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cruel, cruel summer for U.S. credit funds - (www.reuters.com) It's
shaping up to be a brutal summer for bond investors as the bloodbath in the
U.S. credit market shows no signs of letting up, even as nearly $80 billion has
already been wiped from funds.The past six weeks have been humbling for
well-known fund managers including Bill Gross of PIMCO, Jeffrey Gundlach of
DoubleLine Capital and Ray Dalio of Bridgewater Associates - all victims of a
violent sell-off in U.S. Treasuries, mortgage-backed securities or
inflation-protected bonds.
On Friday, the yield on the benchmark 10-year Treasury note touched 2.73
percent, gaining more than a full percentage point since early May, as
better-than-expected U.S. jobs data fanned speculation that the Federal Reserve
could begin to scale back its $85 billion-a-month bond-buying stimulus this
fall. While some bond managers are putting on a brave face, saying the market's
broad-based sell-off is overdone, others recall the sharp rise in interest
rates two decades ago that wreaked havoc on some bond portfolios.
Larry Summers Circles as Fed Opening Looms - (online.wsj.com) President Barack Obama is expected to pick the next Federal Reserve chairman within a matter of months. Once again, Larry Summers is available. Mr. Summers, a former top economic adviser to Mr. Obama, is speaking, writing, consulting, advising, teaching and still in frequent contact with the president. And some of his friends say he is more than a little interested in the Fed job. Messrs. Obama and Summers explicitly discussed the possibility he could become Fed chairman in a private conversation at the end of 2010, as Mr. Summers was leaving his post as the director of the White House's National Economic Council, according to a person familiar with the matter. It isn't clear how strongly Mr. Obama suggested then that he might choose Mr. Summers at the end of the Bernanke era. Mr. Summers, 58 years old, was a contender for the job once before.
Japan
Sold Record U.S. Treasuries in May During Global Bond Rout - (www.bloomberg.com) U.S.
Treasury sales by Japanese investors exceeded purchases by a record in May amid the biggest monthly drop for
the securities in more than three years. Money managers in the Asian nation
unloaded a net 3 trillion yen ($30 billion) of U.S. government bonds in a fifth
straight month of overall sales that was the largest in data from 2005, the
Ministry of Finance said today. In June, Japanese investors were net sellers of
overseas debt valued at a record 2.96 trillion yen, taking the total to 10.6
trillion yen this year, the data show. That’s on track for the first net annual
sales ever. A more than 20 percent drop in the yen against the dollar over the
past year has prompted funds managers in Japan to take profit on their offshore debt
holdings. At the same time, the Japanese bond market is being spared a global rout that’s
pushed the U.S. Treasury 10-year (USGG10YR) yield to a two-year high as the Bank of Japan buys sovereign debt from the market.
Greece
Lumbers Toward Next Payout, May Face Added Conditions - (www.bloomberg.com) Greece lumbered toward its next aid payout,
possibly broken up into smaller installments and tied to additional economic
reforms by Prime Minister Antonis Samaras’s government. Greece’s “troika” of
creditors sealed a staff-level accord on new economic and deficit-reduction
steps, leaving open when as much as 8.1 billion euros ($10.4 billion) will be
released. Euro-area finance ministers will decide on a portion of that payout
in talks that began at 3 p.m. in Brussels today. “I’m confident that we can
take another step forward today,” German Finance Minister Wolfgang Schaeuble
said before the meeting. “It will remain a difficult path for Greece.” European
governments led by Germany are continuing to keep Greece on life
support, unwilling to let it go bankrupt and exit the euro while doling out aid
in the smallest possible doses to avoid upsetting their own taxpayers. Political
tumult in Portugal, among the five euro countries tapping emergency aid, raised
the pressure on creditors to keep Greece’s program on track.
China’s Ordos Struggles to Repay Debt: Xinhua Magazine - (www.bloomberg.com) A Chinese city known for its empty skyscrapers is struggling to repay debt and has resorted to borrowing from companies to pay workers, a magazine published by the official Xinhua News Agency reported. Some district governments of Ordos, Inner Mongolia, had to borrow money from companies to pay salaries of municipal employees, Economy & Nation Weekly said in a July 5 report on its website. Ordos local-government entities have amassed 240 billion yuan ($39 billion) of debt, while the city had 37.5 billion yuan of revenue last year, the publication said without specifying annual interest costs. The report adds to signs of strains in an economy that probably decelerated for a second straight quarter as overseas and domestic demand slowed and Premier Li Keqiang reined in credit growth. China Rongsheng Heavy Industries Group Holdings Ltd. (1101), the country’s biggest shipyard outside state control, said last week it’s seeking financial support from the government after orders plunged.
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