JLN Interest Rates

May 20, 2013: U.S. Bonds Cheapest Since ’90 Versus Bunds Counter Buffett

Jeff Bergstrom — Mon, 20 May 2013 14:09:29 +0000

Lead Stories

U.S. Bonds Cheapest Since ’90 Versus Bunds Counter Buffett
Bloomberg
The longest decline in Treasuries this year has left U.S. government debt the cheapest since March 2011 when measured by real yields and the best relative value compared with German bunds in more than two decades.
http://jlne.ws/10hbujS

Why QE, low interest rates and volatility are an explosive mix for the markets
Simone Foxman, Quartz
Critics of quantitative easing (QE)—whereby central banks push down interest rates and buy up safe assets to stimulate flagging economies—have long worried about the possible unintended consequences. The point of QE is to push down the yields on safe assets like government bonds so that investors put their money in riskier assets where it can do more economic work; the worry is that too much money in risky assets could blow up in investors’ faces.
http://jlne.ws/14pd5EC

The Fed: Firefighter or Arsonist?
U.S. News
Since the financial meltdown in 2008, the Federal Reserve’s range of powers have expanded, as have the kinds of financial institutions it monitors and regulates.
http://jlne.ws/10hdpVC

Ebbing Deficit Likely to Keep Rates Low When Fed Tapers
Bloomberg
Federal Reserve policy makers say they want to avoid a sudden increase in interest rates when the time comes to start unwinding record monetary easing. A shrinking federal budget deficit is likely to help them meet that goal.
http://jlne.ws/10hcmoK

$2.6 Trillion In Money Markets May Slow Interest Rate Increase
Seeking Alpha
One of the big fears investors have is what will happen to the stock markets when interest rates begin to increase. That is a legitimate fear, but there are factors that may slow and/or lessen the eventual increase in interest rates that may provide a buffer for the stock market.
http://jlne.ws/10hcTaj

JPMorgan, Barclays Boost Forecasts on Junk-Bond Returns for 2013
Bloomberg
JPMorgan Chase & Co. (JPM) and Barclays Plc are lifting their forecasts for U.S. junk-bond returns as this year’s rally exceeds the expectations of top-rated credit strategists.
http://jlne.ws/10hbyjQ

Gross to Buffett Omens Disregarded as Sales Soar: Credit Markets
Bloomberg
Sales of corporate bonds in the U.S. are surging toward the busiest May ever as borrowers race to the market before demand dries up with Bill Gross and Warren Buffett cautioning against buying debt at all-time low yields.
http://jlne.ws/10hbTmq

The Too Big To Fail: Federal Reserve Bank At 100 Years Of Age
Forbes
As the markets reach new highs, and scandal dominates the nation’s capitol, I am compelled to
examine the still unresolved challenges about whether our 100 year old central bank– the Federal Reserve– will be capable of warding off another potential systemic financial crisis like the one that almost toppled the economy in 2008.
http://jlne.ws/10hdtov

Instead of Low Rates, Let’s Have Bigger Deficits
Bloomberg
Ben Bernanke, the chairman of the Federal Reserve, recently expressed concern that investors were taking too much risk. To some investors, this was heavy with irony — most of the risk-taking can be attributed to the policies that Bernanke has pursued during his tenure.
http://jlne.ws/10hd9pS

Fed’s Fisher wants to slow pace of MBS purchases
MarketWatch
The Federal Reserve can only slow the pace of its mortgage-backed securities, as a sudden stop would be “too violent” for the market, said Richard Fisher, the president of the Dallas Federal Reserve Bank on Monday.
http://jlne.ws/10hdyIM

Economic News

US economy has improved ‘quite a lot’: Chicago Fed
LiveMint
Federal Reserve Bank of Chicago president Charles Evans said the US economy has improved “quite a lot” as the central bank maintains record stimulus.
http://jlne.ws/10hdDvZ

U.S. 10-Year Yield at Almost 2-Month High Before Bernanke Talk
Bloomberg
Treasury 10-year note yields traded at almost a two-month high before Federal Reserve Chairman Ben S. Bernanke discusses the economic outlook in congressional testimony this week.
http://jlne.ws/10hbpge

Regulators

CFTC Said to Review 1 Million E-Mails in ISDAfix Investigation
Bloomberg
Commodity Futures Trading Commission investigators are poring over 1 million e-mails and instant messages as part of their price-manipulation probe of a swaps benchmark that helps determine interest rates on everything from annuities to bonds linked to skyscrapers.
http://jlne.ws/10hc2X9

Default Swaps on Junior Bank Debt Fall on ISDA Rule Speculation
Bloomberg
The cost of credit-default swaps insuring subordinated European bank debt fell to the lowest in three years amid speculation changes to rules governing the securities will devalue existing contracts.
http://jlne.ws/10hcyUX

Global News

Amari Says Further Slide in Yen May Have Negative Effects
Bloomberg
Japan’s Economy Minister Akira Amari said a further slide in the yen would have negative effects after the currency’s 21 percent drop in the past six months, and signaled concern at the prospect of higher bond yields.
http://jlne.ws/10hcc0N

Brazil Swap Rates Rise on Tombini Inflation Stance; Real Slips
Bloomberg
Brazil’s swap rates rose, reversing an earlier drop, as speculation the central bank will step up the pace of borrowing-cost increases overshadowed a report showing analysts reduced their 2013 growth forecasts.
http://jlne.ws/10hcjt5

Aust bond prices lower
The West Australian
Australian bond futures are lower in the wake of improved US confidence data late last week, but spent the local session trading in a narrow range.
http://jlne.ws/10hbbWv

Italian Bonds Rise for Fourth Day as Industrial Orders Increase
Bloomberg
Italy’s bonds rose for a fourth day as a government report showed the nation’s industrial orders increased more than economists predicted, adding to optimism the region’s economy is recovering.
http://jlne.ws/10hcu7V

May 17, 2013: Fed has not lowered interest rates enough: Kocherlakota

Jeff Bergstrom — Fri, 17 May 2013 14:13:51 +0000

Lead Stories

Fed has not lowered interest rates enough: Kocherlakota
Reuters
The Federal Reserve has not done enough to lower U.S. borrowing costs to boost economic growth, a top Fed official said on Friday, citing his outlook for overly low inflation and overly high unemployment over the next two to three years.
http://jlne.ws/112i9Kb

QE Reduced This Summer
Inside Futures
Futures are higher in spite of the second strong hint from the Federal Reserve in less than a week that there could be an earlier than expected scaling back of the Federal Reserve’s quantitative easing program.
http://jlne.ws/112hxV0

Bank of America and Friends Win Big
The Motley Fool
Shortly after the bell, Bank of America is on track to regain the 1% it lost yesterday. Though it does appear that the bank may be moving along with the market, there is one big headline that might be swaying the bank’s investors toward the positive end of the spectrum.
http://jlne.ws/112hzfB

Euro Eyes Fresh 2013 Low on ECB Policy- Pound Rebound on Tap
Inside Futures
The Euro slipped to 1.2830 as European Central Bank (ECB) board member Benoit Coeure reiterated that the Governing Council is ‘exploring options to further strengthen lending to the real economy and, in particular, to small and medium-sized enterprises,’ and it seems as though the central bank will continue to embark on its easing cycle over the coming months as the region struggles to return to growth.
http://jlne.ws/112hJ6F

Asmussen Says Long Phase of Low Interest Rates Carries Risks
Bloomberg
European Central Bank Executive Board member Joerg Asmussen said policy makers should be aware of the risks related to keeping interest rates low for an extended period of time.
http://jlne.ws/112ie0H

Profits are up, but low interest rates put pressure on banks
St. Louis Post-Dispatch
After some dismal performances during the economic downturn, most local banks are growing profits again.
The more than 80 locally chartered retail banks and thrifts in the St. Louis region reported $77.2 million in profits in the first quarter that ended March 31, up from a $60.6 million profit in the first quarter of 2012, according to a summary of bank performances by the Federal Reserve Bank of St. Louis released this week.
http://jlne.ws/112ifSc

How bond investors can avoid becoming losers
MarketWatch
The 10-year Treasury has recently been yielding between 1.5% and 2%. Short-term Treasury interest rates are near zero. Even if inflation stays at 2% over the next decade (the informal target of the Federal Reserve), government bonds will provide negative real (after inflation) rates of return.
http://jlne.ws/112iE78

Federal Reserve Cites Bank of Montreal Branch for Money-Laundering Deficiencies
Dow Jones Newswires (via Fox Business)
U.S. regulators Friday ordered Bank of Montreal (BMO, BMO.T) to strengthen its anti-money-laundering programs, citing deficiencies in its U.S. subsidiary’s efforts at risk management and compliance with the Bank Secrecy Act.
http://jlne.ws/112j9y9

Banks lift FTSE to 5.5-year highs
Alistair Smout, Reuters
The FTSE top share index hit fresh five and a half year highs on Friday, as banks were buoyed by an upgrade, the prospect of the end of state ownership in the sector and rotation out of defensive stocks.
http://jlne.ws/12HoKwL

Economic News

Federal Reserve: rising inequality jeopardizes economic recovery
RT
A top ranking member of the United States Federal Reserve cautioned economists this week that growing inequality within the US was worsening the odds of a quick return to the conditions of the pre-recession days.
http://jlne.ws/112j3q4

Exchanges, Clearing Houses & MTFs

ICE Clear Europe Named 2013 Clearing House of the Year by Energy Risk Magazine
Press Release (ICE)
IntercontinentalExchange (NYSE: ICE), a leading operator of global markets and clearing houses, announced today that ICE Clear Europe has been named Clearing House of the Year for 2013 by Energy Risk magazine.
http://jlne.ws/YOhcZy

Regulators

CFTC Approves SEF Rules and Swaps Block Rule
CFTC Law
On Thursday the CFTC approved the Swaps Block Rule, the Made Available to Trade Rule, the SEF rules, and the Interpretive Guidance and Policy Statement on Disruptive Practices.
http://jlne.ws/112hEzQ

Big Banks Losing Grip on Derivatives
Bloomberg
Unless you’re employed by a derivatives trading desk at a large bank, here’s some good news: The derivatives cabal is slowly but surely headed for a break-up.
http://jlne.ws/112hQPu

Global News

EURO GOVT-ECB rate cut talk lifts Bunds to one-week high
Reuters
German Bunds hit one-week highs on Friday, with traders citing talk the European Central Bank was checking with some banks whether they were ready for a potential cut in its deposit rate to below zero.
http://jlne.ws/112i0Xi

Brazil central bank pledges to bring down inflation this year
Reuters
Brazil’s central bank chief Alexandre Tombini on Thursday pledged to bring inflation lower this year and next, suggesting a more aggressive monetary tightening stance that sent interest rate futures rallying.
http://jlne.ws/184oVp8

Aust bonds prices move higher
The West Australian
Australian bond futures prices are higher after disappointing US economic data saw Treasury yields fall.
http://jlne.ws/112hSXH

Interest rates hit historic low following Central Bank decision
The Journal of Turkish Weekly
Turkey’s bond yield faced a fall to its historical low in response to central Bank’s decision to cut all three of its main interest rates by 50 basis points yesterday in an attempt to stimulate the faltering economy and guard against lira appreciation.
http://jlne.ws/112irRg

Mexico Grows Less Than Forecast Reinforcing Rate Cut Outlook
BloombergBusinessweek
Mexico’s economy grew less than analysts expected in the first quarter, fueling bets policy makers will cut interest rates again this year.
http://jlne.ws/112iz3e

JLN Interest Rates Newsletter May 16, 2013

Sarah Rudolph — Thu, 16 May 2013 14:24:20 +0000

Conversation Starter

Today’s ugly data raises questions about strength of U.S. economy
Reuters (via Financial Post)
The U.S. economy showed worrisome signs as jobless claims rose sharply last week while ground-breaking at home construction sites tumbled in April and a gauge of underlying inflation pointed to weak demand.
http://jlne.ws/184qAew

*There is some good news buried amidst the bad news — SR

The Fed Is Failing On Both Parts Of Its Dual Mandate
Huffington Post
When it comes to monetary policy, the Federal Reserve has just two jobs, and it’s failing at both of them.
The Fed has a dual mandate to promote maximum employment and to keep prices stable.
http://jlne.ws/11I9AvB

*HuffPo puts in its two cents — SR

Lead Stories

Broker Fired in Rate-Rigging Probe
The Wall Street Journal
R.P. Martin Holdings Ltd. fired a broker and suspended two top executives amid continuing scrutiny of the securities firm’s role in alleged interest-rate manipulation, according to a person familiar with the move.
http://jlne.ws/12EH9tW

Libor in a barrel
The Economist
IT IS a lesson of the past five years that benchmarks in unregulated markets can fall victim to the incentives they create. Subprime mortgages bundled into securities often won high scores from ratings agencies that stood to profit in a busy market. The London Interbank Offered Rate, LIBOR, was sometimes underestimated by banks which were cast in a healthier light by lower interest rates. Has something similar been going on in energy?
http://jlne.ws/184pY8K

T-Note Yields Near 2%, But Will Fed Budge?
IndexUniverse
Yields on 10-year Treasury notes have spiked in the past few weeks, nearing 2 percent, in what likely reflects changing investor sentiment about the Federal Reserve’s plans when it comes to interest rates.
http://jlne.ws/11I8H6s

Fed’s Plosser: Start Tapering Asset Buys in June
Reuters (via CNBC)
The Federal Reserve should reduce asset purchases from next month given the economy’s brighter prospects, a senior official of the central bank said Thursday.
“Things are better enough for the Fed to slow the pace of purchasing, if we are really serious about the fact that (the purchase program) is scalable,” Philadelphia Fed President Charles Plosser said.
http://jlne.ws/11I9sw9

Fed hawks push for move away from housing-linked stimulus
Reuters (via Fox Business)
A trio of hawkish regional Federal Reserve officials are calling for the U.S. central bank to stop buying mortgage-backed bonds, citing recent improvement in the housing market.
http://jlne.ws/11IacS3

HILSENRATH: The Fed Isn’t Worried About Low Inflation
Business Insider
Whenever the WSJ’s Jon Hilsenrath speaks, everyone in the market listens.
Hilsenrath is out with a new blog post on WSJ.com this afternoon aimed at one of the hottest topics surrounding Federal Reserve policy right now: persistently low inflation, which could keep the Federal Reserve from tapering monetary stimulus anytime soon.
http://jlne.ws/11IaAzW

BOND REPORT: Treasurys Push Higher On Weak Data
Dow Jones Newswires (via Fox Business)
Thursday’s weak economic reports on jobs, housing, inflation, and manufacturing follow disappointing producer-prices data Wednesday, raising questions about the pace of economic growth.
http://jlne.ws/11IaY1i

Eurex to relaunch Euribor
FOW
In a surprise move, FOW understands that Eurex is close to a relaunch of the Euribor contract, the highly liquid three-month STIR contract, following the implementation of its new trading architecture which enables new functionality including the spread matrix.
http://jlne.ws/10Xrsek

Trading Technologies to Connect to NASDAQ OMX’s New NLX Exchange
Press Release (TT)
Trading Technologies International, Inc. (TT) announced today that TT will connect its X_TRADER platform and related products to NASDAQ OMX NLX (NLX), a new London-based derivatives trading market.
NLX will initially list European short-term interest rate (STIR) and long-term interest rate (LTIR) euro- and sterling-based futures products. All instruments will clear through LCH.Clearnet,providing optimal initial margin efficiencies for market participants who will have the unique ability to portfolio margin both STIRs and LTIRs in a single clearing house.
http://jlne.ws/14310ok

Bernanke should banish the babbling barons of bubbleism: Paul Krugman
Penn Live
Bubbles can be bad for your financial health — and bad for the health of the economy, too. The dot-com bubble of the late 1990s left behind many vacant buildings and many more failed dreams. When the housing bubble of the next decade burst, the result was the greatest economic crisis since the 1930s — a crisis from which we have yet to emerge.
http://jlne.ws/13mhxkC

Eris Exchange Announces A Single Day Trading Volume Record
Press Release (via Herald Online)
Eris Exchange, a US-based futures exchange offering swap futures as a capital-efficient alternative to traditional OTC interest rate swaps, today announced that on May 10, 2013, market participants traded a record $1.27 billion in notional value. The volume record is equivalent to 12,700 contracts, adjusting for the impending contract size change to $100,000 notional. This change will take effect June 3, 2013, pending all relevant CFTC regulatory review periods.
http://jlne.ws/13md94Z

U.S. stocks extend record run, euro slips on data
Reuters
U.S. stocks scaled record highs on Wednesday as weak data reinforced expectations that stimulative central bank policies would continue, while evidence that Europe was stuck in recession pushed the euro to a six-week low against the dollar.
http://jlne.ws/13me5Gy

European Stocks Climb
The Wall Street Journal
European stock markets climbed to multiyear highs, as weak growth reports from the euro zone raised hopes the European Central Bank would consider more measures to help boost the sluggish economy.
http://jlne.ws/10YiRYZ

World’s central banks rush to cut rates, but China stands firm
Live Trading News
While central banks worldwide have cut rates and weakened their currencies in response to the plummeting Japanese Yen, China has stood firm, confident that its economy, the world’s 2nd biggest, can withstand current global weakness, a leading economist says.
http://jlne.ws/13mfaOt

Rising rates may increase risk in bond market
San Diego Source
A warning last week by Ben Bernanke to Wall Street firms to not “reach for yield” also has a message for individual investors.
The chairman of the Federal Reserve Board was addressing a tendency by some firms to take on excessive forms of risk in order to raise the yields offered on certain investments, as investors search for higher rates of return in a near-zero-interest-rate environment.
http://jlne.ws/13mfJrE

Board of Governors of the Federal Reserve System : Federal Reserve offers 28-day term deposits with full allotment at 26 basis points through its Term Deposit Facility
Press Release (via 4-Traders)
On May 20, 2013, the Federal Reserve will conduct a fixed-rate offering of term deposits with full allotment of tenders through its Term Deposit Facility (TDF). The Federal Reserve will offer 28-day term deposits with an interest rate of 0.26000 percent and a maximum tender amount of $1,250,000,000.
http://jlne.ws/13mhV2v

Volcker: Government Makes Up 35% Of GDP, Mortgage Markets Are Now A State ‘Subsidiary’
Forbes
Former Fed Chairman Paul Volcker warned of the risks of an asset bubble forming given the incredible amount of liquidity the Bernanke Fed has injected into the market, even though he said banks are substantially stronger than before the crisis on Wednesday. Volcker also indicated that in the U.S. government makes up about 35% of GDP and that the financing of the residential mortgage market by the state has led to a dysfunctional financial system.
http://jlne.ws/13micSR

BOND REPORT: Treasurys Snap Losing Streak On Weak Data
Dow Jones Newswires (via Fox Business)
Weak global economic data Wednesday prompted investors to bid up Treasurys, helping the safe-haven debt close out the day with its first gains in a week.
http://jlne.ws/13mipFH

The Fed’s #1 Assumption About QE Relies On A Misunderstanding Of Basic Portfolio Management
Business Insider
For several years now, the Federal Reserve has been buying up Treasury bonds in an attempt to boost the economy with monetary stimulus.
One big channel through which this quantitative easing (central bank bond buying) is supposed to work is known as the “portfolio rebalancing channel,” and the idea is that as central banks draw supply out of government bond markets and bond yields fall, investors will sell their bonds and rebalance their portfolios by investing in riskier assets, like stocks.
http://jlne.ws/13miARy

Banks Rush to Ease Supply of Money
Wall Street Journal
Israel Is Latest to Cut Interest Rates in Pursuit of Faster Growth, Weaker Currency to Spur Exports
Joining a recent wave of global central bank easing, the Bank of Israel cut its benchmark interest rate Monday in a surprising move aimed at relieving upward pressure on the country’s currency.
http://jlne.ws/180axhL

Futures Waver Amid Continued QE Tapering Talk
Fox Business
U.S. stock-index futures bounced between gains and losses on Tuesday after a key Fed official reiterated his stance that the central bank should begin slowing down asset purchases as early as June.
http://jlne.ws/18IY2Ze

ICAP defends role in setting benchmark rate
Financial Times
ICAP, the world’s largest interdealer broker, on Tuesday defended its role at the centre of a widely-used global derivatives benchmark being examined by US regulators for potential manipulation.
http://jlne.ws/12sLp0W

Barclays’ LIBOR Case Dismissed
Zack’s
Barclays PLC won the dismissal of the U.S. lawsuit filed against it by the stockholders. The shareholders accused Barclays of indulging in activities which resulted in loss of money for them.
http://jlne.ws/18IZ879

Bankers: Low interest rates are our biggest challenge
Puget Sound Business Journal
Banks are projecting slow loan growth, with low net interest margins the biggest challenge they will face in the next year.
http://jlne.ws/18IZvyJ

U.S. borrowers deserve protection from Libor
USA Today
In the wake of the financial crisis caused in large part by the reckless behavior of banks, we have wrestled with institutions that are “too big to fail” and “too big to jail.”
http://jlne.ws/1808ASz

Fiscal consolidation, American style
The Economist
“If the current laws that govern federal taxes and spending do not change, the budget deficit will shrink this year to $642 billion, the Congressional Budget Office (CBO) estimates, the smallest shortfall since 2008. Relative to the size of the economy, the deficit this year—at 4.0 percent of gross domestic product (GDP)—will be less than half as large as the shortfall in 2009, which was 10.1 percent of GDP.”
http://jlne.ws/1808ZEl

Alternative TIPS ETFs To Hedge Against Inflation
ETF Trends
Treasury Inflation-Protected Securities help investors hedge against the risks of diminished purchasing power although easy monetary policies by central banks have yet to stoke runaway inflation. If interest rates rise, investors would do better with global and short-term TIPS related exchange traded funds.
http://jlne.ws/18094Id

How Long Will Fed Chief Bernanke Lead Federal Reserve?
NPR
Ben Bernanke has been Federal Reserve chairman for some of the most tumultuous years in the Fed’s 100-year history. His second, four-year term expires in January. Steve Inskeep talks to David Wessel of The Wall Street Journal about who might succeed Bernanke, and what challenges the new Fed chief might face.
http://jlne.ws/1809a2D

Investors Scour WSJ Stories for Clues on Fed Policy
Fox Business
When Wall Street traders want the latest insight on what’s going on inside Ben Bernanke’s mind, they are increasingly turning to Jon Hilsenrath.
http://jlne.ws/1809f6o

Federal Reserve says it is broadening financial monitoring
CPA Practice Advisor
The Federal Reserve has broadened its oversight beyond banks and now monitors a wide-range of financial institutions that could hasten another financial crisis, Chairman Ben Bernanke said Friday.
http://jlne.ws/1809jD6

US Fed And Treasury To Investigate Bloomberg News Over Possible Privacy Breach Following Revelation That Its Reporters Accessed Confidential Client Data
International Business Times
Bloomberg L.P. is under fire after admitting Friday that it has long allowed its news reporters to access certain account information of the clients of its financial-analysis service.
http://jlne.ws/14i6ZVU

Wheatley Seeks Dual-Track Libor as Gensler Says Replace Rate
Bloomberg
Martin Wheatley, the head of the U.K. markets regulator, said the London interbank offered rate should eventually be replaced with a transaction-based benchmark using a dual-track system.
http://jlne.ws/14i3ZJg

Barnier Plans EU Benchmark Law That Won’t Ban Libor-Style Rates
BloombergBusinessweek
The European Union will propose tougher regulation of interbank lending rates, without banning tarnished benchmarks such as Libor that are based on estimates rather than real transaction data.
http://jlne.ws/14i4fYz

Here’s How Determining The Cost Of Borrowing Might Be Done In A Post-Libor Era
International Business Times
Three major banks have already shelled out nearly $2.6 billion in penalties related to fixing the key London interbank lending rate, known as Libor, and calls to scrap the system altogether have been getting louder ever since the Libor rate-fixing scandal erupted last summer.
http://jlne.ws/14i46UW

Treasury Yields Rise as S&P 500 Trades Little Changed
Bloomberg
Ten-year Treasury yields reached the highest level since March as retail sales unexpectedly rose, while the Standard & Poor’s 500 Index was little changed at a record level. The dollar rallied and oil fell for a third day.
http://jlne.ws/14i4kLK

This stocks vs. Treasury chart shows how QE throws bond prices for a loop
MarketWatch
Treasury prices were down Monday after the release of stronger-than-expected retail sales growth data. Stocks also spent much of the session lower on the potential news that the Federal Reserve could continue to taper its asset purchases.
http://jlne.ws/14i4Ide

Low Interest Rates in the USA Are Fueling Foreign Investments?
ValueWalk
Emerging FDI appears to be increasing. Thailand, Indonesia, Malaysia, and now India are seeing increasing investments from the United States as investors take advantage of low interest rates to raise capital for investment. In India local investors are selling off stocks in favor of property and gold, but a flood of money from the United States is helping to stave off a major decline in local stock markets. What does this mean for Asia? And perhaps more importantly, what does this mean for the United States?
http://jlne.ws/14i59EB

Here’s what the Fed is trying to ever-so-gently tell financial markets
Quartz
Here’s what the Fed wants markets to know: If and when it starts to change direction, interest rates won’t be on a one-way trip to the moon. That’s the takeaway from the Wall Street Journal’s Jon Hilsenrath, who reports on the plans the Fed is laying for bringing its current super-easy monetary policy to a close:
http://jlne.ws/14i5CXl

Ben Bernanke Collection Shows Fed Chairman’s Train of Thought
RollCall
…If he does leave the Fed, many — including this reporter — will surely hope that Bernanke pens a memoir detailing his sleepless nights to keep the financial system from unraveling in the fall of 2008.
But if he chooses not to, his book “The Federal Reserve and the Financial Crisis,” recently published by Princeton University Press, would be a fitting substitute.
http://jlne.ws/14i61sJ

Top Fed contender Yellen faces QE test
MarketWatch
The next chief of the Federal Reserve will decide when to reverse the easy-money policies of Ben Bernanke, a judgment that could strangle the economic recovery if made too early or trigger runaway inflation if made too late.
http://jlne.ws/14i6xXC

Federal Reserve Plans To End Quantitative Easing
ValueWalk
Federal Reserve policymakers have prepared a strategy to wrap up the $85 billion asset purchasing program, reports Jon Hilsnerath of the Wall Street Journal. The Fed officials plan to wind down the amount of bond purchasing in a careful and step-by-step manner depending on the job market and inflation. However, officials haven’t yet decided the timing to start the winding down process.
http://jlne.ws/14i6Y4j

Germany’s Finance Minister Warns of ‘Critical Problems’ From Stimulus
The Wall Street Journal
German Finance Minister Wolfgang Schäuble on Thursday said the wave of stimulus provided by central banks around the world is causing “critical problems,” as it may prompt investors to make bad decisions.
http://jlne.ws/14ba2z3

Fed in 2008 Showed Panic of 1907 Was Excessive: Cutting Research
BloombergBusinessweek
The Federal Reserve has learned how to lessen economic slumps as it turns 100 years old.
An analysis by San Francisco Fed economists Early Elias and Oscar Jorda found that if there had been a central bank during the financial panic of 1907 to lower interest rates as much as the Fed did during the 2008 turmoil, the U.S. economy would have contracted two percentage points less than it actually did.
http://jlne.ws/10gF7kY

US Federal Reserve boosts ‘too big too fail’ oversight: Ben Bernanke
Economic Times
Federal Reserve Chairman Ben Bernanke on Friday said the central bank is stepping up its monitoring of “too big too fail” companies and other risks to financial stability.
http://jlne.ws/10gFfAX

Martin Feldstein: The Federal Reserve’s Policy Dead End
The Wall Street Journal
The Federal Reserve recently announced that it will increase or decrease the size of its monthly bond-buying program in response to changing economic conditions. This amounts to a policy of fine-tuning its quantitative-easing program, a puzzling strategy since the evidence suggests that the program has done little to raise economic growth while saddling the Fed with an enormous balance sheet.
http://jlne.ws/15wSoul

US Bonds Slip Late as Dollar Jumps vs Yen
Reuters (via CNBC)
U.S. Treasury debt prices dipped slightly on Thursday, easing late after the dollar jumped to a four-year high against the Japanese yen, breaking through the key 100-yen mark and spurring selling in longer-dated government debt.
http://jlne.ws/10gFsnI

Bernanke: Fed keeping close watch for another financial bubble
NBC News
Four years after the worst financial collapse in three generations, lawmakers and bank regulators still have a lot of work to do to prevent it from happening again, according to Fed chairman Ben Bernanke.
http://jlne.ws/10gFxb0

Most U.S. Stocks Advance as Investors Consider Pace of Stimulus
The Washington Post
Most U.S. stocks advanced, with the Standard & Poor’s 500 Index poised for a third straight week of gains, as investors weighed the pace of central bank stimulus.
http://jlne.ws/199hfRa

Bill Gross Has Significantly Boosted His Bet On US Treasuries
Business Insider
PIMCO Total Return Fund, the world’s largest bond fund, increased its U.S. Treasuries holdings to the highest in over a year in April, data from the firm’s website showed on Thursday.
http://jlne.ws/199jXX1

Lowest mortgage rates in history are a golden opportunity — for those who are employed and solvent
Chicago Tribune
It’s difficult to believe that mortgage interest rates are now officially at the lowest point in history.
Or, at least, the lowest point in history as defined by the Freddie Mac, which has been keeping track of 15-year fixed-rate mortgages since 1991.
http://jlne.ws/199lBaU

Low Rates Will Limit Investors’ Options
U.S. News
Let me paint a picture of our current economic situation. Interest rates are at historic lows and will likely be there for a while. The Federal Reserve has indicated the rates are likely to stay low through 2015 or longer.
http://jlne.ws/199lLis

Bernanke, Blower of Bubbles?
The New York Times
Bubbles can be bad for your financial health — and bad for the health of the economy, too. The dot-com bubble of the late 1990s left behind many vacant buildings and many more failed dreams.
http://jlne.ws/10gEoQK

Time to prepare for a bear market in bonds
MSN Money
The U.S. stock market has obviously been making new highs as bond yields have been making new lows.
The big catalyst behind these good times, it could be argued, has been the nonstop purchase of assets by the U.S. Federal Reserve and its zero-percent interest rate policy.
http://jlne.ws/10gEAPT

Avoid The ‘Hunt For Yield,’ But Remember Treasury ETFs Are Priceless
Seeking Alpha
The low interest rate environment we face has made fixed income the most challenging asset class to manage. As a portfolio manager, I am faced with a dilemma. I can invest in high-quality fixed income and receive little to no income or dramatically increase risk to achieve some income.
http://jlne.ws/10gEMP4

Economic News

Capital markets: Record low borrowing rates lure corporations north
Financial Times
Brazil’s domestic bond markets have strengthened considerably in the past decade.
The country’s rapid growth has brought a new wave of companies, lenders and investors into local capital markets as its financing needs have risen sharply.
http://jlne.ws/10Bid3E

Boston Fed chief says budgets cuts, tax hikes hurting economy
The Boston Globe
Eric S. Rosengren, president of the Federal Reserve Bank of Boston, called on Congress and President Obama to delay efforts to lower the federal deficit, arguing that budget cuts and tax increases have slowed the economy and contributed to stubbornly high unemployment.
http://jlne.ws/11IamZF

Fed’s Raskin: Still Long Way From Feeling Like Healthy Economy
The Wall Street Journal
The U.S. economy continues to recover from the 2008 financial crisis and the deep recession that followed, but it still has a long way to go until it feels “like a healthy economy,” Federal Reserve governor Sarah Bloom Raskin said in a speech on Thursday.
http://jlne.ws/11IaLv9

Firms & Banks

Citigroup Spurned By Big Name Hedge Funds
The Motley Fool
Citigroup has been on a tear the past two days, rising 5% after hedge fund manager David Tepper spoke out about his confidence in stocks earlier in the week. Dubbed the “Tepper Rally,” the bull market following his comments, especially within the financial sector, really boosted Citigroup — which is Tepper’s largest holding in his Appaloosa Management fund.
http://jlne.ws/184q3Js

Regulators

Swaps market faces liquidity drain from unprepared buyside
Financial News
A large number of institutional investors remain unprepared for the next wave of US rules on derivatives clearing, according to two studies, which could lead to as much as $55 trillion worth of liquidity being drained from key markets.
http://jlne.ws/10uWyhE

Big Banks Get Break in Rules to Limit Risks
Dealbook
Under pressure from Wall Street lobbyists, federal regulators have agreed to soften a rule intended to rein in the banking industry’s domination of a risky market.
http://jlne.ws/184q93N

Dodd-Frank update: CFTC inter-affiliate swap clearing exemption
Lexology
On April 1, 2013, the U.S. Commodity Futures Trading Commission (“CFTC”) issued a final rule exempting swaps between certain affiliated entities from the clearing requirement under section 2(h)(1)(A) of the Commodity Exchange Act (“CEA”) and CFTC regulations (“Final Rule”).1 This alert outlines the rule and raises some questions as to its conditions and impact.
http://jlne.ws/199kEQ3

Global News

Bunds rally as data casts doubt over U.S. recovery
Reuters
German Bund futures jumped the most in six weeks on Thursday as weak data out of the United States cast doubt over the strength of the recovery in the world’s largest economy.
http://jlne.ws/184pdfG

Japan Bankers Chief: Rise in Interest Rates Is Process of Normalization
The Wall Street Journal
The head of Japan’s biggest banking lobby group said Thursday the recent rise in interest rates is a process of normalization that will eventually stabilize.
http://jlne.ws/10BkMmr

Weak Japanese yen not likely to move interest rates: central bank
The China Post
TAIPEI — Taiwan’s central bank is unlikely to adjust interest rates in the short term even in the face of a weakening Japanese yen, according to Australia and New Zealand Banking Group Ltd. (ANZ).
http://jlne.ws/11I8q3i

Turkey’s Central Bank Cuts Three Key Rates: Statement
Bloomberg
Turkey’s central bank published the following statement on its website today.
“The Monetary Policy Committee (the Committee) has decided to cut the short term interest rates as follows:
http://jlne.ws/11I83FT

Brazil central bank pledges to bring inflation down this year
Reuters
Brazil central bank chief Alexandre Tombini on Thursday pledged to bring inflation lower this year and next, suggesting a more aggressive monetary tightening stance that sent interest rate futures higher.
http://jlne.ws/184oVp8

Advice for Incoming BoC Governor: It’s Time to Start Raising Interest Rates
Epoch Times
OTTAWA—Incoming Bank of Canada governor Stephen Poloz is already getting advice on what to do once he takes charge next month—start hiking interest rates.
http://jlne.ws/184r5oG

Israel Bond Rises to Record on Rate Cut Bets and Shekel Gains
Bloomberg
Israel’s government bonds rose, pushing the yield down to a record, as inflation slowed and a surprise interest reduction spurred bets the central bank could follow with another rate cut.
http://jlne.ws/11I8ujv

Bond prices grind lower amid US optimism
Herald Sun
AUSTRALIAN bond futures prices are lower as the US dollar and Wall Street gained ground after a run of positive economic data from the world’s largest economy.
http://jlne.ws/13mdhkT

Japan Jolts Bond Market in the Wrong Direction
The Wall Street Journal
The Bank of Japan’s ambitious monetary-easing campaign has hit an early snag: Rising bond yields have emerged as a potential barrier to growth.
http://jlne.ws/105kngm

Weak yen unlikely to affect interest rates
Taipei Times
The central bank is unlikely to adjust interest rates in the short term even in the face of a weakening Japanese yen, the Australia and New Zealand Banking Group Ltd (ANZ) said yesterday in its latest weekly research note.
http://jlne.ws/13mj4XC

Now is the right time for interest rate reforms in China
South China Morning Post
Hu Shuli says reform of China’s money markets needs to take place very soon as a lack of progress has hampered nation’s economic system.
http://jlne.ws/13mfooW

Ruble Weakens on Declining Oil as Interest Rate Left Unchanged
Bloomberg
The ruble slumped for the first time in three days against the central bank’s target basket of currencies after Russian policy makers left interest rates unchanged and oil fell.
http://jlne.ws/13meWa5

RBI to cut interest rates in June, July after April WPI: BofA-ML
The Economic Times
Bank of America-Merrill Lynch expects the Reserve Bank of India to cut interest rates by 25 basis points on June 17, and then by another 25 bps in July – revising its prior expectation of a cut in October, according to a note on Wednesday.
http://jlne.ws/13mg0L8

Bank Bailout Blues Stall U.K. Recovery
The Wall Street Journal
LONDON—Five years after rescuing one of the world’s biggest banks, the British government still hasn’t figured out what to do with it—a sign of the country’s struggle to put its banking woes behind it.
http://jlne.ws/180al24

Euro Struggles as EU Meeting Disappoints- 1Q GDP in Focus
Inside Futures
The EURUSD is struggling to hold its ground ahead of the Euro-Zone’s 1Q GDP report as the EU meeting in Brussels disappoints.
http://jlne.ws/18IYV3S

Analysis: Japan government-bond selloff sparks fears of too much, too fast
Reuters
A three-day rout in the bond market has raised concerns that the Bank of Japan is getting more than it bargained for, by prodding investors to shift money out of the safety of government bonds faster than the government expected.
http://jlne.ws/18IYOWc

Bank of Israel Governor Cuts Interest Rate in Surprise Move
Algemeiner
Bank of Israel Governor Stanley Fischer made a surprise announcement on Monday that the central bank would cut the base interest rate by 0.25 percent to 1.5 percent.
http://jlne.ws/18IZCdG

Inflation falls; will interest rates follow?
LiveMint
New Delhi: India’s wholesale price inflation decelerated below the 5% mark for the first time in three-and-a-half years in April, stoking hopes that the central bank will respond with another interest rate cut when it undertakes a policy review next month.
http://jlne.ws/18088DJ

Brazil funds need to adapt to low rates, Mendes says
Reuters
Brazilian asset managers must adapt to low interest rates and a declining government debt burden, central bank director Aldo Mendes said on Tuesday in the latest call for financial markets to increase funding for fresh investment.
http://jlne.ws/1808VVl

ECB Member Central Bank Technically Prepared for Negative Interest Rates
Oanda
European Central Bank governing council member Ignazio Visco told CNBC that the central bank is “technically prepared” to introduce negative deposit rates which would see banks effectively having to pay the ECB to hold deposits, but was aware of the potential “unintended consequences” of such a move.
http://jlne.ws/14i55Ve

UK Interest Rate Expected to Rise This Summer, Says Currency Solutions
SBWire
Although UK interest rates are tipped to stay low as the Bank of England refrains from infusing the economy with more money and prevent a “triple-dip recession”, analysts are expecting to see an increase in the UK interest rate early this summer.
http://jlne.ws/14i5gQu

RBI doing its bit to ease interest rates, what about banks?
MoneyControl
Since April last year, the Reserve Bank of India has cut the benchmark repo rate by 125 basis points (1.25 percent), the cash reserve ratio by 75 basis points and the statutory liquidity ratio by 100 basis points.
http://jlne.ws/14i5neP

Bank of Israel Unexpectedly Cuts Lending Rate
Bloomberg
Israel’s central bank unexpectedly cut its benchmark interest rate to a three-year low and announced a program to purchase foreign currency to limit gains in the shekel. Israeli stocks and bonds rose.
http://jlne.ws/14i5vuN

Bunds tumble with U.S. bonds as dollar spurs selling
Reuters
German Bunds fell to their lowest in six weeks on Friday, tracking a sell-off in top-rated peers such as U.S. or Japanese bonds triggered by the dollar’s sharp rise against the yen.
http://jlne.ws/199gwj2

Bank of Korea cuts rates in surprise move as yen falls
Gulf News
South Korea’s central bank cut interest rates for the first time in seven months yesterday, in a surprise move aimed at helping to maximise the government’s stimulus efforts and ease pressure on exports from a strong won, especially against the yen.
http://jlne.ws/199gOq3

Bonds weaker after positive RBA statement
The Australian
AUSTRALIAN bond futures prices are lower after a positive statement from the central bank and on the back of big falls in the Australian and Japanese currencies.
http://jlne.ws/199jBQ8

INTERVIEW: Cut In Australian Interest Rates May Push Aussies Toward Gold –Economist
Forbes
The Reserve Bank of Australia surprised many by cutting the main interest rate 25 basis points to 2.75% this week, and the move might encourage Australian citizens to consider alternative investments, including gold, said the chief economist of a bullion dealer there.
http://jlne.ws/199lfkA

Nifty closes at 28-month high; ITC hits record
Reuters
The Nifty rose on Friday to its highest close since January 2011, as ITC rose to a record on expectations foreign investors will continue to scoop up domestic blue chips, while Maruti Suzuki surged after the yen slid against the dollar.
http://jlne.ws/199k8RX

May 16, 2013: Broker Fired in Rate-Rigging Probe

Jeff Bergstrom — Thu, 16 May 2013 13:59:22 +0000

Lead Stories

Economic News

Firms & Banks

Regulators

Global News

May 15, 2013: Eurex to relaunch Euribor

Jeff Bergstrom — Wed, 15 May 2013 13:44:59 +0000

Lead Stories

Global News

May 14, 2013: Banks Rush to Ease Supply of Money

Jeff Bergstrom — Tue, 14 May 2013 14:12:30 +0000

Lead Stories

Global News

May 13, 2013: US Fed And Treasury To Investigate Bloomberg News Over Possible Privacy Breach Following Revelation That Its Reporters Accessed Confidential Client Data

Jeff Bergstrom — Mon, 13 May 2013 14:03:37 +0000

Lead Stories

Global News

May 10, 2013: Germany’s Finance Minister Warns of ‘Critical Problems’ From Stimulus

Jeff Bergstrom — Fri, 10 May 2013 14:10:57 +0000

Lead Stories

Regulators

Global News

JLN Interest Rates Newsletter May 9, 2013

Sarah Rudolph — Thu, 09 May 2013 14:01:12 +0000

Conversation Starter

Raj Mahajan, Allston Trading CEO, Talks HFT and the Business of Prop Trading
MarketsWiki.tv

Raj Mahajan took the reins at Allston Trading as CEO in September 2012 and has spent a good deal of his time looking at the issue of high frequency trading (HFT). Allston has been one of the proprietary trading firms who has been willing to publicly discuss HFT, regulation and the future of that form of trading. Mahajan spoke with JLN’s editor-in-chief Jim Kharouf about HFT as well as the business challenges and opportunities for prop firms.

Watch the video »

Lead Stories

Are negative interest rates another ECB bluff?
Financial Times
Mario Draghi, the president of the European Central Bank, caused a stir in the currency markets last week when he said he had an “open mind” about imposing negative interest rates in a bid to encourage banks to lend. But just how likely is such a move – and what would be the long-term impact on the euro?
http://jlne.ws/YIs3X4

Why are hedge fund titans so upset about the stock market boom?
Neil Irwin, The Washington Post
We can argue all day long about whether quantitative easing policies from the world’s central banks are doing much to help the economy. But this much is for darn sure: It is boosting a wide range of financial markets…
So, why are some of the people who you would think would be the biggest beneficiaries of this strategy so angry about it?
http://jlne.ws/15t881u

Should Students Pay the Same Interest Rate as Goldman Sachs?
BloombergBusinessweek
You may have read about the growing student loan bubble or about the spike in interest rates due to arrive in July if Congress doesn’t intervene—the rate on federally subsidized Stafford loans will double from 3.4 percent to 6.8 percent. That will hit an estimated 7 million students.
http://jlne.ws/10lpUeh

Gundlach says yield-seekers at risk if interest rates rise: CNBC
Reuters (via Chicago Tribune)
Jeffrey Gundlach, star bond investor and the head of DoubleLine Capital LP, said on Thursday that investors who are fleeing bonds in favor of alternatives offering higher yields could suffer losses if interest rates rise.
http://jlne.ws/10lq1Xc

Dallas Fed’s Richard Fisher wants the Federal Reserve to taper its buying of mortgage-backed securities
The Dallas Morning News
The Federal Reserve’s monetary policy has not created more jobs because Congress has not provided clarity on tax policy, regulations, federal spending and other issues, Dallas Federal Reserve Bank president Richard Fisher said in an interview today on CNBC.
http://jlne.ws/10rEPZW

Don’t Worry! Fed QE No Big Concern: Blackstone CEO
CNBC
The Federal Reserve’s $3 trillion-plus balance sheet is not too big when compared with the entire banking system, Blackstone boss Steve Schwarzman told CNBC on Thursday. That’s why he’s not that concerned about the central bank’s massive bond-buying program, he said.
http://jlne.ws/10lrKfk

Research Review: Zero Lower Bound Interest Rates
Heritage Foundation
In monetary policy, zero is an important number. Nominal interbank interest rates cannot normally sink below zero—that would mean one bank was paying the other to borrow its money. This is known as “the zero lower bound.” For central banks such as the Fed, the zero lower bound is a constraint on their ability to affect markets by moving key interest rates. In addition, zero-bounded interest rates are, in theory, unresponsive to most macroeconomic changes.
http://jlne.ws/10lq7OD

Fed Admits Mistakes In Mortgage Settlement
Huffington Post
Some 96,000 borrowers who received checks to compensate them for wrongful foreclosures on their mortgages will be getting an additional check to correct for errors in the initial payment, the Federal Reserve announced Wednesday.
http://jlne.ws/10lrhJU

Defined-Maturity Bond ETFs For Higher Interest Rates
Seeking Alpha
Investors have been using bond exchange traded funds more but rising interest rates remain a threat to performance. In response, some providers offer certain ETFs that will temper interest rate risk.
http://jlne.ws/10lqEQu

Fed’s credibility tested as inflation drifts below target
Reuters
With the inflation rate about half of the Federal Reserve’s 2.0 percent target, the central bank is facing a major test and some experts wonder whether it will eventually need to ramp up its already aggressive bond buying program.
http://jlne.ws/10rFpaj

Weak Demand Backdrop Stokes Worries of Disinflation
FX Street
Over the past few months, the performance of U.S. economic indicators, including employment, retail sales and manufacturing, has slowed considerably from the level of activity we saw at the start of the year. This slowdown has not only heightened financial market awareness of the soft demand environment in which the U.S. economy continues to operate, but has intensified concerns over the deceleration that has been witnessed across a broad range of inflation indicators so far this year.
http://jlne.ws/10rFFWJ

Here’s What A New Gold Standard Could Look Like
Forbes
Just as there are many variations on democracy, there are also various–and legitimate–types of gold standards. The U.S. political system is absolutely unique. Canada’s system is a hybrid of ours and Britain’s. Britain’s is very different from that of France, which, in turn, is very different from Germany’s. And so it goes, all around the democratic world. Yet the bedrock of all of these countries’ systems is consent of the governed.
http://jlne.ws/10rFRFp

Euro’s Future – It Doesn’t Only Depend on Draghi
CNBC
The U.S. Federal Reserve and the European Central Bank (ECB) are faced with opposite policy problems that will exert a greater and greater influence over the forex market in the next several months.
http://jlne.ws/10rGeQu

University endowments trim holdings in US Treasuries
Financial Times
Some of the smartest money in America is getting out of US government debt.
Many university endowments have scaled back their holdings of Treasury securities from as much as 30 per cent in 2008-09 to zero in some cases, say people familiar with their investment strategies.
http://jlne.ws/ZIporB

Billionaire Batista’s Off-Book OGX Liabilities Revealed
Bloomberg
OGX Petroleo & Gas Participacoes SA (OGXP3), which has the worst-performing bonds in emerging markets this year, holds off-balance-sheet obligations tied to its sister-company that could swell liabilities by as much as 39 percent in the event of insolvency, according to Covenant Review.
http://jlne.ws/11TnZ2Y

Euro to slide back after April’s ascent versus dollar: Reuters poll
Reuters
The euro’s ascent in April against the dollar will not last, according to a Reuters poll of foreign exchange strategists who see the parlous state of Europe’s economies undermining the currency.
http://jlne.ws/11Tp0rQ

Libor scandal: Can we ever trust bankers again?
BBC News
As Britain awaits a major report by the Parliamentary Commission on Banking Standards, the BBC’s Business Production team, in partnership with the Open University, asks what went wrong with the system and can we ever trust bankers again?
http://jlne.ws/11TpkGT

How To Become A Billionaire In 25 To 50 Years
Forbes
I breezed through the tenth floor exhibition space at Sotheby’s, viewing auction lots for their upcoming sales of impressionist, modern and contemporary art. Anthony Grant, my cicerone, informed me that there are at least a hundred prospective buyers of iconic pieces that sell upwards of $25 million.
http://jlne.ws/11TpsX0

***SNAPSHOT – WORLD KEY OFFICIAL INTEREST RATES***
Reuters
http://jlne.ws/11TpEpk

Warren’s proposal: Offer college students the same interest rates as banks
The Raw Story
Sen. Elizabeth Warren (D-MA) introduced a bill on Wednesday that would give college students the same interest rates on their federal student loans as banks do when borrowing from the Federal Reserve.
http://jlne.ws/11TpNZG

The time has come for interest rates to rise
The Seattle Times
Seattle Times columnist Bruce Ramsey says rock-bottom interest rates can’t last, and it’s a good thing.
http://jlne.ws/11TpVsg

Gulliver’s fears about interest rate increases
Herald Scotland
THE chief executive of HSBC has warned the impact of rising interest rates on British borrowers is one of the remaining challenges to the banking sector.
http://jlne.ws/11TqceT

Americans Are Borrowing Again but Still Less Than Before Freeze
The Wall Street Journal
When the economy nose-dived several years ago, Lou Aaron found it impossible to get a bank loan, forcing him to use six different credit cards to keep his 1950s-style drive-in restaurant running.
http://jlne.ws/ZIsnAg

Viewpoint: Ben Bernanke, Enabler of America’s Fiscal Dysfunction
Time
Federal Reserve chairman Ben Bernanke doesn’t get much respect. PIMCO’s Bill Gross, who oversees some of the country’s biggest bond portfolios, has warned that Bernanke risks rousing inflationary dragons. NYU professor Nouriel Roubini, who correctly anticipated the 2008 financial crisis, has argued that Bernanke’s policies are failing to help the economy and are instead fueling a stock market bubble that will end in a financial crisis.
http://jlne.ws/10rEF4N

Dow Climbs Above 15,000 on Stimulus Optimism, Earnings
BloombergBusinessweek
U.S. stocks rose, sending the Dow Jones Industrial Average to its first close above 15,000, on optimism over global central bank stimulus and better-than- estimated corporate earnings.
http://jlne.ws/17Ke4QY

Australian Central Bank Cuts Key Rate to Historic Low
The New York Times
The Australian central bank dropped its key interest rate to a record-low 2.75 percent Tuesday, becoming the latest central bank in recent weeks to try to stimulate growth.
http://jlne.ws/17Kf1c5

ECB’s Asmussen warns about risks of low interest rates
Reuters (via Chicago Tribune)
European Central Bank Executive Board member Joerg Asmussen on Tuesday raised concern about keeping interest rates in the euro zone at low levels for too long, calling upon governments to stick to their reforms.
http://jlne.ws/17Kf8Vc

European Rescue Mission: Will ECB Cut Interest Rates Even Lower?
Wall Street Cheat Sheet
European Central Bank President Mario Draghi has announced the possibility of reduced interest rates for European banks, only a week after the central bank brought them to a record low. Markets responded, with the euro falling around a half percent against the dollar to $1.3063. European stocks were down slightly as well.
http://jlne.ws/17KfKtO

Path To Rising Interest Rates May Not Be In The Cards As Fed Pivots On Policy
Herald Online
RateWatch, a premier banking data and analytics service owned by TheStreet, Inc. (NASDAQ: TST) reported today that national averages generally remained unchanged at record-low levels. The Federal Reserve last Wednesday surprised economists by stating that it would “increase or reduce” monetary stimulus as needed. Since late 2008, the Federal Reserve has continued to keep the short-term federal funds rate at a range of zero to 0.25%.
http://jlne.ws/17KftXW

ETF Strategy For Rising Rates: Reduce Portfolio Duration
Investors Business Daily
In my last post, I highlighted sector rotation as a potential ETF strategy for a rising interest rate environment. This time, I’d like to focus on another common strategy for helping to protect a portfolio against rising rates: Reducing the duration, or interest rate risk, of a portfolio.
http://jlne.ws/17KfDP1

Did the Federal Reserve Just Signal More Monetary Policy?
Benzinga
The latest meeting by the Federal Reserve was quite significant regarding its monetary policy program, and many economists will now need to revise their analyses.
http://jlne.ws/17Kg63K

The Federal Reserve: Banks ‘Experienced Stronger Demand’ For Loans In April
Seeking Alpha
Well, I wouldn’t say I got the end of the balance sheet recession exactly right because I don’t think it’s completely over, but I think the gradual improvement is a sign that the dark days of no loan growth are moving behind us.
http://jlne.ws/17KgeA8

Buffett vs. Gross vs. Blankfein: For every bond bear there’s a bull
MarketWatch
Asked about the bond market Monday morning on CNBC, Berkshire Hathaway Chairman Warren Buffett might as well have held his nose when he called fixed income “a terrible investment right now.” With the Federal Reserve holding down yields via its bond-buy program, the “Oracle of Omaha” is far from the only one calling the bond market overpriced.
http://jlne.ws/13djzH4

Bond Choices for Rising Interest Rates
The Wall Street Journal
The competition is heating up in the market for exchange-traded funds that mature like bonds—and that is good news for investors worried that interest rates might rise.
http://jlne.ws/13diVt6

Warren Buffett: Federal Reserve Helped Stock Market Soar
Associated Press (via The Huffington Post)
Investor Warren Buffett said even though the stock market is soaring, prices appear reasonable, and stocks would be a better investment than bonds for most people.
http://jlne.ws/13djcfu

Everything You Think You Know About the Fed’s Exit Plan May Be Wrong
CNBC
Everyone knows that the Federal Reserve’s overnight interest rate targets will not rise before quantitative easing ends.
The exit strategy will be: QE first, rates later.
http://jlne.ws/13djtz0

‘Epithets’ and interest rate apartheid
RT
We live in an age of epithets, apartheid, racism, ethnic cleansing, discrimination, bigotry and hatred. Unlike previous times of hate, the boundaries are instituted via interest rate policies (not actual apartheid walls like Israel built recently).
http://jlne.ws/13dhGtY

Draghi Says ECB Ready to Cut Interest Rates Again If Needed
Bloomberg
European Central Bank President Mario Draghi said policy makers are ready to cut interest rates again if needed after reducing them to a record low last week.
http://jlne.ws/13dhNFX

GUNDLACH: Interest Rates Will Stay Low — The Economy Is Too Weak For The Fed To Ease Off The Gas Pedal
Business Insider
From WSJ, the latest rate call from bond god Jeff Gundlach, who says there’s no imminent prospect of US interest rates heading higher.
http://jlne.ws/13di1N9

When Will Interest Rates Head Up?
Kiplinger
The question on just about every bond investor’s mind is simply this: When will interest rates rise? With rates on most types of debt near record lows, it seems that rates have nowhere to go but up.
http://jlne.ws/13dilvx

Blankfein Sees Parallels to 1994 Interest-Rate Increases
BloombergBusinessweek
Goldman Sachs Group Inc. Chief Executive Officer Lloyd C. Blankfein warned that the interest- rate environment has parallels to 1994, when a sudden and sharp increase in rates caught many investors off-guard.
http://jlne.ws/15eYsHX

Bernanke Should Follow the Advice He Gave to Japan
The Wall Street Journal
In 2003, then Federal Reserve Governor Ben Bernanke urged the Japanese government to protect the Bank of Japan from capital losses on its massive holdings of domestic government bonds. In a speech to the Japan Society of Monetary Economics in Tokyo, he argued that “heated and unproductive debate” over the impact of capital losses on the BoJ’s balance sheet would interfere with the rational conduct of monetary policy.
http://jlne.ws/121Gtjj

Fed’s Lacker says U.S. economy to grow at 2 percent rate
Times Dispatch
The U.S. economy is likely to grow at around a 2 percent annual rate for the foreseeable future, and additional monetary stimulus by the Central Bank is likely to have little effect on that growth, the president of the Federal Reserve Bank of Richmond said today.
http://jlne.ws/11HKYOc

A Rate Cut in Europe, and a Hint of Limits
The New York Times
The European Central Bank cut its benchmark interest rate to a record low on Thursday. But its president, Mario Draghi, indicated that his promise last year to do “whatever it takes” to save the euro had limits.
http://jlne.ws/11HJCmI

ECB interest rate cut largely symbolic
The Globe and Mail
The European Central Bank has cut its benchmark interest rate for the first time in 10 months. But it’s a largely symbolic move that will have little effect on borrowing costs or lending practices, leaving troubling questions about the recession-battered euro zone’s ability to dig itself out of a deepening hole.
http://jlne.ws/11HKB6i

U.S. rate futures traders still see first Fed rate hike in 2015
Reuters
Traders of short-term U.S. interest rate futures continue to expect the Federal Reserve to hold rates near zero for two more years, even after a U.S. government report that employers added more jobs than expected in April.
http://jlne.ws/15eW3gp

‘Zero Percent Interest Rates Work’: Pro
CNBC
What’s happening in the stock market appears to be the product of monetary policy more than anything else, Columbia Management CEO Ted Truscott said Thursday.
http://jlne.ws/15eYhw7

Economic News

Markets Remain Buoyant As Records Tumble
NPR
Markets remained solid Wednesday, a day after a number of records were set as investors continued to pile into stocks following forecast-busting U.S. jobs figures. A number of the world’s major stock indexes are heading toward record levels, or were trading at all-time highs. On Wednesday, Germany’s DAX was headed for a peak, following another five-year high on Japan’s Nikkei.
http://jlne.ws/11ToKZK

US unemployment hits lowest rate in four years on strong April jobs figures
The Guardian
US unemployment hit a four-year low in April as the US job market bucked off fears of a spring freeze and added 165,000 new jobs, the Labor Department said Friday.
http://jlne.ws/11HL3BI

Strong US jobs report triggers stock market rally
Huffington Post
Stock markets rallied on Friday, with both the Dow and S&P hitting new highs, after an unexpectedly strong U.S. jobs report indicated the world’s largest economy is not slowing down, as some had feared.
http://jlne.ws/15eXKKK

Global News

Euro Dragged Down by Dovish ECB, Pound Traders Eye BoE Report
Inside Futures
Although ECB board member Joerg Asmussen warned of keeping the interest rate too low for too long, the ECB said ‘the monetary policy stance will remain accommodative for as long as needed’ as the euro-area is now expected to contract an annualized 0.4% in 2013.
http://jlne.ws/10loWPc

Bank of England Leaves Benchmark Interest Rate Unchanged
The New York Times
With the British economy showing feeble signs of resilience and a new central bank governor waiting in the wings, the Bank of England decided on Thursday to keep its benchmark interest rate and its economic stimulus program unchanged.
http://jlne.ws/10lpOmW

South Korea central bank cuts rates
GulfNews.com
Seoul: South Korea’s central bank cut interest rates for the first time in seven months on Thursday, in a surprise move aimed at helping to maximise the government’s stimulus efforts and ease pressure on exports from a strong won, especially against the yen.
http://jlne.ws/10lpbd7

Rates Reining in Aussie Seen Beating Kiwi Peashooter: Currencies
Bloomberg
Australia’s interest-rate cuts will prove more successful than New Zealand’s intervention in foreign-exchange markets at curbing gains that made their currencies the world’s best performers since 2008.
http://jlne.ws/10uAcyo

India cuts interest rates, says little room for more easing
Global Post
India’s central bank cut its benchmark interest rate by 25 basis points on Friday for the third time since January, as expected, as growth slows and inflation ebbs, but said there is little room to ease monetary policy further, disappointing markets.
http://jlne.ws/10lqGYS

Interest rates drop as Spain sells €4.5 billion
Big News Network
Spain beat its target for raising money in its latest bond auction in the latest sign that investors are confident the government can manage its finances and avoid a bailout.
http://jlne.ws/10lqYip

Norway’s central bank keeps key interest rate unchanged
NZweek
After reviewing the economic performance so far this year, the Norwegian central bank, Norges Bank, announced on Wednesday that it has decided to keep the current key interest rate of 1.5 percent unchanged.
http://jlne.ws/10lrbSt

Yen Teases Investors In Push Toward 100
The Wall Street Journal
Investors faced little resistance in their months-long campaign to push the Japanese currency within one yen of 100 to the dollar. Covering that last bit of ground is proving much harder.
http://jlne.ws/13ArkGi

Strong auction lifts Bunds, Portuguese yields drop
Reuters
A strong auction of German five-year bonds and reassurance from the European Central Bank that it is not a “toothless tiger” lifted Bund futures off three-week lows on Wednesday.
http://jlne.ws/11ToCtk

Poland Cuts Interest Rates to Record Amid Lack of Recovery
Bloomberg
Poland’s central bank cut its benchmark interest rate to a record low as the European Union’s largest eastern economy struggles with slowing growth.
http://jlne.ws/11TpxKo

Japan, Australia Stock Futures Rise as ECB Prepared to Cut Rates
Bloomberg
Japanese and Australia stock futures rose after the European Central Bank said it ready to cut interest rates again, adding to optimism that central banks around the world will continue to buoy the economic recovery.
http://jlne.ws/17KdCSS

Rates hit record low
The Sydney Morning Herald
Deep concern about the high Australian dollar has driven the Reserve Bank to cut its cash rate to the lowest level on record, a cut quickly passed on by all but one of the big banks.
http://jlne.ws/17Ke8QY

ECB easing bets keep Bunds underpinned
Reuters
German Bunds were little changed on Tuesday, with expectations the European Central Bank may ease policy further offsetting selling pressure from a pick-up in the U.S. labour market.
http://jlne.ws/17KeW8l

Ibovespa Advances as Brazilian Interest-Rate Outlook Boosts B2W
BloombergBusinessweek
The Ibovespa rallied to a one-week high as companies that depend on domestic demand gained amid speculation that policy makers will limit increases in Brazil’s target lending rate.
http://jlne.ws/17KdRxe

Mexican Government Securities Yields Fall at Weekly Auction
The Wall Street Journal
Yields on Mexican government securities fell to new lows at the central bank’s primary auction Tuesday amid continued demand from foreign investors for the debt.
http://jlne.ws/13tPlii

SURVEY: Brazil Prices May Ease, But Higher Interest Rates Seen Likely
Dow Jones Business News (via Basdaq)
Brazil’s 12-month inflation rate is likely to decelerate in April but will remain perilously close to the government-set limit for prices this year, making additional interest rate increases likely, according to economists.
http://jlne.ws/13dhT0g

Europe Stocks Rise to Highest Since 2008 on U.S. Payrolls
Bloomberg
European stocks advanced to the highest level since June 2008 as a report showed U.S. employment in April picked up more than forecast and the jobless rate unexpectedly dropped to a four-year low.
http://jlne.ws/15eXs6F

Rupee weakens as RBI policy disappoints; sentiment bearish
Reuters
The rupee weakened on Friday as the RBI disappointed markets with a hawkish tone in its annual monetary policy, despite delivering a widely expected 25 basis point rate cut.
http://jlne.ws/15eXQ54

Difficult to cut interest rates in spite of RBI move, say banks
IBN Live
Big banks say it will be difficult for them to pass on the benefit to customers even though the Reserve Bank of India (RBI) cut repo rate by 25 basis points on Friday even though the cash reserve ratio was left untouched. The banks say RBI’s move is not enough to cut interest rates for customers.
http://jlne.ws/11HKsQp

May 9, 2013: Are negative interest rates another ECB bluff?

Jeff Bergstrom — Thu, 09 May 2013 13:48:29 +0000