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World grain price surge triggering defaults - (www.reuters.com) Grains suppliers are starting
to default on previously agreed sales to major importers, including top wheat
buyer Egypt, rather than deliver on contracts that are now losing money because
of the huge rally in prices sparked by the U.S. drought. The worst
drought in more than 50 years is wilting crops in the U.S.
Midwest and sending prices into overdrive, with corn alone surging by around 50
percent in the last month. Soybeans have also hit record highs, with wheat not
far behind. Crop downgrades in Russia, Ukraine and Kazakhstan as drought
followed a bitterly cold winter have added to global price rises, stoking fears
of unrest especially in Middle Eastern countries, where high food prices can
trigger political protest.
Post Office Might Miss Retirees' Payment - (online.wsj.com) While lawmakers continue to
fight over how to fix the ailing U.S. Postal Service, the agency's money
problems are only growing worse. The Postal Service repeated on Wednesday that
without congressional action, it will default—a first in its long history, a
spokesman said—on a legally required annual $5.5 billion payment, due Aug. 1,
into a health- benefits fund for future retirees. Action in Congress isn't
likely, as the House prepares to leave for its August recess. The agency said a
default on the payment, for 2011, wouldn't directly affect service or its
ability to pay employees and suppliers. But "these ongoing liquidity
issues unnecessarily undermine confidence in the viability of the Postal
Service among our customers," said spokesman David Partenheimer. The
agency says it will default on its 2012 retiree health payment as well—also
roughly $5.5 billion, due Sept. 30—if there is no legislative action by then.
Behind Credit Default Swaps Market, a Cartel Left Open to
Collusion - (www.nytimes.com) The rate-manipulation scandal
has demonstrated that banks will collude with one another for their own
benefit. Banks didn’t report the rate at which they were borrowing from other
institutions. They could report a made-up rate that, not surprisingly, turned
out to serve their economic interests at the time. So, it might come as a worry
that there is another, multitrillion-dollar market — the credit-default
swap market — that operates under a similar principle. Credit-default
swaps are insurance-like derivatives, or side bets, that protect investors from
bad events like a company going bankrupt or a country failing to pay its debts.
Whether a company has defaulted on its debt might seem unambiguous to some
naïve souls out there. But that’s hardly the case, especially when there are
lawyers involved and billions of dollars at stake. Because credit-default swap
contracts can be worthless when they expire, the timing of insolvencies can
make the difference between making and losing a great deal of money.
Spanish Borrowing Costs Surge As Demand Weakens At Debt Sale
- (www.bloomberg.com) Spain sold
2.98 billion euros ($3.66 billion) of notes, in line with its maximum target,
and its borrowing costs surged as demand for the securities weakened. The
country’s bonds fell after the sale. The Madrid-based Treasury sold notes due
in 2014 at an average yield of 5.204 percent, compared with 4.335 percent when
they were last sold on June 7. It sold five-year notes at 6.459 percent,
compared with 6.072 percent on June 21 and seven-year securities at an average
yield of 6.701 percent. Demand for the two-year debt was 1.9 times the amount
sold, compared with 4.26 last month and the bid-to-cover for the 2017
securities was 2.06, compared with 3.44 in June, the Madrid- based Treasury
said. It set a maximum target of 3 billion euros for the sale.
Feeding Frenzy Seen If Wall Street Sues Itself Over Libor -
(www.bloomberg.com) Wall Street, grappling with
mounting regulatory probes and investor claims over alleged interest-rate
manipulation, may face yet another formidable foe: Itself. Goldman Sachs Group Inc. (GS) and
Morgan Stanley are among financial firms that may bring lawsuits against their
biggest rivals as regulators on three continents examine whether other banks
manipulated the London interbank offered rate, known as Libor, said Bradley
Hintz, an analyst with Sanford C. Bernstein & Co. Even if Goldman Sachs and
Morgan Stanley forgo claims on their own behalf, they oversee money-market
funds that may be required to pursue restitution for injured clients, he said. Because
Libor is based on submissions from only some of the world’s largest banks, the
probes threaten to pit firms uninvolved in setting the rate against any
implicated in its manipulation, Hintz said. Libor serves as a benchmark for at
least $360 trillion in securities.
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