rose to or near all-time high levels. Credit risk rose for a sixth day on concern the Greek debt crisis is spiraling out of control and triggering concern banks may face losses on their sovereign bond holdings. The Group of Seven plans to hold a conference call today to discuss the turmoil, after a global stock rout that briefly erased more than $1 trillion in U.S. market value. “Financials are caught in a really bad place right now,” said Aziz Sunderji , a London-based credit strategist at Barclays Capital. “Investors are selling bonds, not just hedging with CDS. It shows investors are repositioning portfolios and there’s a more long-term repricing of peripheral risk.” Pacific Investment Management Co.’s Mohamed El-Erian and Loomis Sayles & Co.’s Dan Fuss said Europe’s crisis may spread across the globe because of investor concern that governments have borrowed too much to revive their economies. Portugal, Spain Markit’s financial gauge was trading at 198 basis points at 2:30 p.m. in London, according to JPMorgan. Contracts on Spanish and Portuguese banks rose to records, according to CMA DataVision prices. Portugal’s Banco Comercial Portugues SA increased 53 basis points to 579 and Spain’s Banco Santander SA rose 12 basis points to 253. In the U.K., swaps on Royal Bank of Scotland Group Plc jumped 41 to 229 after Britain’s biggest government-owned bank posted the only first-quarter loss among British rivals. The spread between the three-month dollar London interbank offered rate and the overnight indexed swap rate, a barometer of the reluctance of banks to lend that’s known as the Libor-OIS spread, is at 18 basis points, up from 6 basis points on March 15 and near the highest level in more than five months. It’s still far from the record 364 basis points in October 2008, almost a month after Lehman’s bankruptcy. Swaps on Greece surged 75 basis points to 1,008 before the advance was pared to 950. Portugal climbed 42 to 502 before falling to 430 and Italy rose 24 to 255.5 before dropping to 227 and Spain increased 14 to 288 before trading at 246, CMA prices show. British Swaps Contracts on the U.K. rose 8 basis points to 99, according to CMA. Britain’s election produced a parliament without a majority for the first time since 1974, stoking concern the new government will be too weak to rein in its record budget deficit. European policy makers are under mounting pressure from investors and foreign officials to broaden their response to the Greek fiscal crisis after a 110 billion euro ($140 billion) bailout package failed to ease concerns. “We do not see a clear sign that markets will calm down in the absence of decisive action by authorities, which so far have ignored the opportunity to convince investors that they are capable of battling the European sovereign debt crisis,” Markus Ernst , a credit strategist at UniCredit SpA in Munich, wrote in a note to investors. Merkel Meeting German lawmakers approved their nation’s share of loans to Greece worth as much as 22.4 billion euros before Chancellor Angela Merkel and other euro region governments meet in Brussels to review the bailout and look for ways to stop the burgeoning crisis. The leaders arrive in Brussels about 6:15 p.m. local time and the final press conference is slated for 10 p.m. The cost of insuring against losses on corporate bonds also rose. Contracts on the Markit iTraxx Crossover Index linked to 50 companies with mostly high-yield credit ratings increased as much as 74 basis points to 625, JPMorgan prices show, the highest since September. The index pared its advance to 611. The Markit iTraxx Europe Index of 125 companies with investment-grade ratings climbed as much as 29.5 basis points to 152.5, JPMorgan prices show, the highest since April 2009. It was trading at 139. A basis point on a credit-default swap contract protecting 10 million euros of debt from default for five years is equivalent to 1,000 euros a year. Credit-default swaps pay the buyer face value in exchange for the underlying securities or the cash equivalent should a company fail to adhere to its debt agreements. An increase signals deterioration in perceptions of credit quality. The extra yield investors demand to own investment grade corporate bonds rather than government debt jumped 21 basis points from last week to 174, the largest weekly rise in a year, according to Bank of America Merrill Lynch index data. The gauge has also increased 10 basis points from yesterday, the biggest one-day increase since October 2008. To contact the reporter on this story: Abigail Moses in London at Amoses5@bloomberg.net

Read the full article →

Bond Rally Teeters as Yield Spreads Expand, Offerings Slow: Credit Markets

April 30, 2010

By Bryan Keogh and Sonja Cheung April 30 (Bloomberg) — The record rally in corporate bonds is showing signs of cracking, with yields rising the most in 13 months relative to government debt and new sales falling to the lowest level this year. The extra interest investors demand to own company bonds widened 6 basis points this week to 149 basis points, according to Bank of America Merrill Lynch’s Global Broad Market Corporate Index. Global company bond issuance tumbled 56 percent from last week to $19.6 billion, data compiled by Bloomberg show. Ratings downgrades in Greece, Portugal and Spain drove investors from credit markets on concern worsening government finances may undermine the global recovery, curbing revenue and providing less cushion for borrowers to meet debt payments. Company bond spreads were at a 2 1/2-year low before this week, generating total returns of about 22 percent including reinvested interest since the market bottomed in March 2009. “Corporate bonds could only defy gravity for so long,” said Eric Cherpion , deputy head of syndicate at Societe Generale SA in London. “The volatility from Greece is pushing spreads out, which have remained tight despite the credit risks in the market.” The pullback was sharpest in Europe, where spreads widened 11 basis points to a six-week high of 152 basis points, according to Bank of America’s EMU Corporate index. U.S. investment-grade spreads rose 4 basis points to 155 basis points, or 1.55 percentage points. Global corporate bond spreads are still down from the record 511 basis points in March 2009 and 176 at the end of last year, the data show. Toyota, GMAC Elsewhere in credit markets, Toyota Motor Corp. sold $1.25 billion of bonds backed by auto loans and GMAC Inc.’s Ally Bank issued $703 million of debt backed by payments from auto dealers, according to people familiar with the transactions, who declined to be identified because terms aren’t public. U.S. commercial paper outstanding jumped the most in five months, the Federal Reserve said yesterday on its Web site. The market for short-term IOUs without seasonal adjustment rose $19.7 billion to $1.1 trillion in the week ended April 28, the biggest surge since the period ended Nov. 18 and the highest level since March 10, according to data compiled by Bloomberg. On a seasonally adjusted basis, the amount soared $32.9 billion to $1.11 trillion, the highest level since March 31. The Fed’s holdings of bonds of government-chartered agencies such as Fannie Mae and Freddie Mac on behalf of foreign institutions and central banks increased for a sixth straight week to $788 billion, up from last year’s low of $760 billion in November and below the peak of $984 billion in July 2008. Covered Bonds Spreads on covered bonds, which are mainly issued by banks in Europe, widened 2 basis points to 106 more than government debt as of yesterday, the biggest gap since Aug. 12, according to Bank of America Merrill Lynch’s EMU Covered Bonds Index. Greek covered bonds had their ratings cut for the second time in a week by Moody’s Investors Service, which cited the expensive refinancing rates issuers face as a result of the nation’s soaring funding costs. Greek bonds plunged this week after Standard & Poor’s slashed its credit rating three steps to BB+, or below investment grade. Emerging-market bonds fell, as spreads widened 3 basis points to 259 basis points, up from 230 on April 15, JPMorgan Chase & Co.’s EMBI+ Index shows. In Brazil, Fibria Celulose SA sold $750 million of 10-year bonds to yield 7.625 percent, Bloomberg data show, while Sao Paolo-based Marfrig Alimentos SA, the world’s fourth-largest meatpacker, issued $500 million of similar-maturity notes to yield 9.75 percent. Bond Spreads Brazil’s real surged to the strongest level in more than three months after the central bank lifted its benchmark interest rate for the first time in more than a year to 9.5 percent from a record low of 8.75 percent. Average spreads on global corporate bonds widened the most this week since the five-day period ended March 13, 2009, when they jumped 14 basis points, the Bank of America index shows. The index has narrowed in 42 of the past 54 weeks. Spreads finished last week at 143 basis points, after dropping to 142 on April 21, the lowest since November 2007. The last time spreads rose in a week was in the period ended Feb. 12. The widening may not last, as profits are still growing, said Guy Lebas , chief fixed-income strategist at Janney Montgomery Scott LLC in Philadelphia. “What we’re seeing is a short-lived widening rather than an end to the rally,” Lebas said in an e-mail. “Investor risk aversion appears to be increasing in response to sovereign credit concerns.” Credit-Default Swaps In the U.S., the Markit CDX North America Investment Grade Index of credit-default swaps dropped 4.5 basis points to a mid- price of 94 basis points. The Markit iTraxx Europe Index of 125 investment-grade companies fell 8 basis points to 90, according to Markit Group Ltd. The indexes are a benchmark for the cost of insuring company bonds against default. A decline signals an improvement in investor perceptions of credit quality. Credit-default swaps pay the buyer face value in exchange for the underlying securities or the cash equivalent should a company fail to adhere to its debt agreements. A basis point on a contract protecting $10 million of debt from default for five years is equivalent to $1,000 a year. The Markit iTraxx Asia index of 50 investment-grade borrowers outside Japan fell 2 basis points to 99 basis points today, while the Markit iTraxx Japan index declined 9 basis points to 99, according to prices from Royal Bank of Scotland Group Plc and Morgan Stanley. Japanese markets were shut yesterday. Daiwa Loans Daiwa Securities Group Inc. , Japan’s second-largest brokerage, borrowed 50 billion yen ($531 million) to fund expansion in Asia. The company got a 30 billion yen three-year loan and a 20 billion yen five-year loan from 30 banks led by Mitsubishi UFJ Financial Group Inc., said Daiwa spokesman Ryoji Fuchinoue , without elaborating. Global corporate bond issuance fell from $44.8 billion last week, with the monthly total at $164.2 billion compared with $311 billion in March, Bloomberg data show. In the U.S., sales fell to $12.9 billion from $23.1 billion last week, while European issuance dropped to 2.4 billion euros from 4.5 billion euros. Smiths Group Plc , the world’s biggest maker of airport scanners, was the only investment-grade issuer to tap the European debt market. Sales Pulled Casino Guichard-Perrachon SA , the biggest supermarket owner in Paris, withdrew initial yield guidance for its sale of 8 1/2- year notes, while U.K. rail and bus operator National Express Group Plc delayed its debut euro debt issue. The Czech government also postponed offerings of euro-denominated notes. High-yield companies sold $7.23 billion in debt globally, matching the weekly average for the year and down from $10.2 billion last week. Ziggo, the Dutch cable television operator, sold 1.2 billion euros of non-investment grade, 8 percent notes, while blue jeans maker Levi Strauss & Co. issued 300 million euros of 7.75 percent bonds due 2018. High-yield, or junk, bonds are ranked lower than Baa3 by Moody’s and below BBB- by S&P. Spreads on junk debt widened 13 basis points to 569 basis points, the first increase in eight weeks, according to Bank of America’s Global High-Yield Index. “The high-yield market seems to be trading in its own parallel universe” and is unaffected by the Greek debt crisis because it’s used to volatility, said Alex Moss , a fund manager at Insight Investment Management in London. “There’s been a lot of inflow into the market recently and investors have committed money for the long term and are not inclined to sell at the moment.” To contact the reporters on this story: Bryan Keogh in London at bkeogh4@bloomberg.net ; Sonja Cheung in London at scheung58@bloomberg.net

Read the full article →

Greece Bondholders May Lose $265 Billion in Default as S&P Sees 70% Loss

April 28, 2010

By John Glover April 28 (Bloomberg) — Holders of Greek bonds may lose as much as 200 billion euros ($265 billion) should the government default, according to Standard & Poor’s. The ratings firm yesterday cut Greece three steps to BB+, or below investment grade, and said bondholders may recover only 30 percent to 50 percent of their investments if the nation fails to make debt payments. Europe’s most-indebted country relative to the size of its economy has about 296 billion euros of bonds outstanding, according to data compiled by Bloomberg. The downgrade to junk status led investors to dump Greece’s bonds, driving yields on two-year notes above 25 percent today from 4.6 percent a month ago as concern deepened the nation will delay or reduce debt payments. Prime Minister George Papandreou is grappling with a budget deficit of almost 14 percent of gross domestic product. “It’s now not just market sentiment, but a top rating agency sees Greek paper as junk,” said Padhraic Garvey , head of investment-grade strategy at ING Groep NV in Amsterdam. The yield on Greece’s 4.3 percent security due March 2012 surged 531 basis points, or 5.31 percentage points, to 24.3 percent as of 10:50 a.m. in London, after earlier climbing to a record 25.38 percent. Before yesterday, Greece’s bonds had lost about 17 percent this year, according to Bloomberg/EFFAS indexes . Yields move inversely to bond prices. Relative Ratings S&P’s reduction of Greece puts the nation’s debt on par with bonds issued by Azerbaijan and Egypt. Moody’s Investors Service rates Greece A3, while Fitch Ratings puts it at BBB-. The turmoil comes as European Union policy makers struggle to agree on measures to ease the panic over swelling budget deficits. Leaders of the 16 euro nations may hold a summit after the Greek government’s decision last week to tap a 45 billion- euro emergency aid package failed to reassure investors, a European diplomat and Spanish official said. German Chancellor Angela Merkel said she won’t release funds for the indebted nation until its government has a “sustainable” plan to reduce the deficit. The reduction may force investors who are prevented from owning anything but investment-grade rated bonds to sell. S&P indicated the downgrades may not be over, assigning Greece a “negative” outlook. “The downgrade results from our updated assessment of the political, economic, and budgetary challenges that the Greek government faces in its efforts to put the public debt burden onto a sustained downward trajectory,” S&P London-based credit analyst Marko Mrsnik said in a statement. Credit-Default Swaps Traders of derivatives are adding to bets that Greece will fail to meet its debt payments. Credit-default swaps on Greek government bonds climbed 77 basis points to a record 901, according to CMA DataVision. The level implies the highest probability of default of any country tracked by CMA, surpassing Venezuela and Argentina for the first time. Default swaps on Portugal and Spain also advanced to all- time highs, with Portugal jumping 20 basis points to 406 and Spain rising 2 basis points to 211, according to CMA. The swaps pay the buyer face value in exchange for the underlying securities or the cash equivalent should a borrower fail to adhere to its debt agreements. A basis point on a contract protecting $10 million of debt from default for five years is equivalent to $1,000 a year. Yields Jump Minutes before lowering Greece’s ratings, S&P cut Portugal to A- from A+. Yields on Portugal’s two-year notes climbed 96 basis points to 5.75 percent. The yield on Italy’s two-year bonds rose 10 basis points to 1.83 percent and Spanish two-year yields increased 27 basis points to 2.31 percent. The downgrades may force banks to boost the amount of capital they’re required to hold against bets on sovereign debt, said Brian Yelvington , head of fixed-income strategy at broker- dealer Knight Libertas LLC in Greenwich, Connecticut. While bank capital rules give a risk weighting of zero percent for government debt rated AA- or higher, it jumps to 50 percent for debt graded BBB+ to BBB- on the S&P scale and 100 percent for BB+ to B-. “These downgrades are going to cause people to increase their risk weightings,” Yelvington said. To contact the reporter on this story: John Glover in London at johnglover@bloomberg.net

Read the full article →

Russia, Egypt Seek to Raise $7 Billion in Return to Overseas Bond Market

April 22, 2010

By Gabrielle Coppola and Denis Maternovsky April 22 (Bloomberg) — Russia will seek to raise $5.5 billion in its first international debt sale since the 1998 default while Egypt returns to the dollar debt market after nine years to take advantage of a tumble in borrowing costs. The Russian government will sell $2 billion of five-year notes and $3.5 billion of 10-year bonds today, according to two bankers involved in the transaction. Egypt increased its $1 billion offering of 10-year debt to include $500 million of 30- year bonds, which may also price today, a banker involved in the transaction said. Russia and Egypt are selling bonds after the extra yield investors demand to hold emerging-market securities rather than U.S. Treasuries sank to 2.309 percentage points April 15, the lowest level since December 2007. Pacific Investment Management Co., manager of the world’s largest bond fund, recommended a shift away from the U.S., U.K. and Europe debt this week as the International Monetary Fund projected developing economies will expand three times faster than advanced nations this year. “There’s lots of demand for emerging-market debt,” said Jim Craige , who helps oversee $12 billion at Stone Harbor Investment Partners in New York. Russia’s economy has recovered and “everybody believes their growth story,” he said. Russia is selling dollar bonds for the first time since the government defaulted on $40 billion of domestic debt in 1998. The country is offering a yield of about 125 basis points over similar-maturity U.S. Treasuries on its five-year notes and a 135 basis-point spread on the 10-year bonds, said the bankers involved. A basis point is 0.01 percentage point. Russia, Egypt Russian bonds have rallied as rising oil prices helped the economy recover from its worst recession since 1991. The yield on Russia’s 11 percent dollar note due July 2018 has dropped 77 basis points to 4.489 percent this year, according to prices by Renaissance Capital. The nation’s debt is rated BBB by Standard & Poor’s, two levels above non-investment grade, and one step higher at Baa1 by Moody’s Investors Service. The new debt will yield about 20 basis points more than current yields on comparable Mexican securities, which has the same credit ratings. Spreads on Mexican government bonds rose two basis points to 129 basis points yesterday, JPMorgan Chase & Co. data show. Egypt may sell $1 billion of 10-year notes to yield about 5.875 percent and $500 million of 30-year bonds to yield about 7 percent, according to a banker involved in the transaction who declined to be identified because terms aren’t set. Egyptian bonds “are not the ‘usual suspects’ in the eurobond market,” said Luis Costa , a London-based emerging- market strategist at Citigroup Inc. “That will probably bring some sort of a scarcity premium to the deal.” Emerging-Market Debt The extra yield investors demand to own emerging-market debt over U.S. Treasuries increased four basis points, or 0.04 percentage point, to 2.41 percentage points, according to JPMorgan’s EMBI+ Index at 5:10 p.m. yesterday New York time. The spread has shrunk from 3.27 percentage points in February. The IMF said yesterday advanced economies including the U.S., Germany and Japan will grow 2.3 percent this year, while emerging nations will expand 6.3 percent. The World Bank estimates Russia’s economic growth will accelerate to 5.5 percent this year. Egypt’s government projects the economy will grow more than 5 percent this fiscal year. Investors should buy emerging-market debt rather than bonds of developed countries because advanced economies are poised for a period of slower growth, according to Pimco. “Investors need to recognize that the investment opportunities are not going to necessarily be in the U.S., the U.K and Europe any longer,” Brian Baker , Pimco Asia Ltd.’s chief executive officer, said in Hong Kong this week. HSBC Holdings Plc and Morgan Stanley are managing the Egyptian debt offering, the banker said. Russia hired Barclays Capital, Citigroup Inc., Credit Suisse Group AG and VTB Capital on Feb. 5 to arrange the sale. To contact the reporters on this story: Gabrielle Coppola in New York at gcoppola@bloomberg.net Denis Maternovsky in Moscow at dmaternovsky@bloomberg.net

Read the full article →

Russia, Egypt Seek to Raise $8.5 Billion in Return to Overseas Bond Market

April 21, 2010

By Gabrielle Coppola and Denis Maternovsky April 22 (Bloomberg) — Russia will seek to raise $7 billion in its first international debt sale since the 1998 default while Egypt returns to the dollar debt market after nine years to take advantage of a tumble in borrowing costs. The Russian government will sell $3.5 billion of five-year notes and an equal amount of 10-year bonds as soon as today, according to three people familiar with the deal. Egypt increased its $1 billion offering of 10-year debt to include $500 million of 30-year bonds, which may also price today, a banker involved in the transaction said. Russia and Egypt are selling bonds after the extra yield investors demand to hold emerging-market securities rather than U.S. Treasuries sank to 2.309 percentage points April 15, the lowest level since December 2007. Pacific Investment Management Co., manager of the world’s largest bond fund, recommended a shift away from the U.S., U.K. and Europe debt this week as the International Monetary Fund projected developing economies will expand three times faster than advanced nations this year. “There’s lots of demand for emerging-market debt,” said Jim Craige , who helps oversee $12 billion at Stone Harbor Investment Partners in New York. Russia’s economy has recovered and “everybody believes their growth story,” he said. Russia is selling dollar bonds for the first time since the government defaulted on $40 billion of domestic debt in 1998. The country is offering a yield of about 125 basis points over similar-maturity U.S. Treasuries on its five-year notes and a 135 basis-point spread on the 10-year bonds, people familiar with the sale said. A basis point is 0.01 percentage point. Russia, Egypt Russian bonds have rallied as rising oil prices helped the economy recover from its worst recession since 1991. The yield on Russia’s 11 percent dollar note due July 2018 has dropped 77 basis points to 4.489 percent this year, according to prices by Renaissance Capital. The nation’s debt is rated BBB by Standard & Poor’s, two levels above non-investment grade, and one step higher at Baa1 by Moody’s Investors Service. The new debt will yield about 20 basis points more than current yields on comparable Mexican securities, which has the same credit ratings. Spreads on Mexican government bonds rose two basis points to 129 basis points yesterday, JPMorgan Chase & Co. data show. Egypt may sell $1 billion of 10-year notes to yield about 5.875 percent and $500 million of 30-year bonds to yield about 7 percent, according to a banker involved in the transaction who declined to be identified because terms aren’t set. Egyptian bonds “are not the ‘usual suspects’ in the eurobond market,” said Luis Costa , a London-based emerging- market strategist at Citigroup Inc. “That will probably bring some sort of a scarcity premium to the deal.” Emerging-Market Debt The extra yield investors demand to own emerging-market debt over U.S. Treasuries increased four basis points, or 0.04 percentage point, to 2.41 percentage points, according to JPMorgan’s EMBI+ Index at 5:10 p.m. yesterday New York time. The spread has shrunk from 3.27 percentage points in February. The IMF said yesterday advanced economies including the U.S., Germany and Japan will grow 2.3 percent this year, while emerging nations will expand 6.3 percent. The World Bank estimates Russia’s economic growth will accelerate to 5.5 percent this year. Egypt’s government projects the economy will grow more than 5 percent this fiscal year. Investors should buy emerging-market debt rather than bonds of developed countries because advanced economies are poised for a period of slower growth, according to Pimco. “Investors need to recognize that the investment opportunities are not going to necessarily be in the U.S., the U.K and Europe any longer,” Brian Baker , Pimco Asia Ltd.’s chief executive officer, said in Hong Kong this week. HSBC Holdings Plc and Morgan Stanley are managing the Egyptian debt offering, the banker said. Russia hired Barclays Capital, Citigroup Inc., Credit Suisse Group AG and VTB Capital on Feb. 5 to arrange the sale. To contact the reporters on this story: Gabrielle Coppola in New York at gcoppola@bloomberg.net Denis Maternovsky in Moscow at dmaternovsky@bloomberg.net

Read the full article →

Pound Plunges as Poll Shows May 6 Election Could Result in Hung Parliament

April 6, 2010

By Matthew Brown April 6 (Bloomberg) — The pound fell against the dollar as economic data suggested the U.K. is likely to lag behind the U.S. economy. Sterling dropped the most against the U.S. currency in almost two weeks as 10-year Treasury yields surpassed equivalent gilt yields for the first time since August. A report yesterday showed U.S. service industries expanded in March at the fastest pace since May 2006, while a separate report on April 2 showed employment in the U.S. increased in March by the most in three years. The pound snapped a six-day advance against the euro before U.K. Prime Minister Gordon Brown announces a general election expected to be held on May 6. “The European market has come back from holiday and is digesting some very positive U.S. data either side of the weekend,” said Paul Robson , a senior foreign-exchange strategist at Royal Bank of Scotland Group Plc in London. “Rate spreads have moved in favor of the dollar.” The pound fell 0.7 percent to $1.5190 as of 9:06 a.m. in London and weakened 0.2 percent to 88.31 pence per euro. The British currency dropped 1.2 percent to 142.64 yen, its first decline against the Japanese currency in 10 days. U.K. government bonds fell, with the yield on the 10-year gilt rising 9 basis points to 4.01 percent, the most since Feb. 11, according to closing prices. Two-year gilt yields climbed 7 basis points to 1.22 percent. To contact the reporter on this story: Matthew Brown in London at mbrown42@bloomberg.net

Read the full article →

Greek Bonds Drop on Speculation IMF-Backed European Bailout Plan Faltering

April 6, 2010

By Keith Jenkins April 6 (Bloomberg) — Greek government bonds fell amid speculation that a plan for European Union and International Monetary Fund assistance in reducing the nation’s budget deficit may falter. The declines pushed the yield on the 10-year Greek bond higher after Market News International reported that Greece wants to bypass IMF involvement should it require assistance, because the conditions would be too stringent. An IMF delegation will arrive in Athens, Greece’s capital, tomorrow to provide technical assistance and review the country’s finances, Ta Nea newspaper said, without citing anyone. “Greece bonds are underperforming on concerns over the aid package,” said Sean Maloney , a fixed-income strategist at Nomura International Plc in London. “The talk about Greece reminds us that the path ahead is not necessarily all rosy.” The yield on the Greek 10-year bond climbed 26 basis points to 6.82 percent, the highest since Feb.1, as of 9:55 a.m. in London. The 6.25 percent security due June 2020 fell 1.85, or 18.5 euros per 1,000-euro ($1,341) face amount, to 95.81. The two-year note yield advanced 27 basis points to 5.55 percent. Greece has been receiving information from the IMF about the conditions it would impose in return for aid, Market News said. Government officials found them to be “tough,” and are concerned that they could result in civil unrest, Market News said, citing officials it didn’t identify. Bunds Decline Greek government bonds are the worst performers in the 16- nation euro region this year, sliding 1.9 percent, according to Bloomberg/EFFAS indexes. German bunds have returned 2.9 percent. Elsewhere in Europe, Austria sells securities due in 2014 and 2021 today. German government bonds fell as trading resumed after the Easter weekend, following Treasuries’ slump on U.S. labor-market data that showed the economic recovery is gaining traction. The 10-year bund yield rose by as much as 9 basis points, the steepest increase since Feb. 10. Payrolls rose by 162,000 workers, the Labor Department said on April 2. That was the third increase in the past five months and the biggest gain since March 2007, and surpassed the median estimate for an increase of 184,000 from 83 economists surveyed. “Bunds are lower, playing catch-up with U.S. Treasuries,” said Michael Leister , a fixed-income strategist at WestLB AG in Dusseldorf, Germany. “The main theme this morning is the digestion of the non-farm payrolls data and the substantial sell-off in U.S. bonds.” ‘Testing’ 4 Percent The yield on the 10-year bund, Europe’s benchmark government security, climbed 7 basis points to 3.15 percent. The two-year note yield advanced 4 basis points to 0.99 percent. U.S. bonds slumped while European markets were closed over the long weekend, pushing the 10-year Treasury note yield to the highest since October 2008 yesterday as demand waned for the safest assets. Treasuries recovered some of their drop today. “With the U.S. 10-year note testing the 4 percent yield level, this is putting some pressure on bunds,” Leister said. The improved economic outlook helped send the Standard & Poor’s 500 Index to the highest in 18 months yesterday. The Stoxx Europe 600 Index of equities rose 0.6 percent today. A resurgent economy prompted Australia’s central bank to further withdraw monetary stimulus today on concerns about surging house prices and inflation. The Reserve Bank of Australia raised its policy rate 25 basis points to 4.25 percent. To contact the reporter on this story: Keith Jenkins in London at Kjenkins3@bloomberg.net

Read the full article →

Bond Buyers Demand Record Downgrade Protection: Credit Markets

April 5, 2010

By Bryan Keogh April 5 (Bloomberg) — Bonds with built-in protection against rating cuts are making up a record share of debt issues as investors hedge against a slowdown in the economic recovery. Anheuser-Busch InBev NV , the brewer of Budweiser and Stella Artois, is among companies issuing so-called step-up bonds, whose interest increases if a borrower is downgraded. Sales surged to $37.3 billion in March, or 12.4 percent of all debt issued, according to data compiled by Bloomberg. Most of the notes are sold in the U.S., where almost half of bonds rated as so-called junk or on the cusp of non-investment grade include the protection. Investors are concerned that debt-laden companies are at increasing risk of being downgraded this year, even as the global economy emerges from the deepest recession since the 1930s and credit markets rally. Reductions in corporate ratings and credit outlooks outpaced increases by 150 percent in the first quarter, according to Moody’s Investors Service. “The recent use of step-ups shows some investors are still concerned about downgrade risks, despite a rally in corporate debt,” said Sarwat Faruqui , a director of capital markets origination at Citigroup Inc. in London. Step-up interest coupons are typically used by companies rated at or below Baa1 by Moody’s and BBB+ by Standard & Poor’s, two notches above non-investment grade. Sales of the bonds globally are up from $16.6 billion in February and $8.4 billion a year ago, according to Bloomberg data. In the U.S., such borrowers sold a record $32 billion of the debt last month, or 46 percent of all bond issuance, the data show. Spread Narrows Elsewhere in credit markets, the extra yield investors demand to own corporate bonds rather than government debt fell 2 basis points last week to 149 basis points, or 1.49 percentage point, as of April 1, according to Bank of America Merrill Lynch’s Global Broad Market Corporate index. That’s the narrowest spread since November 2007 and down from a record 511 basis points in March 2009. The cost to protect against non-payment on corporate bonds in the U.S. fell to the lowest in more than two weeks. The Markit CDX North America Investment Grade Index of credit- default swaps, which investors use to hedge against losses on corporate debt or to speculate on creditworthiness, declined 1.1 basis point to a mid-price of 84 basis points as of 7:51 a.m. in New York, according to Markit Group Ltd. The index, which typically falls as investor confidence improves and increases as it deteriorates, dropped to its lowest since March 18, when it was 83.98 basis points, CMA DataVision prices show. A basis point on a credit-default swap contract protecting $10 million of debt from default for five years is equivalent to $1,000 a year. New York to Missouri Royal Bank of Scotland Group Plc is selling bonds backed by commercial mortgages of several borrowers in the first sale of its kind since June 2008, gauging investor demand for the debt amid climbing defaults. The $309.7 million offering, backed by 81 properties in U.S. states from New York to Missouri, includes $240.8 million in top-rated securities, according to people familiar with the sale who declined to be identified because terms are private. Of those properties, 78 are retail sites, the people said. Demand for collateralized loan obligations is reviving with more deals planned this year, Citigroup analysts wrote in an April 1 report. CLOs, shunned for their role in contributing to $1.8 trillion of bank losses and writedowns during the credit crisis, buy leveraged loans and then use the payments as collateral for bonds. Citigroup priced $525 million of CLOs last month in the first new issue in a year. Investors are demanding more borrowers use step-up coupons in their bond sales because of the amount of debt on companies’ balance sheets. Broader Range “Companies are offering incentives such as step-up coupons and ratings commitment language in order to attract a broader range of investment-grade investors” that may otherwise be put off by their debt levels, said Mark Lewellen , London-based head of corporate origination at Barclays Capital. Step-up bonds offer a different form of investor protection from credit-default swaps in that they increase the interest spread should a company’s creditworthiness decrease. Credit- swaps, on the other hand, are a kind of insurance contract that pay out when a company defaults on its obligations. Anheuser-Busch InBev , the world’s largest brewer, sold $3.25 billion of bonds with a step-up coupon on March 24, Bloomberg data show. The conditions require the Leuven, Belgium- based company to pay 25 basis points more in interest for every one rating notch it’s cut below investment grade, up to a maximum of 200 basis points, according to Bloomberg data. The brewer is rated Baa2 by Moody’s and one level higher at BBB+ by S&P. Global Economy The use of such bond conditions is increasing against the backdrop of a global economy that will grow 3.6 percent this year, according to a Bloomberg survey. Bond spreads are at their lowest in more than 2 1/2 years and issuance of notes of all ratings rose to $752 billion in the first quarter, compared with $583 billion in the previous period and following a record $3.18 trillion in the whole of 2009, Bloomberg data show. Even so, investors want the chance of “an additional premium” on the interest of a bond sold by a company at risk of a rating cut, said Dinesh Pawar , head of flow trading at Aviva Investors in London, where he helps manage 250 billion pounds ($380 billion). Deterioration in Europe More companies were downgraded or had their outlooks lowered by Moody’s than were upgraded for an 11th straight quarter between January and March. The New York-based rating company made a total 767 credit reductions against 309 upgrades in the period, according to data compiled by Bloomberg. Western European companies showed the most deterioration, with 213 cuts in rating or outlook versus 40 credit improvements. A total 309 borrowers were at risk of a downgrade, Moody’s said, almost four times the number poised for an upgrade. Step-up interest may also be triggered if an issuer fails to register the securities. Mondi Ltd. , Europe’s biggest manufacturer of office paper, included a step-up condition in its debut 500 million-euro ($678 million) bond offering on March 26. The interest rate on the notes will increase by 125 basis points if the Addleston, England-based company’s rating falls to below investment grade at both Moody’s and S&P, according to Citigroup’s Faruqui. Mondi’s notes are currently rated Baa3 by Moody’s, the lowest investment-grade ranking, and one step lower at BB+ by S&P. To contact the reporter on this story: Bryan Keogh in New York at bkeogh4@bloomberg.net

Read the full article →

Stocks in U.S., Europe Retreat, Treasuries Advance on ADP Employment Data

March 31, 2010

By Michael P. Regan March 31 (Bloomberg) — U.S. stock futures fell, European shares erased gains and Treasuries advanced after a private report showed American employers unexpectedly cut jobs this month. Gold extended gains and the dollar slid. Futures on the Standard & Poor’s 500 Index lost 0.4 percent at 9:14 a.m. in New York, signaling the benchmark gauge of U.S. equities may trim a fourth-straight quarterly advance. The Stoxx Europe 600 Index lost 0.5 percent. The yield on the 10-year Treasury note fell 4 basis points to 3.82 percent. Gold for immediate delivery increased 1.2 percent to $1,116.28 an ounce, while the Dollar Index slipped 0.5 percent to 81.053. U.S. companies cut an estimated 23,000 jobs this month, ADP Employer Services reported, compared with a median economist forecast for an increase of 40,000 positions in a Bloomberg News survey. The report spurred concern that economists have been too optimistic about the rebound in employment two days before a Labor Department report forecast to show the biggest growth in jobs in three years. “The ADP numbers disappointed investors,” said Peter Jankovskis, who helps manage about $1.8 billion as co-chief investment officer at Oakbrook Investments in Lisle, Illinois. “Jobs are key to turn consumer spending into something sustainable. Investors in the stock market will be in a wait- and-see mode.” The S&P 500 may trim gains on the final day of the quarter. The benchmark index has rallied 5.2 percent since Dec. 31, poised for its best first-quarter rally since 1998. Irish Banks Ireland’s benchmark ISEQ Index erased most of a 1.5 percent advance after the U.S. jobs report. Earlier gains came as the National Asset Management Agency announced details of its plan to revive the financial system. Bank of Ireland Plc jumped 22 percent after saying it expects to avoid state control by raising most of its 2.7 billion-euro target for capital from private investors. Credit-default swaps protecting Bank of Ireland bonds fell 7 basis points to 191, Anglo Irish Bank Plc dropped 3 basis points to 348 and Allied Irish Bank declined 6 basis points to 196, according to CMA DataVision prices. The MSCI Asia Pacific Index fell 0.5 percent, the steepest retreat since March 24. Greek bonds fell, with the yield on the 10-year bond rising 4 basis points to 6.48 percent. The yield premium investors demand to hold Greek 10-year bonds instead of benchmark German bunds increased 6 basis points to 340 basis points, the highest since March 22. Greek Bonds The seven-year note, the first security sold by Greece since the European Union and International Monetary crafted a possible aid package last week, extended declines in its second day of trading. The yield climbed to 6.3 percent, from 6.27 percent yesterday and 6 percent when the security was issued on March 29, according to Royal Bank of Scotland Group Plc prices on Bloomberg. Greece needs to borrow 11.6 billion euros ($15.6 billion) before the end of May after April funding was “taken care of,” Petros Christodoulou , director general of the Public Debt Management Agency, said in a Bloomberg Television interview. Platinum advanced 1.8 percent to $1,647.53 an ounce in London, extending its gain this year to 12 percent, and palladium added 1.8 percent to $479.55 an ounce. Crude oil rose 1.5 percent to $83.61 a barrel in New York trading. To contact the reporter for this story: Michael P. Regan in New York at mregan12@bloomberg.net .

Read the full article →

America Movil Raises $4 Billion in Biggest Emerging Bond Sale of the Year

March 24, 2010

By Veronica Navarro Espinosa and Gabrielle Coppola March 24 (Bloomberg) — America Movil SAB , Latin America’s largest mobile-phone company, raised $4 billion in the biggest emerging-market dollar bond sale this year. The Mexico City-based company increased the offering from $3.75 billion and added a five-year bond to its planned sale of 10- and 30-year notes. The sale was the company’s second international debt issue this month. “There’s huge demand, lots of liquidity and investors are flush with cash,” said David Spegel , head of emerging-market strategy with ING Groep NV in New York. Emerging-market companies are stepping up debt sales to take advantage of the lowest borrowing costs since May 2008. The extra yield investors demand to own emerging-market corporate bonds instead of Treasuries narrowed to 3.13 percentage points on March 19, according to JPMorgan Chase & Co. Developing-nation governments and companies have issued $137.1 billion of debt so far this year, compared with $99.6 billion a year earlier, according to Bloomberg data. America Movil yesterday sold $750 million of five-year bonds to yield 125 basis points above U.S. Treasuries, $2 billion of 10-year notes to yield 140 basis points above Treasuries and $1.25 billion of 30-year bonds to yield 160 basis points more than the benchmark, according to Bloomberg data. A basis point equals 0.01 percentage point. Goldman Sachs Group Inc., JPMorgan and Citigroup Inc. arranged the transaction. ‘Overcrowding’ The company, controlled by billionaire Carlos Slim , sold 200 million Swiss francs ($186 million) of five-year bonds March 9 as it raised money to buy Telmex Internacional. It also issued 14.9 billion pesos ($1.18 billion) of bonds earlier this month in the biggest corporate debt issuance in Mexico, according to Citigroup’s Banamex unit. “By issuing in different currencies, it’s avoiding overcrowding the market,” said Diego Torres , a bond analyst with ING Groep NV in New York. “America Movil knows exactly where the investors who want to buy their bonds are.” An America Movil spokeswoman didn’t return phone and e-mail messages seeking comment. To contact the reporters on this story: Veronica Navarro Espinosa in New York at vespinosa@bloomberg.net ; Gabrielle Coppola in New York at gcoppola@bloomberg.net

Read the full article →

Commercial Mortgage Debt Rallies as TALF Draws to a Close: Credit Markets

March 14, 2010

By Sarah Mulholland March 15 (Bloomberg) — Commercial mortgage-backed bond returns are accelerating as the Federal Reserve ends support for the $700 billion market, showing growing confidence that loan defaults won’t derail the economic recovery. The securities, derived from debt on skyscrapers, shopping malls and hotels, returned 7.41 percent through March 12, compared with 2.55 percent in the fourth quarter, according to a Barclays Capital index . Top-rated securities are yielding about 3.03 percentage points more than Treasuries, the lowest spread since August 2008, according to Morgan Stanley data . Commercial mortgage-backed securities are rallying as the Fed’s Term Asset-Backed Securities Loan Facility to buy older debt draws to a close. The jobless rate is holding at 9.7 percent, indicating employment may be stabilizing. Bond prices were pummeled during the credit crisis and even in “pretty upsetting” scenarios, the safest debt isn’t likely to lose money, said Scott Simon of Pacific Investment Management Co. “CMBS has been doing well on its own, and it’s not on the back of TALF,” said Simon, managing director and head of mortgage- and asset-backed securities at Pimco in Newport Beach, California. “The program had more of a psychological impact rather than brute force.” TALF provides Fed loans to purchase top-rated securities, enabling investors to boost returns with the borrowed cash. About $11.4 billion of older commercial real estate debt has been bought through TALF since the program started in July, according to Morgan Stanley. So-called legacy bonds are those that were issued before Jan. 1, 2009. Delinquency Rate The delinquency rate on commercial real estate loans bundled and sold into bonds rose 31 basis points to 5.73 percent in February, lower than the average increase during the previous five months of 44 basis points, Moody’s Investors Service said March 12 in a report. The delinquency rate a year ago was 1.32 percent, according to the New York-based ratings company. Elsewhere in credit markets, the extra yield investors demand to own company bonds rather than government debt fell 5 basis points last week to 158 basis points, or 1.58 percentage point, as of March 12, according to Bank of America Merrill Lynch’s Global Broad Market Corporate index. Average yields are 4.04 percent, the data show. Corporate bond sales worldwide totaled $79 billion last week, the most since the period ended Jan. 15, bringing the March total to $130 billion, according to data compiled by Bloomberg. Companies have sold $580.6 billion of debt this year, compared with $810.7 billion in 2009. Leveraged Loans 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 the week at 90.23 cents on the dollar, the highest since July 7, 2008. The index’s total return was 2.9 percent for the year. The cost to protect against defaults on U.S. corporate bonds fell for a second week as retail sales climbed last month, signaling consumers will contribute more to economic growth. Credit-default swaps on the Markit CDX North America Investment Grade Index Series 13, which is linked to 125 companies and used to speculate on creditworthiness or to hedge against losses, was unchanged at 83.2 basis points on March 12, after falling 2.1 percentage points for the week, according to CMA DataVision. The index declined 6.2 basis points in the week ended March 5. Retail Sales Shoppers braved blizzards in February, as purchases increased 0.3 percent, the fourth gain in the past five months, U.S. Commerce Department figures showed. Results for the prior two months were revised lower. Sales excluding autos rose 0.8 percent, exceeding all economists’ estimates . In London, credit swaps on the Markit iTraxx Europe index of 125 companies with investment-grade ratings fell 2 basis points to 73.75 basis points, the lowest since Jan. 18, JPMorgan Chase & Co. prices show. The indexes typically falls as investor confidence improves and rises as it deteriorates. Credit-default swaps pay the buyer face value if a borrower defaults in exchange for the underlying securities or the cash equivalent. A basis point is 0.01 percentage point and equals $1,000 a year on a contract protecting against default on $10 million of debt for five years. Two corporate-debt issuers, one in Canada and the other in Argentina, defaulted last week, raising the global total to 19 for the year, according to Standard & Poor’s. The 12-month trailing rate for high-yield, high-risk global defaults was 9.2 percent as of March 11, S&P analysts led by Diane Vazza in New York wrote in a report. The U.S. rate was 10.9 percent, which the analysts predict will fall to 5 percent by yearend, though they said that doesn’t mean that corporate default risk is permanently lower. Fannie Mae Spreads on Fannie Mae and Freddie Mac’s benchmark corporate notes widened 2 basis points last week to 24 basis points, according to Bank of America Merrill Lynch index data. The spread has widened from 17 basis points, the lowest in at least 10 years, in October. It reached a record 183 basis points in November 2008. The most “likely” reason the yield gap has widened is that “spreads had simply reached levels that were too tight, especially given the prospect of the Fed’s exit” on March 31 from a program in which it’s buying $175 billion of the debt, Rajiv Setia and James Ma , analysts in New York at Barclays Capital, wrote in a March 12 report. Lyondell Chemical Lyondell Chemical Co. seeks $2.25 billion of notes and a $1 billion six-year term loan to help it emerge from bankruptcy, according to people familiar with the request. The chemical and fuel company also wants a $1.75 billion asset-based revolving line of credit that won’t be funded at closing, said one of the people, who declined to be identified because the discussions are private. It also seeks a European securitization facility, the people said. Prices on top-rated commercial mortgage-backed securities have soared to about 92.5 cents on the dollar from 61.7 cents in March 2009 before the Fed committed to financing the securities through TALF, according to Barclays Capital data. Spreads have narrowed from 12.3 percentage points a year ago, according to data from Morgan Stanley. “While the rally was seemingly ignited by the introduction of governmental plans to reintroduce leverage into the system, its longevity was fanned by investors’ continually improving view of the world, albeit from an exceedingly dismal starting point,” JPMorgan analysts led by Alan Todd in New York said in a March 5 report. The U.S. unemployment rate held at 9.7 percent in February and the economy lost 36,000 jobs, fewer than economists anticipated, a Labor Department report showed on March 5. Lack of Sales There have been no new sales of commercial-mortgage backed securities this year. The portion of TALF for newly issued commercial mortgage-backed securities was extended through June. The final round of a separate TALF program for asset-backed securities, or bonds tied to consumer and small-business loans, was held earlier this month. Sales of commercial mortgage-backed securities plummeted to $11.15 billion in 2008 from a record $232.4 billion in 2007 as the credit market seized up, Bloomberg data show. Even with U.S. government aid, only $3.04 billion of the bonds were sold last year. The lack of transactions chokes off funding to borrowers with maturing debt. About $28 billion in commercial mortgages packaged into bonds mature this year, according to Credit Suisse Group AG data. Even as economic concern abates, Barclays Capital analysts said the delinquency rate will continue to climb as borrowers struggling with debt loads hand over loans to special servicers, firms that handles troubled loans. A $3 billion mortgage on the Stuyvesant Town-Peter Cooper Village apartment complex in Manhattan, the largest loan in the commercial-mortgage bond market, was transferred to a special servicer in late January, and isn’t yet classified as delinquent, the analysts said in a March 3 report. To contact the reporter on this story: Sarah Mulholland in New York at smulholland3@bloomberg.net

Read the full article →

Treasuries Gain After Decline in Consumer Confidence Bolsters Note Auction

February 23, 2010

By Cordell Eddings and Susanne Walker Jan. 26 (Bloomberg) — Treasuries remained higher after a larger-than-forecast decline in consumer confidence bolstered demand at the government’s auction of a record-tying $44 billion in two-year notes. The notes drew a yield of 0.895 percent, compared with the forecast of 0.912 percent in a Bloomberg News survey of five of the Federal Reserve’s 18 primary dealers. The sale comes a day before Federal Reserve Chairman Ben S. Bernanke will present his monetary policy outlook before Congress. “A weaker and surprising consumer confidence print this morning and no expectation of a surprise from Bernanke tomorrow helps the auctions to be well subscribed,” said Igor Cashyn , an interest rate strategist in New York at Morgan Stanley, one of the primary dealers required to bid on the auction. The current two-year note yield fell 4 basis points, or 0.04 percentage point, to 0.84 percent at 1:05 p.m. in New York, according to BGCantor Market Data. Yields on 10-year notes fell 8 basis points to 3.71 percent. The bid-to-cover ratio, which gauges demand by comparing total bids with the amount of securities offered, was 3.33, compared with the average at the last 10 auctions of 3.03. Last month’s sale drew a bid-to-cover ratio of 3.13. The record low yield on a two-year note auction was 0.802 percent for a $44 billion sale in November. Foreign Investors “There is still good demand for Treasuries,” said Dan Greenhaus , chief economic strategist at Miller Tabak & Co. in New York. “The economic fundamentals are still weak and there is an expectation that Bernanke will reiterate rates will be lower for longer.” Indirect bidders, a class of investors that includes foreign central banks, purchased 53.6 percent of the notes. At the Jan. 26 sale, they bought 43.1 percent. The average of the last 10 auctions is 44.6 percent. Direct bidders, securities firms and money managers that aren’t primary dealers, purchased 8.2 percent of the notes, compared with 10.8 percent at the last sale and a 10-auction average of 9.2 percent. The government will auction $42 billion in five-year notes tomorrow and $32 billion of seven-year debt Feb. 25. It sold $8 billion in 30-year Treasury Inflation Protected Securities yesterday in an auction that drew a yield of 2.229 percent. The bid -to-cover ratio was 2.45. Fed Speculation The Conference Board’s confidence index declined to 46, lower than anticipated, from a revised 56.5 in January, a report from the New York-based private research group showed today. The Fed said on Feb. 18 it was increasing the discount rate to 0.75 percent from 0.5 percent to encourage financial institutions to rely less on the central bank for short-term borrowing. It also reiterated that economic conditions are likely to warrant “exceptionally low” benchmark rates “for an extended period.” The consumer price index rose 0.2 percent in January, and fell 0.1 percent when excluding food and energy, the Labor Department said on Feb. 19. The core inflation rate has increased 1.6 percent in the past 12 months, below the average of 2.7 percent since the start of the 1990s. “There’s a massive degree of uncertainty out there regarding U.S. economic data and the Fed,” said David Ader , the head of government bond strategy at Stamford, Connecticut-based CRT Capital Group LLC. Greek Deficit Greek government bonds fell after Fitch Ratings cut credit grades for the country’s four largest banks, saying their earnings will come under pressure from the government’s “required fiscal adjustments.” Fitch also said it had a “negative outlook” on the banks that may result in further action. The yield on the two-year Greek security increased 14 basis points to 5.53 percent. The Greek 10-year yield rose 7 basis points to 6.48 percent. Harvard University Professor Kenneth Rogoff , who in 2008 predicted the failure of big U.S. banks, said increasing public debt is likely to force the U.S. to slash spending as it pushes several other countries into default. Following banking crises, “we usually see a bunch of sovereign defaults, say in a few years. I predict we will again,” Rogoff, a former International Monetary Fund chief economist, said at a forum in Tokyo. Greece has promised to reduce its budget deficit to below the European Union limit of 3 percent of gross domestic product in 2012 from 12.7 percent of GDP in 2009. “A lot of people are concerned about the sovereign debt issues even though it’s calmed down from a few weeks ago,” said Jason Rogan , director of U.S. government trading at Guggenheim Partners LLC, a New York-based brokerage for institutional investors. To contact the reporters on this story: Susanne Walker in New York at swalker33@bloomberg.net Cordell Eddings in New York at ceddings@bloomberg.net .

Read the full article →

Mortgage Delinquency Rate Falls to 9.47% for U.S. Residential Properties

February 19, 2010

By Heather Burke Feb. 19 (Bloomberg) — The delinquency rate for mortgage loans on one-to-four unit residential properties fell to a seasonally adjusted rate of 9.47 percent of all loans outstanding as of the end of the fourth quarter of 2009, down 17 basis points from the third quarter, and up 159 basis points from one year ago, according to the Mortgage Bankers Association’s National Delinquency Survey. The information was released in an e-mailed statement. To contact the reporter on this story: Heather Burke in New York at hburke2@bloomberg.net

Read the full article →

Bond `Sweet Spot’ in Five- to Seven-Year U.S. Company Debt: Credit Markets

February 19, 2010

By Sapna Maheshwari Feb. 19 (Bloomberg) — U.S. corporate bonds due in five to seven years are becoming favorites for investors seeking protection from rising yields. Securities maturing in that range returned 1.88 percent this year, including reinvested interest, compared with 0.75 percent for company bonds of all maturities, Bank of America Merrill Lynch indexes show. Debt due in 10 to 15 years, the best performer in 2009, is up 1.31 percent. Investors are hesitant to buy shorter-term debt, which is more sensitive to changes in monetary policy, on concern that the Federal Reserve may start raising interest rates. At the same time, they’re avoiding longer-term debt as a recovering economy and $8.2 trillion of U.S. stimulus spending threaten to spur inflation. The Fed raised the discount rate charged to banks for direct loans by a quarter percentage point to 0.75 percent yesterday. “I don’t see anybody jumping into 30-year paper any time soon with this looming threat of rates going up,” said Rajeev Sharma , a money manager at First Investors Management Co. in New York who helps oversee $1.4 billion of investment-grade debt. “On the other end, the biggest problem with buying really short-term paper right now is it doesn’t really pay you anything. The next best option is to buy five to seven years.” The extra yield investors demand to own company bonds instead of government debt narrowed 2 basis points yesterday to 169 basis points, or 1.69 percentage point, according to Bank of America Merrill Lynch’s Global Broad Market Corporate index. While that’s 8 basis points more than a month ago, the so-called spread compares with 452 basis points a year ago. Credit Risk Benchmarks Elsewhere in credit markets, benchmark gauges of corporate credit risk in the U.S. and Europe fell for a third day as concern eased that Greece’s budget crisis will weigh on asset values globally and reports showed the U.S. economy continues to gather strength. Honda Motor Co. sold $1.36 billion of bonds backed by auto loans at narrower yield spreads than in a comparable offering in July, said people familiar with the offering, who declined to be identified because terms aren’t public. Freescale Semiconductor Inc. notes due in 2016 rose yesterday after the chipmaker settled a lawsuit that clears the way to close on a $750 million bond offering that had been opposed by senior lenders who claimed the Austin, Texas-based company breached a credit agreement. Fallen Angel Wilmington Trust Corp. is the first so-called fallen angel of the year, as Standard & Poor’s cut its credit rating one step to BB+ from BBB-, the lowest level of investment grade, the New York-based ratings firm said. Corporate bond sales in the U.S. and Europe plummeted to the lowest levels of the year this week. In the U.S., issuance dropped to $3.7 billion from $8.025 billion last week, data compiled by Bloomberg show. European issuance fell 25 percent to 7.7 billion euros ($10.5 billion), compared with the year’s average weekly volume of 20 billion euros. The gap in yield between Treasury two- and 10-year notes, known as the yield curve, steepened to a record yesterday, as reports showed Philadelphia region manufacturing and U.S. leading indicators rose. Debt due in 10 to 15 years handed investors a 26.9 percent return last year, including reinvested interest, Merrill data show. Bonds maturing in five to seven years followed, with a 24.8 percent return. From 2003 to 2009, 10- to 15-year corporate bonds gained 6.69 percent on average, compared with a 5.96 percent on five- to seven-year debt. Higher Interest Rates After spreads on investment-grade corporate debt narrowed by more than 400 basis points last year, investors are searching for maturity ranges that will earn money in an environment with higher interest rates, said Jason Brady , a managing director who helps invest $54 billion at Thornburg Investment Management Inc. in Santa Fe, New Mexico. “Even if spreads continue to tighten, I think there’s a limited amount of return that they can tighten,” said Brady, who favors five-year debt. “Over a reasonable period of time there’s only one direction that bond yields can go, and that’s higher.” Investors are balancing a steep yield curve against concern interest rates are going higher, said Jeff Meli , a credit strategist at Barclays Capital in New York. “The belly of the curve looks attractive in the sense that it does create a balance between longer duration while still picking up absolute yield,” he said. Greek Deficit The Markit CDX North America Investment Grade Index, a benchmark of credit-default swaps that investors use to hedge against losses on corporate debt, fell 1.5 basis point to 94.5 basis points yesterday, according to Credit Derivatives Research LLC and CMA DataVision. The index typically falls as investor confidence in debt markets improves. In London, the benchmark Markit iTraxx Europe index dropped to the lowest in a week. The Markit iTraxx Japan index dropped 2.5 basis points to 147.5 basis points as of 8:15 a.m. in Tokyo today, according to Morgan Stanley. The Markit CDX index has dropped 7 basis points since Feb. 10, the day before European leaders promised to take “determined and coordinated action” to contain Greece’s budget deficit, the euro region’s biggest in terms of gross domestic product. U.S. economic and earnings reports are also bolstering optimism the recovery will be sustained. The Markit iTraxx Europe Index, linked to 125 companies with investment-grade ratings, fell 2.25 basis points to 87.25 basis points, JPMorgan Chase & Co. prices show. Honda Bonds In Honda’s offering, the largest top-rated portion priced to yield 15 basis points more than benchmark rates, the people said. That compares with 100 basis points more at the Tokyo- based carmaker’s last sale of similar securities in July, according to data compiled by Wells Fargo Securities. The bonds were offered outside the Fed’s Term Asset-Backed Securities Loan Facility, the people said. The size of the sale was increased from $1 billion. Freescale’s 10.125 percent bonds, issued in 2007, rose 2.25 cents on the dollar to 77.25 cents to yield 15.7 percent, according to Trace, the bond-price reporting system of the Financial Industry Regulatory Authority. The company, bought by firms led by Blackstone Group LP in 2006, sold eight-year, 10.125 percent notes on Feb. 9 that are now cleared to close, according to an announcement by a judge’s clerk in New York State Supreme Court. To contact the reporter on this story: Sapna Maheshwari at sapnam@bloomberg.net

Read the full article →

Bond `Sweet Spot’ in Five- to Seven-Year Corporate Debt: Credit Markets

February 18, 2010

By Sapna Maheshwari Feb. 19 (Bloomberg) — U.S. corporate bonds due in five to seven years are becoming favorites for investors seeking protection from rising yields. Securities maturing in that range returned 1.88 percent this year, including reinvested interest, compared with 0.75 percent for company bonds of all maturities, Bank of America Merrill Lynch indexes show. Debt due in 10 to 15 years, the best performer in 2009, is up 1.31 percent. Investors are hesitant to buy shorter-term debt, which is more sensitive to changes in monetary policy, on concern that the Federal Reserve may start raising interest rates. At the same time, they’re avoiding longer-term debt as a recovering economy and $8.2 trillion of U.S. stimulus spending threaten to spur inflation. The Fed raised the discount rate charged to banks for direct loans by a quarter percentage point to 0.75 percent yesterday. “I don’t see anybody jumping into 30-year paper any time soon with this looming threat of rates going up,” said Rajeev Sharma , a money manager at First Investors Management Co. in New York who helps oversee $1.4 billion of investment-grade debt. “On the other end, the biggest problem with buying really short-term paper right now is it doesn’t really pay you anything. The next best option is to buy five to seven years.” The extra yield investors demand to own company bonds instead of government debt narrowed 2 basis points yesterday to 169 basis points, or 1.69 percentage point, according to Bank of America Merrill Lynch’s Global Broad Market Corporate index. While that’s 8 basis points more than a month ago, the so-called spread compares with 452 basis points a year ago. Credit Risk Benchmarks Elsewhere in credit markets, benchmark gauges of corporate credit risk in the U.S. and Europe fell for a third day as concern eased that Greece’s budget crisis will weigh on asset values globally and reports showed the U.S. economy continues to gather strength. Honda Motor Co. sold $1.36 billion of bonds backed by auto loans at narrower yield spreads than in a comparable offering in July, said people familiar with the offering, who declined to be identified because terms aren’t public. Freescale Semiconductor Inc. notes due in 2016 rose yesterday after the chipmaker settled a lawsuit that clears the way to close on a $750 million bond offering that had been opposed by senior lenders who claimed the Austin, Texas-based company breached a credit agreement. Fallen Angel Wilmington Trust Corp. is the first so-called fallen angel of the year, as Standard & Poor’s cut its credit rating one step to BB+ from BBB-, the lowest level of investment grade, the New York-based ratings firm said. Corporate bond sales in the U.S. and Europe plummeted to the lowest levels of the year this week. In the U.S., issuance dropped to $3.7 billion from $8.025 billion last week, data compiled by Bloomberg show. European issuance fell 25 percent to 7.7 billion euros ($10.5 billion), compared with the year’s average weekly volume of 20 billion euros. The gap in yield between Treasury two- and 10-year notes, known as the yield curve, steepened to a record yesterday, as reports showed Philadelphia region manufacturing and U.S. leading indicators rose. Debt due in 10 to 15 years handed investors a 26.9 percent return last year, including reinvested interest, Merrill data show. Bonds maturing in five to seven years followed, with a 24.8 percent return. From 2003 to 2009, 10- to 15-year corporate bonds gained 6.69 percent on average, compared with a 5.96 percent on five- to seven-year debt. Higher Interest Rates After spreads on investment-grade corporate debt narrowed by more than 400 basis points last year, investors are searching for maturity ranges that will earn money in an environment with higher interest rates, said Jason Brady , a managing director who helps invest $54 billion at Thornburg Investment Management Inc. in Santa Fe, New Mexico. “Even if spreads continue to tighten, I think there’s a limited amount of return that they can tighten,” said Brady, who favors five-year debt. “Over a reasonable period of time there’s only one direction that bond yields can go, and that’s higher.” Investors are balancing a steep yield curve against concern interest rates are going higher, said Jeff Meli , a credit strategist at Barclays Capital in New York. “The belly of the curve looks attractive in the sense that it does create a balance between longer duration while still picking up absolute yield,” he said. Greek Deficit The Markit CDX North America Investment Grade Index, a benchmark of credit-default swaps that investors use to hedge against losses on corporate debt, fell 1.5 basis point to 94.5 basis points yesterday, according to Credit Derivatives Research LLC and CMA DataVision. The index typically falls as investor confidence in debt markets improves. In London, the benchmark Markit iTraxx Europe index dropped to the lowest in a week. The Markit iTraxx Japan index dropped 2.5 basis points to 147.5 basis points as of 8:15 a.m. in Tokyo today, according to Morgan Stanley. The Markit CDX index has dropped 7 basis points since Feb. 10, the day before European leaders promised to take “determined and coordinated action” to contain Greece’s budget deficit, the euro region’s biggest in terms of gross domestic product. U.S. economic and earnings reports are also bolstering optimism the recovery will be sustained. The Markit iTraxx Europe Index, linked to 125 companies with investment-grade ratings, fell 2.25 basis points to 87.25 basis points, JPMorgan Chase & Co. prices show. Honda Bonds In Honda’s offering, the largest top-rated portion priced to yield 15 basis points more than benchmark rates, the people said. That compares with 100 basis points more at the Tokyo- based carmaker’s last sale of similar securities in July, according to data compiled by Wells Fargo Securities. The bonds were offered outside the Fed’s Term Asset-Backed Securities Loan Facility, the people said. The size of the sale was increased from $1 billion. Freescale’s 10.125 percent bonds, issued in 2007, rose 2.25 cents on the dollar to 77.25 cents to yield 15.7 percent, according to Trace, the bond-price reporting system of the Financial Industry Regulatory Authority. The company, bought by firms led by Blackstone Group LP in 2006, sold eight-year, 10.125 percent notes on Feb. 9 that are now cleared to close, according to an announcement by a judge’s clerk in New York State Supreme Court. To contact the reporter on this story: Sapna Maheshwari at sapnam@bloomberg.net

Read the full article →

Video: Green Sees Volatility for China, No Inflation `Blowout’: Video

February 12, 2010

Feb. 12 (Bloomberg) — Stephen Green, head of China research at Standard Chartered Bank Plc, talks with Bloomberg’s Deirdre Bolton and Jon Erlichman about China’s move to raise bank reserve requirements for the second time in a month to cool the world’s fastest-growing economy. The reserve requirement will increase 50 basis points, or 0.5 percentage point, effective Feb. 25, the People’s Bank of China said on its Web site today. (Source: Bloomberg)

Read the full article →

Portugal, Spain Lead Worldwide Decline in Stocks; Bonds Drop, Dollar Gains

February 4, 2010

By Gavin Serkin Feb. 4 (Bloomberg) — Stocks and bonds fell in Spain, Portugal and Hungary on concern governments will struggle to fund their budget deficits as spending cuts in Greece trigger strikes. The dollar rallied. Spain’s IBEX Index dropped 2.2 percent to the lowest level since August at 10:19 a.m. in London, Portuguese credit-default swaps jumped to a record and the Budapest Stock Exchange Index declined 1.4 percent, the most in two weeks. Greek two-year bonds tumbled, with the yield rising 9 basis points to 6.57 percent. Futures on the Standard & Poor’s 500 Index slipped 0.6 percent. The dollar strengthened against all but one of its 16 most-traded peers. The European Union’s pledge yesterday to back Greece’s plan to cut the region’s biggest budget deficit prompted investors to shun securities of countries with similar shortfalls. Spanish borrowing costs rose at a sale of three-year notes today and Portugal scaled back an auction of Treasury bills yesterday. “The focus is shifting toward Spain and Portugal, where the deficit-reduction plans have been far less ambitious than Greece,” said Kornelius Purps , a fixed-income strategist in Munich at UniCredit Markets & Investment Banking. The MSCI World Index of 23 developed nations’ stocks fell 0.5 percent, as Portugal’s PSI-20 Index slumped 3.5 percent, leaving it 11 percent lower for the year, and Greece’s ASE Index lost 1.9 percent. Europe’s Dow Jones Stoxx 600 Index slipped 0.8 percent. Piraeus Bank SA, Greece’s fourth-biggest lender, dropped 3.1 percent, while Banco Bilbao Vizcaya Argentaria SA, Spain’s second-biggest bank, declined 4.1 percent. Hungary Drops The MSCI Emerging Markets Index dropped 1 percent, snapping a three-day rally. The Budapest Stock Exchange Index led declines as the opposition Fidesz party, the favorite to win general elections in 10 weeks, said the country faces a continuing recession, mounting debt and has an unrealistic budget deficit target. The extra yield investors demand to own Hungarian sovereign and quasi-sovereign bonds jumped the most in eight months, rising 29 basis points to a two-month high 2.59 percentage points more than similar-maturity U.S. Treasuries, according to JPMorgan Chase & Co.’s EMBI Global indexes. OTP Bank Nyrt., Hungary’s largest lender, dropped 1.9 percent to the lowest in almost a month. Moody’s Investors Service said yesterday that the U.S. government’s Aaa bond rating will “come under downward pressure” unless additional measures are taken to reduce budget deficits projected for the next decade. Default Swaps Credit-default swaps on Portugal’s government debt soared 15 basis points to a record 211, according to CMA DataVision prices. Contracts on Greece jumped 18 basis points to 415.5, Spain increased 12 basis points to 164, Italy was up 7 at 138 and Ireland climbed 6.5 basis points to 169.5. The Spanish government sold 2.5 billion euros ($3.5 billion) of three-year securities today to yield 2.63 percent, compared with 2.14 percent the last time the notes were issued on Dec. 3. Portugal led declines in government bonds, with the premium investors demand to hold the securities instead of benchmark German bunds widening 10 basis points to 157 basis points, the biggest difference since March. The dollar gained against high-yielding currencies, adding 1.1 percent versus the New Zealand dollar and 0.6 percent against the South African rand. The Dollar Index , which tracks the U.S. currency against those of six major trading partners, climbed 0.3 percent. Kiwi Retreats The New Zealand dollar declined after a government report showed the unemployment rate climbed to a 10-year high. The Australian dollar dropped because retail sales unexpectedly fell in December for the first time in five months. Crude oil for March delivery fell 80 cents, or 1 percent, to $76.18 a barrel in electronic trading on the New York Mercantile Exchange after a U.S. Energy Department report yesterday showed a bigger-than-forecast weekly increase in crude inventories. Lead for delivery in three months fell 1 percent to $2,000 a metric ton on the London Metal Exchange. Gold for immediate delivery retreated 0.6 percent to $1,103.60 an ounce. To contact the reporters for this story: Gavin Serkin at gserkin@bloomberg.net

Read the full article →

End of TALF Means Bond Sales With Spreads Five Times Wider: Credit Markets

February 3, 2010

By Sarah Mulholland Feb. 4 (Bloomberg) — The end of a Federal Reserve program that helped unlock credit markets is spurring sales of asset- backed bonds with relative yields five times wider than on debt secured by car loans. The expiration of the Fed’s Term Asset-Backed Securities Loan Facility is driving companies to sell bonds tied to loans that would otherwise require higher yields. Borrowers are offering bonds backed by subprime auto loans, mortgage-servicing payments and assets that have proved hard to sell after the worst credit seizure since the Great Depression. “What we are seeing in the last couple of rounds are issuers in non-traditional asset classes and weaker issuers looking to fund as much as they can before the window closes,” said James Grady , a managing director at Deutsche Asset Management in New York. The firm has $240 billion in assets under management, including asset-backed securities. Ally Bank, a Midvale, Utah-based unit of GMAC Inc., is selling $750 million in so-called floorplan securities backed by payments on loans that finance cars on lots. Nissan Motor Co. , in Yokohama, Japan, issued $900 million of the debt last week. Sales total $3.35 billion this year, including deals being prepared, compared with $3.9 billion all of last year, according to Informa Global Markets in New York. The bonds offer investors higher relative yields because the collateral is considered riskier. Ally Bank’s sale of AAA debt backed by floorplans may yield 1.75 percentage points more than swap rates, compared with a spread of 0.35 percentage point for top-rated auto-loan bonds, according to Bank of America Corp. data. TALF Expires Investors have a deadline of today for taking out loans through TALF this month. The program, which provides loans to investors buying the debt, began in March 2009 and expires March 31. Elsewhere in credit markets, the yield spread on company bonds narrowed 1 basis point yesterday to 164 basis points, Bank of America Merrill Lynch’s Global Broad Market Corporate Index showed. The gap has widened from this year’s low of 160 basis points, or 1.6 percentage points, on Jan. 14. The average yield yesterday was 4.12 percent, up from the low this year of 4.06 percent on Jan. 11. The cost to protect North American company bonds from nonpayment fell yesterday for the third straight day, the longest stretch since the four days ended Jan. 6. Standard & Poor’s said the default rate on speculative-grade debt held steady last month at 10.7 percent. Kraft Foods Inc. may complete the sale of $4 billion in debt today to pay for its acquisition of Cadbury Plc. Choking Off Funding TALF was started to jump-start the market for bonds tied to consumer and small-business loans after sales of the debt plummeted 42 percent in 2008, choking off funding to lenders, according to data compiled by Bloomberg. The program spurred $178 billion of securities sales, according to Bank of America. TALF provides low-cost Fed loans toward the purchase of top-rated securities. It allows buyers to boost returns with borrowed cash and provides issuers with lower funding costs. Companies selling debt through TALF this month include AmeriCredit Corp. , the Fort Worth, Texas-based lender to car buyers with poor credit, and Ocwen Financial Corp., a West Palm Beach, Florida-based company that acquires and services troubled mortgages. Ocwen’s sale is backed by payments connected to delinquent home loans. The program is becoming less useful as investors gain confidence in the economy and use more of their own cash to buy the debt. Yields on top-rated auto-loan securities relative to Treasuries have narrowed to 0.69 percentage point from 6.4 percentage points a year ago, Bank of America Merrill Lynch index data show. JPMorgan, GE Companies including New York-based JPMorgan Chase & Co, Fairfield, Connecticut-based General Electric Co., New York- based Discover Financial Services and Dearborn, Michigan-based Ford Motor Co. sold debt backed by loans and leases outside the program during the past six months, Bloomberg data show. In making the decision to end TALF and three more programs like it, the Fed said in a statement on Jan. 27 that the economy “has continued to strengthen,” while “the pace of economic recovery is likely to be moderate for a time.” The central bank also said it’s “prepared to modify these plans if necessary to support financial stability and economic growth.” Other parts of the asset-backed debt market are also likely to make a comeback as investor sentiment improves. Sales of securities backed by U.S. home loans lacking government-backed guarantees, which stopped two years ago as subprime mortgage defaults surged, may resume this year, industry executives said at a conference this week. ‘Dipping the Toe’ “You’re going to see people come to market to some extent but it’s just going to be dipping the toe in the water,” Bill Felts, a senior vice president at Citigroup Inc.’s mortgage unit, said at the American Securitization Forum conference in Washington. Sales of so-called non-agency bonds backed by new home loans peaked at almost $1.2 trillion in both 2005 and 2006 before freezing as the worst U.S. housing slump since the Great Depression sparked losses and curbed lending, according to the newsletter Inside MBS & ABS. In the credit-default swaps market, contracts on the Markit CDX North America Investment-Grade Index Series 13, which is linked to 125 companies and used to speculate on creditworthiness or to hedge against losses, fell 0.5 basis point to 92 basis points. Credit Quality A basis point on a credit-default swap protecting $10 million of debt from default for five years equals $1,000 a year. The contracts pay the buyer face value in exchange for the underlying securities or the cash equivalent should a company fail to meet its debt agreements. A decline signals improvement in perceptions of credit quality. The default rate on speculative-grade debt was little changed at 10.7 percent last month, and may decline to 5 percent by December 2010, S&P said yesterday. During January, seven companies defaulted, compared with 14 at this time in 2009. “Credit metrics in the U.S. are showing the first indications of strengthening credit quality, as well as stronger lending conditions and signs of life among speculative-grade new issuance,” wrote Diane Vazza , head of S&P’s Global Fixed Income Research Group. Companies in the U.S. are marketing at least $6.7 billion of high-yield bonds following a record $16.4 billion in January, according to data compiled by Bloomberg. Speculative grade bonds are rated below Baa3 by Moody’s Investors Service and BBB- at S&P. Kraft Bonds Kraft is rated Baa2 by Moody’s and BBB by S&P. The Northfield, Illinois-based company may finish the sale of debt due in 3.25, 6, 10 and 30 years today, said a person familiar with the transaction who declined to be identified because terms aren’t set. Kraft plans to issue a minimum of $1 billion in each maturity, the person said. “It’s going to be a big deal, so the question is how robust the demand is going to be,” said Jeff Given , a money manager who helps invest $19 billion in fixed-income assets at MFC Global Investment Management in Boston. “I expect it to go fairly well.” The 3.25-year notes may yield about 150 basis points more than Treasuries, while the 6- and 10-year debt may pay spreads of about 187.5 basis points, said the person. The spread on the 30-year bonds may be about 15 basis points wider than that of the 10-year notes. Last Deal Kraft last sold bonds in December 2008, issuing $500 million of notes due in February 2014. The 6.75 percent notes were priced to yield 525 basis points more than Treasuries of similar maturity, Bloomberg data show. Those securities traded yesterday at 112.11 cents on the dollar to yield 110 basis points more than Treasuries, according to Trace, the bond-price reporting system of the Financial Industry Regulatory Authority. In Europe, Portugal led a surge in the cost of insuring against losses on European government debt to record-high levels amid concern the country will struggle to finance its budget deficit. Portugal sold 300 million euros ($417 million) of 12- month bills yesterday after indicating it planned to issue 500 million. The securities were sold to yield 1.38 percent, compared with 0.93 percent at a Jan. 20 auction. Credit-default swaps on Portugal soared 29 basis points to a record 196, according to CMA DataVision prices. The Markit iTraxx SovX Western Europe Index of swaps on 15 governments including Portugal and Greece jumped 5 basis points to an all- time high of 93.5, CMA prices show. Spanish government agency Instituto de Credito Oficial increased the yield premium it paid on a 1 billion-euro bond sale to entice investors. Swap Rates Madrid-based ICO, which lends to businesses, paid 65 basis points over the benchmark swap rate, according to data compiled by Bloomberg. That compares with a spread in the low 50-basis- point range offered Feb. 2, according to a banker with knowledge of the transaction who declined to be identified because the terms weren’t set. Snai SpA , Italy’s second-largest gaming and betting company, pulled a sale of high-yield bonds citing “market conditions” and a dispute with Bridgepoint Capital Ltd. Snai planned to raise 350 million euros selling bonds. Bridgepoint asked the company and Snai Servizi Srl, its parent, for 20 million euros in damages for its failure to accept an offer for its gaming activities. To contact the reporter on this story: Sarah Mulholland in New York at smulholland3@bloomberg.net

Read the full article →

End of TALF Means Bond Sales With Spreads Five Times Wider: Credit Markets

February 3, 2010

By Sarah Mulholland Feb. 4 (Bloomberg) — The end of a Federal Reserve program that helped unlock credit markets is spurring sales of asset- backed bonds with relative yields five times wider than on debt secured by car loans. The expiration of the Fed’s Term Asset-Backed Securities Loan Facility is driving companies to sell bonds tied to loans that would otherwise require higher yields. Borrowers are offering bonds backed by subprime auto loans, mortgage-servicing payments and assets that have proved hard to sell after the worst credit seizure since the Great Depression. “What we are seeing in the last couple of rounds are issuers in non-traditional asset classes and weaker issuers looking to fund as much as they can before the window closes,” said James Grady , a managing director at Deutsche Asset Management in New York. The firm has $240 billion in assets under management, including asset-backed securities. Ally Bank, a Midvale, Utah-based unit of GMAC Inc., is selling $750 million in so-called floorplan securities backed by payments on loans that finance cars on lots. Nissan Motor Co. , in Yokohama, Japan, issued $900 million of the debt last week. Sales total $3.35 billion this year, including deals being prepared, compared with $3.9 billion all of last year, according to Informa Global Markets in New York. The bonds offer investors higher relative yields because the collateral is considered riskier. Ally Bank’s sale of AAA debt backed by floorplans may yield 1.75 percentage points more than swap rates, compared with a spread of 0.35 percentage point for top-rated auto-loan bonds, according to Bank of America Corp. data. TALF Expires Investors have a deadline of today for taking out loans through TALF this month. The program, which provides loans to investors buying the debt, began in March 2009 and expires March 31. Elsewhere in credit markets, the yield spread on company bonds narrowed 1 basis point yesterday to 164 basis points, Bank of America Merrill Lynch’s Global Broad Market Corporate Index showed. The gap has widened from this year’s low of 160 basis points, or 1.6 percentage points, on Jan. 14. The average yield yesterday was 4.12 percent, up from the low this year of 4.06 percent on Jan. 11. The cost to protect North American company bonds from nonpayment fell yesterday for the third straight day, the longest stretch since the four days ended Jan. 6. Standard & Poor’s said the default rate on speculative-grade debt held steady last month at 10.7 percent. Kraft Foods Inc. may complete the sale of $4 billion in debt today to pay for its acquisition of Cadbury Plc. Choking Off Funding TALF was started to jump-start the market for bonds tied to consumer and small-business loans after sales of the debt plummeted 42 percent in 2008, choking off funding to lenders, according to data compiled by Bloomberg. The program spurred $178 billion of securities sales, according to Bank of America. TALF provides low-cost Fed loans toward the purchase of top-rated securities. It allows buyers to boost returns with borrowed cash and provides issuers with lower funding costs. Companies selling debt through TALF this month include AmeriCredit Corp. , the Fort Worth, Texas-based lender to car buyers with poor credit, and Ocwen Financial Corp., a West Palm Beach, Florida-based company that acquires and services troubled mortgages. Ocwen’s sale is backed by payments connected to delinquent home loans. The program is becoming less useful as investors gain confidence in the economy and use more of their own cash to buy the debt. Yields on top-rated auto-loan securities relative to Treasuries have narrowed to 0.69 percentage point from 6.4 percentage points a year ago, Bank of America Merrill Lynch index data show. JPMorgan, GE Companies including New York-based JPMorgan Chase & Co, Fairfield, Connecticut-based General Electric Co., New York- based Discover Financial Services and Dearborn, Michigan-based Ford Motor Co. sold debt backed by loans and leases outside the program during the past six months, Bloomberg data show. In making the decision to end TALF and three more programs like it, the Fed said in a statement on Jan. 27 that the economy “has continued to strengthen,” while “the pace of economic recovery is likely to be moderate for a time.” The central bank also said it’s “prepared to modify these plans if necessary to support financial stability and economic growth.” Other parts of the asset-backed debt market are also likely to make a comeback as investor sentiment improves. Sales of securities backed by U.S. home loans lacking government-backed guarantees, which stopped two years ago as subprime mortgage defaults surged, may resume this year, industry executives said at a conference this week. ‘Dipping the Toe’ “You’re going to see people come to market to some extent but it’s just going to be dipping the toe in the water,” Bill Felts, a senior vice president at Citigroup Inc.’s mortgage unit, said at the American Securitization Forum conference in Washington. Sales of so-called non-agency bonds backed by new home loans peaked at almost $1.2 trillion in both 2005 and 2006 before freezing as the worst U.S. housing slump since the Great Depression sparked losses and curbed lending, according to the newsletter Inside MBS & ABS. In the credit-default swaps market, contracts on the Markit CDX North America Investment-Grade Index Series 13, which is linked to 125 companies and used to speculate on creditworthiness or to hedge against losses, fell 0.5 basis point to 92 basis points. Credit Quality A basis point on a credit-default swap protecting $10 million of debt from default for five years equals $1,000 a year. The contracts pay the buyer face value in exchange for the underlying securities or the cash equivalent should a company fail to meet its debt agreements. A decline signals improvement in perceptions of credit quality. The default rate on speculative-grade debt was little changed at 10.7 percent last month, and may decline to 5 percent by December 2010, S&P said yesterday. During January, seven companies defaulted, compared with 14 at this time in 2009. “Credit metrics in the U.S. are showing the first indications of strengthening credit quality, as well as stronger lending conditions and signs of life among speculative-grade new issuance,” wrote Diane Vazza , head of S&P’s Global Fixed Income Research Group. Companies in the U.S. are marketing at least $6.7 billion of high-yield bonds following a record $16.4 billion in January, according to data compiled by Bloomberg. Speculative grade bonds are rated below Baa3 by Moody’s Investors Service and BBB- at S&P. Kraft Bonds Kraft is rated Baa2 by Moody’s and BBB by S&P. The Northfield, Illinois-based company may finish the sale of debt due in 3.25, 6, 10 and 30 years today, said a person familiar with the transaction who declined to be identified because terms aren’t set. Kraft plans to issue a minimum of $1 billion in each maturity, the person said. “It’s going to be a big deal, so the question is how robust the demand is going to be,” said Jeff Given , a money manager who helps invest $19 billion in fixed-income assets at MFC Global Investment Management in Boston. “I expect it to go fairly well.” The 3.25-year notes may yield about 150 basis points more than Treasuries, while the 6- and 10-year debt may pay spreads of about 187.5 basis points, said the person. The spread on the 30-year bonds may be about 15 basis points wider than that of the 10-year notes. Last Deal Kraft last sold bonds in December 2008, issuing $500 million of notes due in February 2014. The 6.75 percent notes were priced to yield 525 basis points more than Treasuries of similar maturity, Bloomberg data show. Those securities traded yesterday at 112.11 cents on the dollar to yield 110 basis points more than Treasuries, according to Trace, the bond-price reporting system of the Financial Industry Regulatory Authority. In Europe, Portugal led a surge in the cost of insuring against losses on European government debt to record-high levels amid concern the country will struggle to finance its budget deficit. Portugal sold 300 million euros ($417 million) of 12- month bills yesterday after indicating it planned to issue 500 million. The securities were sold to yield 1.38 percent, compared with 0.93 percent at a Jan. 20 auction. Credit-default swaps on Portugal soared 29 basis points to a record 196, according to CMA DataVision prices. The Markit iTraxx SovX Western Europe Index of swaps on 15 governments including Portugal and Greece jumped 5 basis points to an all- time high of 93.5, CMA prices show. Spanish government agency Instituto de Credito Oficial increased the yield premium it paid on a 1 billion-euro bond sale to entice investors. Swap Rates Madrid-based ICO, which lends to businesses, paid 65 basis points over the benchmark swap rate, according to data compiled by Bloomberg. That compares with a spread in the low 50-basis- point range offered Feb. 2, according to a banker with knowledge of the transaction who declined to be identified because the terms weren’t set. Snai SpA , Italy’s second-largest gaming and betting company, pulled a sale of high-yield bonds citing “market conditions” and a dispute with Bridgepoint Capital Ltd. Snai planned to raise 350 million euros selling bonds. Bridgepoint asked the company and Snai Servizi Srl, its parent, for 20 million euros in damages for its failure to accept an offer for its gaming activities. To contact the reporter on this story: Sarah Mulholland in New York at smulholland3@bloomberg.net

Read the full article →

Greece Bond Yields Show Waning Investor Faith EU Nation Will Avoid Bailout

January 28, 2010

By Matthew Brown and Keith Jenkins Jan. 29 (Bloomberg) — Greece bonds and credit-default swaps show investors are starting to doubt that the nation can reduce the largest budget deficit in the European Union without help from outside. The nation’s government bonds are the world’s worst performers in January, losing 4.19 percent in local currency terms and extending their decline over the past three months to 10 percent, Bloomberg/EFFAS indexes show. Credit-default swaps tied to Greece trade at about the same levels as Dubai when it got a $10 billion bailout from Abu Dhabi in December. “There’s a lot of self-fulfilling prophecy, because if you follow the market and sell Greece off then the probability that external help is needed will rise,” said Christoph Kind , the Frankfurt-based head of asset allocation at Frankfurt Trust, which manages about $20 billion. “We will have to see an official statement from EU officials or the European Central Bank on how they can show their support for Greece.” The German and French governments denied a report yesterday in the newspaper Le Monde that European Union member states are examining ways to provide assistance. Prime Minister George Papandreou said the country doesn’t need to borrow from European nations. Greece bonds have slumped on concern the government isn’t acting quickly enough to plug a budget deficit that was almost 13 percent of gross domestic product last year, more than four times the EU’s limit. The European Commission said Jan. 27 that Greece hasn’t done enough to tame the shortfall. Yield Climbs The yield on 10-year Greek bonds rose to 7.15 percent yesterday, the highest level since October 1999 and up from 4.99 percent on Nov. 30. The yield is more than 3.9 percentage points higher than benchmark German bunds, the biggest gain since October 1998. The cost of insuring the country’s debt against losses rose to a record yesterday, with credit-default swaps jumping 40 basis points, or 0.4 percentage point, to 414, CMA DataVision prices show. Swaps pay the buyer face value if a borrower defaults in exchange for the underlying securities or the cash equivalent. A basis point is equal to $1,000 a year on a contract protecting $10 million of debt. The swaps have risen from 121.8 basis points in October, and compare with 433.4 basis points for Dubai in the weeks before it received cash from Abu Dhabi on Dec. 14. ‘Clock Is Ticking’ “I am not sure that a Greek default is inevitable, but the clock is ticking with regard to difficult policy choices,” Marc Seidner , a portfolio manager at Pacific Investment Management Co. in Newport Beach, California, wrote in an e-mailed response to questions. Any financial aid from other European nations would be conditional upon the government introducing new measures to clean up its public finances, Le Monde said. Help would consist of bilateral loans from European governments in the absence of a mechanism for a euro-region bailout, the newspaper said. “There is absolutely nothing to these rumors,” German Finance Ministry spokeswoman Jeanette Schwamberger said in an e- mailed statement from Berlin following the report. “They are without any foundation.” A French Finance Ministry official in Paris also denied the story. ECB President Jean-Claude Trichet said in an interview in Davos, Switzerland, that he’s “confident” Greece will take the right steps. Greece is being victimized by rumors in financial markets, Papandreou said in an interview yesterday at the World Economic Forum’s annual meeting in Davos. “Rumors can overtake the international markets,” he said. “This is, of course, unfair.” ‘Buffer’ for Greece Being a part of the euro has helped “buffer” Greece from an even more drastic reaction in markets, Papandreou said. Greece is determined to meet the EU’s deficit-reduction goals on its own, and the Greek people understand that “painful” measures are needed to cut the shortfall, he said. The bonds of other so-called peripheral European nations dropped. The yield premium investors demand to hold Portuguese bonds instead of bunds increased 17 basis points to 120 basis points, the widest since April 28. Moody’s Investors Service said yesterday Portugal needs a “credible plan” to avoid “further downward pressure on its ratings.” Spreads between Spanish and German debt climbed 8 basis points to 98 basis points. The Italian-German spread rose 6 basis points to 94 basis points. “Greece is the canary-in-the-coal-mine for the entire sovereign risk concern, but the problem goes beyond Greece to all high-debt, high-deficit sovereigns” Seidner said. ‘Corporates as Well’ Investor concern that Greece can’t tackle its budget deficit is hurting the debt of national utility companies and banks, said Philip Gisdakis , head of credit strategy at UniCredit SpA in Munich. “If you fear a Greek crisis then you should not only avoid government bonds but corporates as well,” Gisdakis said. “And if you fear Greece, you should also fear Portugal and Spain.” Contracts on Hellenic Telecommunications rose 10.5 basis points to 149.5 and National Bank of Greece increased 16 basis points to 372. Portugal Telecom climbed 13 to 111 and Energias de Portugal jumped 9 to 100, CMA prices show. “The trend is for wider spreads, and it’s difficult to go against the trend at the moment,” said Wilson Chin , a fixed- income strategist at ING Groep NV in Amsterdam. “The market is looking for some kind of development.” To contact the reporters on this story: Matthew Brown in London at mbrown42@bloomberg.net ; Keith Jenkins in London at Kjenkins3@bloomberg.net

Read the full article →

Greece, Portugal Budget Deficit Concerns Start to Infect Companies, Banks

January 28, 2010

By Michael Shanahan Jan. 28 (Bloomberg) — Investor concerns about the ability of Greece and Portugal to lower their budget deficits is starting to hurt the debt of national utility companies and banks. The cost to insure Greek sovereign debt against default surged to a record today, spurring a rise in credit-default swaps on Hellenic Telecommunications Organization SA and National Bank of Greece SA. Swaps on Portugal Telecom SA and Energias de Portugal SA jumped as the perceived risk of holding their government debt rose. “If you fear a Greek crisis then you should not only avoid government bonds but corporates as well,” said Philip Gisdakis , head of credit strategy at UniCredit SpA in Munich. “And if you fear Greece you should also fear Portugal and Spain.” Portugal needs deeper deficit cuts than included in its 2010 budget to tame rising debt and avoid a downgrade of its credit rating, Moody’s Investors Service said today. Greece is seeking to raise 53 billion euros $74 billion) in funds this year to reduce a budget deficit of almost 13 percent of gross domestic product, the biggest shortfall in the European Union. Credit-default swaps on Greece jumped 28 basis points to 402, according to CMA Datavision prices. Swaps on Portugal climbed 4 basis points to 154 and Spain rose 3 to 132. The Markit iTraxx SovX Western Europe Index of credit-default swaps on 15 governments from Germany to Greece rose 0.25 basis points to a record 88.5. Bonds Decline Greek government bonds extended their declines, pushing the yield on the 10-year note 39 basis points higher to 7.14 percent. The country’s new 8 billion euros of five-year bonds that were sold on Jan. 26 also tumbled. The spread on the notes, due August 2015, has widened to 409 basis points over mid-swaps, according to Markit Group Ltd. iBoxx prices on Bloomberg. They were issued at a spread of 350 basis points. Greece sold almost 75 percent of the notes to international investors, including from the U.K. and France, the head of the nation’s debt agency said. U.K. investors bought more than 29 percent of the 8 billion euros of notes sold via banks, according to Spyros Papanicolaou , director general of the Public Debt Management Agency in Athens. French investors purchased almost 8 percent and domestic buyers acquired more than 26 percent. The government said it received 25 billion euros of orders. Credit-default swaps pay the buyer face value in exchange for the underlying securities or the cash equivalent should a company or country fail to adhere to its debt agreements. An increase signals deterioration in perceptions of credit quality. Contracts on Hellenic Telecommunications rose 10.5 basis points to 149.5 and National Bank of Greece increased 16 basis points to 372. Portugal Telecom climbed 13 to 111 and Energias de Portugal jumped 9 to 100, CMA prices show. To contact the reporter on this story: Michael Shanahan at mshanahan3@bloomberg.net

Read the full article →

Japan Rating-Outlook Cut Escalates Pressure on Hatoyama to Stem Debt Rise

January 26, 2010

By Aki Ito and Mayumi Otsuma Jan. 27 (Bloomberg) — The cut to Japan’s debt rating outlook by Standard & Poor’s escalated pressure on Prime Minister Yukio Hatoyama to rein in spending and consider raising taxes to reduce the nation’s borrowing. S&P yesterday lowered the outlook on Japan’s AA sovereign credit rating to “negative” because of diminishing “flexibility” to cope with the world’s largest public debt and concern about the lack of a plan to rein in budget deficits. The move highlights concern that the shrinking Japanese population and stagnating economy will erode a savings pool that has kept yields on benchmark 10-year bonds below 2 percent for 11 years. At the same time, because domestic investors hold more than 90 percent of Japan’s debt, there may be little risk of an immediate increase in borrowing costs that would force Hatoyama and Finance Minister Naoto Kan to act more quickly. “There is no way Japan can keep bleeding deficits like this without drawing a roadmap to restore its fiscal health,” said Shuichi Obata , senior economist at Nomura Securities Co. in Tokyo. “Japan’s already a lit bomb, but no one knows the length of the fuse. The key is to defuse the bomb at some point before it explodes.” Ten-year bond yields fell 1.5 basis points to 1.32 percent yesterday, while credit-default swaps showed an increase in Japanese bond risk. The cost of protecting the debt from default for five years gained 6 basis points to 90 basis points and traded at 88 basis points late yesterday. ‘Wake-Up Call’ National Strategy Minister Yoshito Sengoku said the government needs to consider S&P’s warning as a “wake-up call.” Kan said it’s “extremely important to maintain fiscal discipline and pursue fiscal health.” The two ministers are working to formulate a “medium-term fiscal framework” by June. Sengoku chairs a panel that first met this week to begin drafting the plan. Kan has been asking the central bank to support the economy, saying in parliament yesterday that it has more options available to fight deflation. Hours later, the Bank of Japan left its policy unchanged and kept benchmark interest rates at 0.1 percent. Since their Democratic Party of Japan took power in September, Hatoyama and Kan have argued that stimulus to support households is needed to cement the recovery from Japan’s worst postwar recession. The premier has deferred debate on reducing the public debt as his approval ratings tumble ahead of an upper house election scheduled for July. Election Looms S&P wouldn’t have issued its debt warning “if Japan’s government had published its mid-term fiscal consolidation plan earlier,” said Junko Nishioka , chief economist at RBS Securities Japan Ltd. in Tokyo. “As a national election approaches, the government will stick to the economic policy of providing aid for households and assisting employment .” Parliamentary committees devoted to deliberating Hatoyama’s 7.2 trillion yen ($80 billion) stimulus plan have been overtaken by questions about political donations he received from his mother and the arrest of aides to Ichiro Ozawa , the DPJ’s No. 2 official. Hatoyama’s approval rating fell to 45 percent from 56 percent earlier this month, according to a Yomiuri newspaper survey published on Jan. 18. Kaoru Yosano , who was finance minister in the previous administration, said last week that Japan is on the verge of an “uncontrollable rise” in bond yields as the difference between public debt and net household savings narrows. The DPJ “doesn’t have a sense of crisis about this,” he said in an interview on Jan. 22. Household Savings Japanese have funded state spending through their more than 1,400 trillion yen in savings. The outlook downgrade came a day after the government said public debt will probably spiral to 973 trillion yen in the year starting April 1, almost double gross domestic product and the equivalent of 7.7 million yen for each citizen. “The government needs to act now; Japan’s fiscal health is in a very dangerous situation,” said Masamichi Adachi , senior economist at JPMorgan Chase & Co. in Tokyo, who used to work at the Bank of Japan. “We need reforms the size of the Meiji Restoration.” Hatoyama has been forced to break campaign promises to secure revenue. He kept a gasoline tax that he had pledged to abolish after the Finance Ministry projected that tax revenue will fall below bond sales for the first time in 63 years. Other promises remain intact. Hatoyama said this month that the country’s sales tax won’t be raised from the current 5 percent for four years. Cutting Costs Kan repeated yesterday that cutting costs remains the government’s top priority, and he won’t debate changes to the tax code until all “wasteful” spending has been eliminated. “There will come a time when we need to discuss reforming the tax structure,” Kan told lawmakers in parliament. “But it is only after we make a strident effort to eliminate wasteful and inappropriate spending that we can start to do that.” Adachi at JPMorgan said there’s no room for delaying an increase in the sales tax and the current government is “way too populist” to commit to restoring Japan’s fiscal health. “The sooner Japan takes on the pain, the better.” To contact the reporters on this story: Aki Ito in Tokyo at aito16@bloomberg.net ; Mayumi Otsuma in Tokyo at motsuma@bloomberg.net

Read the full article →

Corporate Bond Risk Rises Most in More Than Five Weeks on Obama Bank Plan

January 22, 2010

By John Detrixhe and Shannon D. Harrington Jan. 22 (Bloomberg) — The cost to protect against defaults on U.S. corporate bonds rose this week by the most since June as President Barack Obama proposed reigning in banks and Chinese regulators said credit growth would be restricted this year. Credit-default swaps on the Markit CDX North America Investment-Grade Index Series 13, which is linked to 125 companies and used to speculate on creditworthiness or to hedge against losses, climbed 12.7 basis points this week to 96.2 basis points, according to CMA DataVision prices. An increase in the index signals a decline in investor confidence. The index has risen eight straight days, the longest stretch since June 2008, on signs of fresh risks to global economic growth. Chinese regulators told some banks on Jan. 20 to trim lending, and the next day Obama proposed limiting the size and trading activities of U.S. financial companies as a way to reduce risk-taking. Last week Moody’s said the Greek economy faces a “slow death” from deteriorating finances. “Markets have been wobbling from one bad headline to the next,” Citigroup Inc. analysts led by Mikhail Foux wrote today in a research report. “We view current market weakness as temporary and expect the bull trend in credit to resume in due time.” Credit-default swaps on Greek government debt surged to a record 356 basis points this week before falling to 340 basis points, CMA prices show. China reported fourth-quarter growth that exceeded 10 percent, fueling speculation the central bank will have to raise interest rates, which could damp expansion in a country that has helped power the global economic recovery. Increased Uncertainty The Obama administration’s call for regulation added to uncertainty in U.S. markets because of a lack of “specifics,” said Brian Yelvington , head of fixed-income strategy at Knight Libertas LLC, a broker-dealer in Greenwich, Connecticut. Obama’s proposal would restrict banks from running proprietary trading operations or investing in hedge and private-equity funds. “Tinkering with the legislative bounds under which banks operate can have pretty far-reaching effects,” Yelvington said. “The market hates uncertainty.” The banks most affected by the proposed rules “would appear to be the surviving broker-banks,” Goldman Sachs Group Inc. and Morgan Stanley, analysts at debt-research firm CreditSights Inc. wrote today in a report. Bank of America Corp., Citigroup Inc. and JPMorgan Chase & Co. would be affected “to a somewhat lesser extent due to their more diversified banking operations,” the analysts wrote. Credit swaps linked to Goldman Sachs Group Inc. rose 14 basis points to a mid-price of 134.5 basis points, and contracts on Morgan Stanley increased 10 basis points to 143 basis points, according to CMA. Bank Swaps Rise Swaps on Citigroup gained 9 basis points to 199 basis points and those on JPMorgan advanced 8 basis points to 74 basis points. The difference between the cost to buy protection on the bonds of Bank of America Corp. and those of its Merrill Lynch brokerage unit reached the widest level in six months. Credit-default swaps on Merrill Lynch jumped 15 basis points to 150 basis points, according to broker Phoenix Partners Group. Contracts on Bank of America fell 3 basis points to 120, pushing the gap to 30 basis points, the widest since July 7, CMA prices show. “With no clarity, investors are definitely erring on the side of caution and betting that Merrill is spun from” Bank of America, Tim Backshall , chief strategist at Credit Derivatives Research LLC in Walnut Creek California, said in an e-mail. “Merrill is most definitely not for sale,” Bank of America spokesman Scott Silvestri said by e-mail. Pressure on High-Yield Obama’s plan to tighten financial regulation brought out sellers of high-yield bonds, fixed-income research firm KDP Investment Advisors wrote in a research note today. Clear Channel Communications Inc.’s 10.75 percent notes due in 2016 dropped 2.25 cents on the dollar to 72.75 cents to push their yield up to 18 percent, according to Trace, the bond-price reporting system of the Financial Industry Regulatory Authority. NewPage Corp. ’s 10 percent notes due in 2012 fell 2.5 cents on the dollar to 62 cents for a yield of 35 percent, Trace data show. Clear Channel, the largest U.S. radio broadcaster, was taken private by Bain Capital LLC and Thomas H. Lee Partners LP. NewPage, the Miamisburg, Ohio-based producer of coated paper for magazines, is owned by Cerberus Capital Management LP. The only debt issuer to default this week was Air Jamaica Ltd., by means of a distressed exchange, according to a report by Standard & Poor’s analysts led by Diane Vazza , head of global fixed-income research. The rating company forecasts a 6.9 percent default for the next 12 months. European Contracts Rise Contracts on the Markit iTraxx Europe Index of 125 companies with investment-grade ratings climbed 1.25 basis points to 81.25 basis points, JPMorgan prices show. The Markit iTraxx Financials index of credit-default swaps on 25 European banks and insurers rose 0.75 basis point to 84.5 basis points. Credit swaps pay the buyer face value if a borrower defaults in exchange for the underlying securities or the cash equivalent. A basis point is 0.01 percentage point and is equal to $1,000 a year on a contract protecting $10 million of debt. To contact the reporters on this story: John Detrixhe in New York at jdetrixhe1@bloomberg.net ; To contact the reporters on this story: Shannon D. Harrington in New York at sharrington6@bloomberg.net

Read the full article →

China’s Economic Growth May Surge 12% as Exports, Domestic Spending Rise

December 23, 2009

By Bloomberg News Dec. 23 (Bloomberg) — China’s growth may surge to as much as 12 percent next year, increasing the risk from inflation, unless the government raises interest rates, Citic Securities Co. Chief Economist Zhu Jianfang said. The economy may be boosted by a rebound in exports and domestic spending next year, Zhu said. He expects the benchmark rate to increase by between 27 basis points and 54 basis points from 5.31 percent. A basis point is 0.01 percentage point. “We will see a change in monetary policy next year, otherwise, the growth will reach 12 percent, which will be a bit too fast,” Zhu said in an interview after his presentation at a forum in Shanghai. A record 9.2 trillion yuan ($1.3 trillion) of loans in the first 11 months of this year drove a recovery in the world’s third-biggest economy and increased the risk of bubbles in property and stocks. The Shanghai Composite Index surged 67 percent this year, while home prices in 70 major Chinese cities rose at the fastest pace in 16 months in November. The economy may expand 10.1 percent next year with higher interest rates, Zhu said, increasing from his forecast of 8.6 percent growth in 2009. Economists estimate rates may increase 54 basis points next year, according to data compiled by Bloomberg. ‘Very Attractive’ “The recovery is strong and the economy is very attractive,” Hugh Simon , co-manager of the $1.1 billion Dreyfus Greater China Fund, said in a Bloomberg Television interview today. Gains in housing prices have prompted the government to come up with measures aimed to curb speculations in the property industry. The government will target “excessive” growth in property prices in some cities, Xinhua News Agency reported last week. Chinese central bank Governor Zhou Xiaochuan said yesterday reserve ratios are a tool “which we still put quite some emphasis upon.” The nation is targeting 8 percent growth in 2010 amid a “fragile” global recovery, industry minister Li Yizhong said on Dec. 21. The Shanghai Composite has fallen 4.7 percent this month, the worst performer among the so-called BRIC nations that also include Brazil, Russia and India. “The market would fall much lower than people expect, if the government continues to crack down on the property market and tighten liquidity,” said Zhang Gang , a strategist at Central China Securities Holdings Co. in Shanghai. — Zhang Shidong , with assistance from Haslinda Amin in Hong Kong. Editors: Linus Chua , Paul Panckhurst To contact Bloomberg News staff for this story: Zhang Shidong in Shanghai at +86-21-6104-7014 or szhang5@bloomberg.net

Read the full article →

Greece Sells 2 Billion Euros of Bonds Due 2015 to Five Banks, Bankers Say

December 15, 2009

By Anna Rascouet and Christos Ziotis Dec. 16 (Bloomberg) — Greece sold 2 billion euros ($2.9 billion) of floating-rate notes to five banks in a so-called private placement, two bankers familiar with the deal said, as the government seeks to shore up its ailing finances. The securities, maturing in February 2015, were offered to yield 250 basis points more than the six-month euro interbank offered rate, or Euribor, they said. The participating banks were National Bank of Greece SA, Alpha Bank AE, EFG Eurobank Ergasias SA, Piraeus Bank SA and Sanpaolo IMI SpA, they said. Greek bonds and stocks have tumbled in the past week on concern the government may struggle to meet its debt obligations as its budget deficit swells. Prime Minister George Papandreou appealed two days ago to unions and employer groups to help undertake “radical” action to combat the crisis. Finance Minister George Papaconstantinou said yesterday there are no discussions about a possible bailout for the country. “Against a background of greater market sensitivity to government debt levels and deficits more generally, markets are likely to remain nervous over Greece’s fiscal outlook in the near term,” a team of analysts at BNP Paribas SA including London-based Luigi Speranza wrote in a note yesterday. “The available policy options are all, in their own way, difficult.” The yield on the Greek two-year note soared 28 basis points to 3.39 percent yesterday, its highest level since March 11. The premium, or spread, investors demand to hold Greek 10-year bonds instead of German bunds rose 21 basis points to 250 basis points, the highest since April 2, based on closing prices. ‘Painful’ Choices “In the next three months we will take those decisions which weren’t taken for decades,” Papandreou said in his speech in Athens. He said many choices will be “painful,” though he promised to protect poorer and middle-income Greeks. Papandreou’s “unconvincing speech” prompted investors to increase bets against the country, according to Puneet Sharma , head of credit strategy at Barclays Capital in London. “Poor sentiment was driven by the failure of the Greek Prime Minister to clearly outline how his new government would reduce the fiscal deficit,” he said. Credit-default swaps on Greece rose 25.5 basis points to 245.5 yesterday, according to CMA DataVision. Elected in October on a platform of higher spending and wages, Papandreou is trying to shore up confidence in Greece. The nation’s credit was downgraded by Fitch Ratings last week. Government measures will help calm financial markets as they are introduced over the coming months, Finance Minister Papaconstantinou said. “The implementation of these measures over the next few months will be what convinces the markets that there is a very serious effort to reduce the deficit,” Papaconstantinou told reporters in Berlin yesterday before holding talks with German Finance Minister Wolfgang Schaeuble . Credit-default swaps pay the buyer face value in exchange for the underlying securities or the cash equivalent should a company fail to adhere to its debt agreements. A basis point on a contract protecting $10 million of debt from default for five years is equivalent to $1,000 a year. To contact the reporters on this story: Anna Rascouet in London at arascouet@bloomberg.net ; Christos Ziotis in Athens at cziotis@bloomberg.net

Read the full article →

Dubai Bond Risk Plunges by Most Since February After Abu Dhabi Pledges Aid

December 14, 2009

By Sarah McDonald and Abigail Moses Dec. 14 (Bloomberg) — The cost of protecting investors against Dubai defaulting on its debt tumbled the most since February after Abu Dhabi pledged $10 billion to help the emirate meet its obligations. Five-year credit-default swaps on Dubai’s debt fell 135.5 basis points to 405, according to CMA DataVision prices at 10:40 a.m. in London. The Markit iTraxx SovX Western Europe index of swaps on 15 governments dropped 8 basis points to 58.75, according to JPMorgan Chase & Co. Funds from Abu Dhabi, the capital of the United Arab Emirates and owner of the world’s biggest sovereign wealth fund, will help Dubai World unit Nakheel PJSC pay investors the $4.1 billion it owes on Islamic bonds maturing today. State-owned Dubai World roiled markets worldwide when it said Dec. 1 it was in talks with creditors to restructure $26 billion of debt. “A rally on Abu Dhabi’s support is clearly helping Asian and European credit this morning,” Puneet Sharma , head of credit strategy at Barclays Capital in London, wrote in a note to investors. Credit-default swaps on DP World Ltd. , the Middle East’s biggest port operator and a unit of Dubai World, fell 132 basis points to 439, according to CMA. Abu Dhabi slipped 8.5 basis points to 152, while Qatar dropped 9 to 99.5. The decline in default swaps tied to Dubai government debt was the biggest since Feb. 23, when the U.A.E’s central bank bought $10 billion of the Gulf state’s bonds. ‘Very Good News’ Abu Dhabi’s support for its neighbor “will no doubt be taken as very good news by the market,” Gary Jenkins , head of credit research at Evolution Securities Ltd. in London, wrote in a note. Credit-default swaps on European companies also fell on news of the Dubai bailout, with contracts on the Markit iTraxx Crossover Index of 50 mostly high-yield European companies slipping 10.5 basis points to an 18-month low of 473, according to JPMorgan. The Markit iTraxx Europe Index of 125 companies with investment-grade ratings fell 1.5 basis points to 79.25. The Markit iTraxx Financial Index of 25 banks and insurers decreased 2 to 77.5 and the subordinated debt index dropped 3 to 143, JPMorgan prices show. Default swaps on Greek government debt rose 8 basis points to 207.5, CMA prices show. The contracts fell at the end of last week after soaring to a nine-month high on concern the nation would have its credit rating cut because of rising debt. Credit-default swaps pay the buyer face value in exchange for the underlying securities or the cash equivalent should a country or company fail to adhere to its debt agreements. A basis point on a contract protecting 10 million euros ($14.7 million) of debt from default for five years is equivalent to 1,000 euros a year. To contact the reporter on this story: Sarah McDonald in Sydney at smcdonald23@bloomberg.net Shelley Smith in Hong Kong at ssmith118@bloomberg.net

Read the full article →

← Previous Entries