Lead Stories

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

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

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

Global News

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

Lead Stories

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

This is what it looks like when a rate cut surprises the markets
Quartz
Hardly anybody expected it, but Australia’s central bank—the Reserve Bank of Australia—cut interest rates Tuesday, dropping its benchmark cash rate to 2.75%. Bloomberg says only 8 of the 29 economists it surveyed expected the axe to fall at this meeting, even though it’s the seventh cut in the last 19 months.
http://jlne.ws/17KfUl8

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

Global News

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

Lead Stories

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

Buffett says low interest rates make long-term borrowing attractive but inflation will follow
The Associated Press (via The Republic)
Billionaire Warren Buffett says the current low interest rates continue to make long-term borrowing like 30-year mortgages attractive, but he expects significant inflation eventually.
http://jlne.ws/13diHSI

Euro Struggles Amid Deepening Recession- ECB to Buy More Time
Inside Futures
The EURUSD is struggling to maintain the rebound from the previous week as the fundamental outlook for the euro-area turns increasingly bleak.
http://jlne.ws/13dgwhY

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

Treasury 10-Year Yield Reaches Three-Week High Before Auctions
Bloomberg
Treasury 10-year note yields rose to a three-week high as the U.S. prepared to sell $72 billion of debt this week with the jobs market showing signs of recovery.
http://jlne.ws/13dh3As

‘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

ETF Strategy For Rising Rates: Reduce Portfolio Duration
Seeking Alpha
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/13dia39

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

Global News

Bunds stable as U.S. growth bets offset ECB effect
Reuters
German Bunds held stable on Monday, with bets that the U.S. economic recovery will regain momentum offseting support from expectations the European Central Bank may ease policy further.
http://jlne.ws/13dgExY

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

Lead Stories

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

Euro falls 1% after ECB cuts interest rates
MarketWatch
The euro fell more than 1% on Thursday after the European Central Bank cut its key interest rate by 25 basis points to 0.5%, on the back of weak economic data in the euro zone.
http://jlne.ws/15eYq2H

Economic News

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

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

Short-term euro rates fall on deposit rate cut bets
Reuters
Short-term euro money market rates fell on Thursday after European Central Bank President Mario Draghi said the bank was ready for a move to a negative deposit rate.
http://jlne.ws/15eXzyV

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

Hong Kong Stocks Advance on U.S. Jobs, Europe’s Rate Cut
Bloomberg
Hong Kong stocks rose, with the benchmark capping its second week of gains, after the European Central Bank cut interest rates to a record low and U.S. jobless claims fell.
http://jlne.ws/15eY246