Wednesday October 7 Housing and Economic stories

TOP STORIES:

1MDB Dollar Bonds Slump to Record as U.S. Probes Hurt Sentiment - (www.bloomberg.com) A group of hedge funds holding $5.2 billion of Puerto Rico debt disbanded as creditors prepare for talks to restructure the island’s obligations in smaller alliances, said two people with knowledge of the matter. The group, which counted more than three dozen firms as members, had begun losing support as some broke off to form more nimble coalitions, said the people, who asked not to be named because the information isn’t public. The defections started after Governor Alejandro Garcia Padilla said in June that the government’s debts were "not payable." The creditors had joined to structure and fund a debt package that they thought would help the cash-strapped U.S. territory bridge its budget gap before longer-term reform measures alleviated the deficit. The hedge funds, sometimes referred to as the "ad hoc group," had been negotiating since at least February with Puerto Rico officials over the sale of $2.9 billion of new petroleum-tax bonds, people with knowledge of the matter said at the time.

In Brazil's Market Meltdown, a Wave of Panic -- Then Silence - (www.bloomberg.com) It’s a startling turnaround for a country that was the darling of international investors just a few years ago. The bonds of oil giant Petrobras, once Brazil’s biggest company, are trading at distressed levels. The Ibovespa stock index fell for a sixth straight session, wiping out about $24 billion in market value. The nation’s currency, the real, is posting the biggest drop this year among major tenders, a collapse one Rio de Janeiro asset manager likened to a “death spiral.” “The worst part is there’s no light at the end of the tunnel,” said Vitor Suzaki, an analyst at the brokerage Lerosa Investimentos in Sao Paulo. “There’s a very serious political crisis that threatens fiscal balance, that leads to economic deceleration, that hurts companies. And we just can’t imagine what kind of news would bring confidence back."

It's All `Perverted' Now as U.S. Swap Spreads Tumble Below Zero - (www.bloomberg.com) At the height of the financial crisis, the unprecedented decline in swap rates belowTreasury yields was seen as an anomaly. The phenomenon is now widespread. Swap rates are what companies, investors and traders pay to exchange fixed interest payments for floating ones. That rate falling below Treasury yields -- the spread between the two being negative -- is illogical in the eyes of most market observers, because it theoretically signals that traders view the credit of banks as superior to that of the U.S. government. Back in 2009, it was only negative in the 30-year maturity, a temporary offshoot of deleveraging and market swings following the credit crisis. These days, swap spreads are near or below zero across maturities.

Wealthy Reap the Most as Revenue Rush Triggers U.S. State Rebates - (www.bloomberg.com) In another sign that U.S. states are recovering from the Great Recession, a handful are triggering mechanisms that repay taxpayers when coffers overflow, and the wealthiest are receiving the most. At least seven states have such laws. Oregon this year paid back $402 million to taxpayers. Colorado and North Carolina set off similar triggers. The product of taxpayer revolts aimed at checking government’s growth, the laws typically call for a rebate or reduction in income-tax rates when revenue exceeds benchmarks. Opponents say returning money to taxpayers leaves governments unprotected in the event of another recession, deprives states of cash for schools and roads, and prevents them from socking away money in rainy-day funds. Supporters say the policies keep states from overspending.

Puerto Rico's Bonds Overshadow Pension Fund Poised to Go Broke - (www.bloomberg.com)  Puerto Rico’s $72 billion debt burden overshadows another financial threat to the Caribbean island: a government workers pension fund that’s set to go broke in five years. As Governor Alejandro Garcia Padilla prepares to push for bondholders to renegotiate debts he says the commonwealth can’t afford, he’s also contending with an estimated $30 billion shortfall in the Employees Retirement System. The pension, which covers 119,975 employees, as of June 2014 had just 0.7 percent of the assets needed to pay all the benefits that had been promised, a level unheard of among U.S. states. If not fixed, the depleted fund could jeopardize a fiscal recovery by foisting soaring bills onto the cash-strapped government even if investors agree to reduce the island’s debt. The system is poised to run out of money by 2020, which would leave the government on the hook for more than $2 billion in benefit payments the next year alone, according to Moody’s Investor’s Service. That’s equal to about one-fourth of this year’s general-fund revenue.

OTHER STORIES:

Yellen Says Fed Still Expects to Increase Interest Rates in 2015 - (www.bloomberg.com)
Puerto Rico's Biggest Hedge Fund Creditor Group Said to Disband - (www.bloomberg.com)

Yuan Drop Shakes Taiwan Into Tighter Scrutiny of Its Derivatives - (www.bloomberg.com)
Beijing’s New World Order - (online.wsj.com)

European Stocks Rebound After Yellen Clarifies Fed Rate Policy - (www.bloomberg.com)
China's Stocks Fall as Capital Outflows Hit Record in August - (www.bloomberg.com)
China Capital Outflows Hit Record in August on Yuan Weakness - (www.bloomberg.com)