Long-term bond prices have been falling. Have
you been noticing? - (www.washingtonpost.com) We
hear lots of talk about the bond market these days. So let me ask you a simple
question: Do you think you’d notice if a key bond-market segment took a one-day
hit equivalent to a 600-point drop in the Dow? Answer: No, you wouldn’t. How do
I know that? Because when such a drop took place recently, almost no one
outside of a few bond experts noticed. Here’s the deal. On July 5, the market
price of 30-year Treasury bonds fell about 4.1 percent — the equivalent of
a 615-point drop in the Dow, which at the time was around 15,000. That’s a
really serious drop, folks. If you owned $10,000 of 30-year Treasurys due in
November 2042, for example, the value of your investment would have declined by
$354, exceeding the $275 of annual interest the bond pays. So you lost more
than a year’s interest in one day. Pretty scary. When last I looked, that bond
was trading at about 83.9 percent of face value, which means that
holders had lost almost six years’ worth of interest in the eight months since
the bond was issued. Collectively, holders of this issue, which has a face
value of $16 billion, had lost more than $2.5 billion. To use the technical
term: Yech! Don’t feel bad if you didn’t know about this hideous drop. Few
people do. That’s because although the Dow and Standard & Poor’s 500, which
track the stock market, have huge public recognition, there’s nothing
equivalent for the bond market. So bonds can fall — or rise — sharply, with few
people other than bond mavens realizing it.
Muni
board watching general obligation debt in Detroit case - (www.reuters.com) The
municipal bond market's self-regulator on Friday said the Detroit emergency
manager's proposed treatment of general obligation bonds in
the city's bankruptcy case
risks changing how investors view what has long been considered the safest
class of municipal debt. Kevyn Orr, Detroit's state-appointed manager, has said
that general obligation bondholders will remain unsecured creditors in the
$18.5 billion bankruptcy filing.
"You have a long history of ... what everyone thought a GO bond was or
what it meant to have a GO bond," said Jay Goldstone, chairman of the
Municipal Securities Rulemaking Board. "That whole landscape could
change." The MSRB, which writes the rules for the market that the
Securities and Exchange Commission enforces and operates a centralized system
for posting bond information, said it discussed Detroit's filing for
bankruptcy, including its public pension and debt, but decided not to take any
action.
China
Cuts Capacity in Some Industries to Reshape Economy - (www.bloomberg.com) China ordered more than 1,400 companies in 19
industries to cut excess production capacity this year, part of efforts to
shift toward slower, more-sustainable economic growth. Steel, ferroalloys,
electrolytic aluminum, copper smelting, cement and paper are among areas
affected, the Ministry of Industry and Information Technology said in a statement yesterday, in which
it announced the first-batch target of this year to cut overcapacity. Excess
capacity must be idled by September and eliminated by year-end, the ministry said, identifying the production lines to be shut
within factories. China’s extra production has helped drive down
industrial-goods prices and put companies’ profits at risk, while a survey this
week showed manufacturing weakening further in July. Premier Li Keqiang has pledged to curb overcapacity as part
of efforts to restructure the economy as growth this year is poised for the
weakest pace since 1990.
Banks
shiver as UBS swallows $885 million U.S. fine - (www.reuters.com) UBS
will pay $885 million in a settlement with a U.S. regulator over allegations
the Swiss bank misrepresented mortgage-backed bonds during
the housing bubble, paving the way for billions more to be paid by other banks.
European and U.S. lenders such as Credit Suisse and Deutsche Bank have set
aside money to cover the cost of any losses arising from the dispute with the
Federal Housing Finance Agency but estimates vary widely. Shares in Royal Bank of Scotland, which had risen by a quarter since July 3
having slumped following the ousting of chief executive Stephen Hester in June,
dropped over three percent on Friday after the UBS settlement was revealed.
JPMorgan
Mulls Physical Commodities Exit After Senate Review - (www.bloomberg.com) JPMorgan Chase & Co. (JPM) said it plans to get out of the business
of owning and trading physical commodities ranging from metals to oil, three
days after a congressional panel questioned whether banks are using their
ownership of raw materials to manipulate markets. The statement also comes as
JPMorgan negotiates a settlement with the Federal Energy Regulatory Commission
that may include a $400 million fine and other penalties, according to a person
familiar with the negotiations. JPMorgan, the largest U.S. bank, could sell or
spin off holdings that include warehouses, stakes in power plants and traders
in materials including gas, power and coal. The company estimated the value of
its physical commodities at $14.3 billion as of March 31, according to a
company filing.
Banks Said to Weigh Suspending Dealings With SAC as
Charges Loom - (www.bloomberg.com)
Yuan Forwards Weaken as Central Bank Lowers Reference Rate - (www.bloomberg.com)
Yuan Forwards Weaken as Central Bank Lowers Reference Rate - (www.bloomberg.com)
1 comment:
Helpful post about the present situation of the economy. Looking forward for your next article.
ICPM Australia
Post a Comment