KeNo's Housing and Economic Portal: Tuesday April 7 Housing and Economic stories

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Canadian Junk Market Freezes as Poloz Compounds Oil Collapse - (www.bloomberg.com) If the Bank of Canada’s surprise interest rate cut was meant to spur companies to borrow, it’s not working in the nation’s high-yield bond market. Even after the central bank lowered borrowing costs on Jan. 21, the current quarter is the first in three years without a single company tapping Canada’s junk-bond market for funds, according to data compiled by Bloomberg. In contrast, U.S. junk bond issuance has already surged to the highest level in six months, the data show. Canada’s rate cut “definitely did not add confidence to the market -- in fact many people see it as an act of panic,” Benjamin Tal, deputy chief economist at Canadian Imperial Bank of Commerce, said Friday in a phone interview. “If I’m in the business of investment and I see this uncertainty, I just sit.” Canada’s high-yield bond market is more exposed than the broader economy to collapsing crude prices because energy companies make up almost 40 percent of the debt outstanding. Senior bond bankers say they’re seeing the anxiety in the energy industry, which accounts for about 10 percent of Canada’s economy, creeping into other potential borrowers as well.

Saudi-led airstrikes shake Sanaa for fifth day as rebels push toward Aden - (www.washingtonpost.com) An airstrike killed dozens of people Monday at a camp for displaced people in northern Yemen, in what appeared to be the single deadliest attack since a Saudi Arabia-led coalition sent warplanes to target Shiite insurgents advancing across the country. As many as 40 people died and about 200 were wounded in the attack on the Mazraq camp in Hajjah province, said Joel Millman, a spokesman for the International Organization for Migration, which runs aid programs at the facility. The Yemeni Shiite rebels, known as Houthis, accused the Saudi-led coalition of hitting the camp, located in an area under the control of the insurgents. Saudi officials did not confirm that. But, asked about the bombing, Saudi Brig. Gen. Ahmed Asiri, a coalition spokesman, asserted that the rebels were setting up positions in civilian areas and said that coalition warplanes had taken fire Monday from a residential area, forcing a “decisive response,” according to the official Saudi Press Agency.

Corporate debt rally puts equities in shade - (www.ft.com) In a world where government bond yields are either negative or still hovering near record lows, oil prices are see-sawing and equity valuations appear lofty, US corporate bonds remain a top destination for global investors this year. While the S&P 500 briefly erased its gains for the year last week, corporate bonds are wrapping up the first quarter with solid gains, with some groups, such as high-grade energy debt, rewarding investors with almost 3 per cent in total returns. The rally in US corporate debt is being sustained by investors taking the view that even though the Federal Reserve is expected to start raising benchmark interest rates sometime this year, any increase will be gradual and not lead to a massive selling of fixed income assets. The European Central Bank’s latest round of aggressive monetary stimulus in late January pushed yields on government bonds and some corporate debt in several eurozone economies into negative territory. That, in turn, has helped boost demand for higher yielding US corporate debt, particularly with the strength of the dollar providing a currency tailwind for foreign investors.

Too Much of Everything Spurs Commodity Exodus as Price Wars Rage - (www.bloomberg.com) Investors are bailing out of commodity funds at the fastest pace on record, and the exodus shows no signs of ending. U.S. exchange-traded funds linked to broad baskets of raw materials saw a net outflow of $919 million over the first three months of the year, the most of any quarter since the securities were created in 2006, data compiled by Bloomberg show. Bank of America Corp. says ample supplies have unleashed price wars, and Goldman Sachs Group Inc. predicts a 20 percent drop for commodities already near a 13-year low. Morgan Stanley and Societe Generale SA also have cut forecasts for a whole range of items. Rising supplies created bear markets over the past year as drillers unlocked more oil and natural gas, copper mines expanded and farmers harvested record corn and soybean crops. The strongest dollar in at least a decade encouraged countries with weaker currencies to export more. While the U.S. economy is strengthening, Europe is still contending with its debt crisis and growth is slowing in China, the top user of everything from iron ore to pork.

AIG Lite: Margin Call Claimed First Foreign Casualty Of Austrian "Black Swan" – (www.zerohedge.com) We’ve written quite a bit lately about Austria’s Heta, the bad bank gone... well, bad, or as we’re fond of calling it, Austria’s Black Swan. Recapping, an outside audit identified a €7.6 billion hole in the vehicle’s balance sheet, prompting the institution of a debt moratorium. Unfortunately, Austria’s Carinthia province had guaranteed more than €10 billion in Heta debt, which is five times the state’s operating revenue meaning it is, for all intents and purposes, insolvent and unless Austria wants to go the unprecedented route of allowing a provincial bankruptcy, the sovereign will need to step in in one way or another. The next shoe to drop was the German lender DuesselHyp which itself faced insolvency thanks to around €350 million of Heta debt it held on its balance sheet. While we wait to see which “well capitalized” bank will be the next to crumble under the weight of mountainous write-downs occasioned by the sudden souring of “riskless” assets, we get to read the DuesselHyp post-mortem, which shows that the bank was effectively AIG’d by Eurex. Here’s more via Bloomberg:

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