SINGAPORE Thomson Financial) - Asian economic growth will remain strong this year and in 2008 despite higher energy costs and recent market turbulence, Asian Development Bank president Haruhiko Kuroda said Saturday.
He said there would be no change to the bank's latest regional growth forecast of 8.3 percent this year and 8.2 percent in 2008 -- and that developing Asia, excluding Japan, could even beat that forecast.
"There are a few risks ... but as I said, despite these risks, our main scenario for Asian economies is that growth will continue this year as well as next year," Kuroda said on the sidelines of an ASEAN business meeting.
"I think basically the figure is correct and appropriate. But as I say, there may be some possibility that the Asian economy may even outperform that latest guide," he told reporters.
Developing economies in the region grew 8.5 percent last year.
He acknowledged higher oil prices could have a "negative impact" but he was upbeat about the prospects for the region, which has shown its resilience despite a steady rise in energy prices.
"Growth momentum in Asia is so strong that up until now the Asian economies have grown very rapidly despite very high level of oil prices," said Kuroda.
"So at this stage, we are aware of the risks but (Asia's) scenario will not be changing," he said.
New York oil prices closed above 95 US dollars a barrel on Friday amid fresh tensions over Iran and predictions that OPEC will not discuss raising output at its weekend summit.
Sunday, November 18, 2007
Saturday, November 17, 2007
Fannie under fire over accounting change
Three years after a stunning accounting scandal that forced it to restate earnings by $6.3 billion, the giant government-sponsored company that buys and sells home loans is on the defensive over a change in how it calculates potential losses from the growing mortgage crisis.
The fear among investors is that a new accounting methodology masks the number of bad loans held by Fannie, downplaying potential losses.
Shares of Fannie, the largest U.S. player in the market for mortgages that packaged into tradable securities, tanked for the second straight day on Friday, even as executives tried to assuage skeptical Wall Street analysts on a telephone conference call.
The stock, which fell $2.35, or 5.5 percent, to $40.69 percent, recovered from an earlier dive of more than 16 percent that brought shares to a 10-year low, following a 10 percent drop the day before. In bond markets, the risk premium on Fannie's debt -- what it costs to insure its mortgage-backed securities -- climbed.
Fannie disclosed its new calculation for potential mortgage losses last Friday, when it submitted several hundred pages of documents to the Securities and Exchange Commission. The filing brought the company's financial reporting up to date for the first time since 2004. But the bookkeeping change -- and its potential impact -- received significant attention on Thursday in an online article published by Fortune, which is owned by Time Warner Inc.
Using the new method, Fannie reported a so-called "annualized credit-loss ratio" of 4 basis points for the first nine months of this year, meaning the value of four out of every 1,000 mortgages it owns declined during that period. The Fortune article pointed out that under the old method, the credit-loss ratio for that period would have been 7.5 basis points -- far exceeding Fannie's forecasts on the $2.4 trillion worth of mortgages it owns.
The adjustment is particularly unnerving to Wall Street because the company was racked by an accounting scandal in 2004 that resulted in government sanctions and a tarnished reputation.
"This just smacks too much of the accounting games the company was playing a couple years ago," said Armando Falcon, who headed the Office of Federal Housing Enterprise Oversight regulator of Fannie Mae at the time its accounting crisis erupted.
"They have very little room to play with here when it comes to trust and credibility," Falcon said in a telephone interview, adding that "it doesn't bode well for the new management."
The latest accounting uproar comes as Fannie pressures the government to further raise the mandated cap on its mortgage investment holdings, set at $735 billion after a two percent increase several months ago, as a way to help calm jittery credit markets.
"With this news, there is absolutely no justification" for Fannie being allowed to assume additional debt, said Rep. Richard Baker, R-La., a member of the House Financial Services Committee who is a longtime critic of the company. "We don't know the embedded risk yet."
The reaction on Wall Street was only slightly more forgiving.
Citigroup analyst Bradley Ball said while Fannie executives provided helpful explanations of some confusing accounting issues during Friday's call to analysts, the company "continues to fall short on providing sufficient detail for clear analysis of core operating results."
"Management was unable to assuage the market's main concerns about credit losses going forward," Ball wrote in a research note.
Washington-based Fannie reported a $1.4 billion third-quarter loss last week, while forecasting housing market woes through next year because of mounting home loan delinquencies.
In Friday's conference call, Chief Financial Officer Stephen Swad said some of the $670 million in provisions for credit losses on soured home loans that Fannie wrote off in the third quarter likely would be recovered.
"We book what we book under (generally accepted accounting principles) and we provide this disclosure to help you understand it," Swad said.
Several analysts asked the executives in the conference call why the company couldn't disclose what proportion of high-risk mortgages it is able to refinance into fixed-rate loans and save from default.
"The problem is that we don't have the underlying information," said Credit Suisse analyst Moshe Orenbuch.
Another analyst said in a report that Fannie's new calculation method is similar to that used by Freddie Mac, its smaller government-sponsored sibling, which also suffered a multibillion-dollar accounting scandal several years ago.
But Michael Cosgrove, a spokesman for Freddie Mac, said: "We believe that we have a different approach in how we account for these loans."
The current director of the Office of Federal Housing Enterprise Oversight, James B. Lockhart, would not have any comment Friday on the Fannie Mae matter, a spokeswoman said.
The fear among investors is that a new accounting methodology masks the number of bad loans held by Fannie, downplaying potential losses.
Shares of Fannie, the largest U.S. player in the market for mortgages that packaged into tradable securities, tanked for the second straight day on Friday, even as executives tried to assuage skeptical Wall Street analysts on a telephone conference call.
The stock, which fell $2.35, or 5.5 percent, to $40.69 percent, recovered from an earlier dive of more than 16 percent that brought shares to a 10-year low, following a 10 percent drop the day before. In bond markets, the risk premium on Fannie's debt -- what it costs to insure its mortgage-backed securities -- climbed.
Fannie disclosed its new calculation for potential mortgage losses last Friday, when it submitted several hundred pages of documents to the Securities and Exchange Commission. The filing brought the company's financial reporting up to date for the first time since 2004. But the bookkeeping change -- and its potential impact -- received significant attention on Thursday in an online article published by Fortune, which is owned by Time Warner Inc.
Using the new method, Fannie reported a so-called "annualized credit-loss ratio" of 4 basis points for the first nine months of this year, meaning the value of four out of every 1,000 mortgages it owns declined during that period. The Fortune article pointed out that under the old method, the credit-loss ratio for that period would have been 7.5 basis points -- far exceeding Fannie's forecasts on the $2.4 trillion worth of mortgages it owns.
The adjustment is particularly unnerving to Wall Street because the company was racked by an accounting scandal in 2004 that resulted in government sanctions and a tarnished reputation.
"This just smacks too much of the accounting games the company was playing a couple years ago," said Armando Falcon, who headed the Office of Federal Housing Enterprise Oversight regulator of Fannie Mae at the time its accounting crisis erupted.
"They have very little room to play with here when it comes to trust and credibility," Falcon said in a telephone interview, adding that "it doesn't bode well for the new management."
The latest accounting uproar comes as Fannie pressures the government to further raise the mandated cap on its mortgage investment holdings, set at $735 billion after a two percent increase several months ago, as a way to help calm jittery credit markets.
"With this news, there is absolutely no justification" for Fannie being allowed to assume additional debt, said Rep. Richard Baker, R-La., a member of the House Financial Services Committee who is a longtime critic of the company. "We don't know the embedded risk yet."
The reaction on Wall Street was only slightly more forgiving.
Citigroup analyst Bradley Ball said while Fannie executives provided helpful explanations of some confusing accounting issues during Friday's call to analysts, the company "continues to fall short on providing sufficient detail for clear analysis of core operating results."
"Management was unable to assuage the market's main concerns about credit losses going forward," Ball wrote in a research note.
Washington-based Fannie reported a $1.4 billion third-quarter loss last week, while forecasting housing market woes through next year because of mounting home loan delinquencies.
In Friday's conference call, Chief Financial Officer Stephen Swad said some of the $670 million in provisions for credit losses on soured home loans that Fannie wrote off in the third quarter likely would be recovered.
"We book what we book under (generally accepted accounting principles) and we provide this disclosure to help you understand it," Swad said.
Several analysts asked the executives in the conference call why the company couldn't disclose what proportion of high-risk mortgages it is able to refinance into fixed-rate loans and save from default.
"The problem is that we don't have the underlying information," said Credit Suisse analyst Moshe Orenbuch.
Another analyst said in a report that Fannie's new calculation method is similar to that used by Freddie Mac, its smaller government-sponsored sibling, which also suffered a multibillion-dollar accounting scandal several years ago.
But Michael Cosgrove, a spokesman for Freddie Mac, said: "We believe that we have a different approach in how we account for these loans."
The current director of the Office of Federal Housing Enterprise Oversight, James B. Lockhart, would not have any comment Friday on the Fannie Mae matter, a spokeswoman said.
Wednesday, November 14, 2007
Forex - Better risk appetite supports euro at expense of dollar, yen
LONDON (Thomson Financial) - The dollar and yen remained softer, while the euro gained ground, after encouraging euro zone and US economic data and a higher open in stock markets helped investors' regain risk appetite.
Equities were helped by US retail sales figures that showed a 0.2 pct monthly rise in October, in line with the market consensus. At the same time PPI was up only 0.1 pct, below expectations for a 0.3 pct rate.
The encouraging news helped further improve risk appetite among investors, who returned to selling lower-yielding currencies like the dollar and the yen in favour of the higher-yielding euro and commodities-based currencies.
"Carry trades are revived due to the return of risk appetite -- courtesy of strong US retail sales," said Ashraf Laidi at CMC Markets.
On top of this, the euro was helped this morning by robust 3Q GDP data, which showed a 0.7 pct quarterly gain for a 2.6 pct yearly rate.
"The data have powered up the euro against the dollar... and with central banks and sovereign wealth funds eyeing an increased allocation into euro-denominated assets, the latest euro zone releases continue to show no considerable drag on growth as has been the case in the US and UK," Laidi said.
Meanwhile, the pound was lower across the board after the Bank of England today gave its clearest indication yet in its Inflation Report that it would need to cut interest rates in the future.
In its official forecasts, the central bank said that interest rates would have to fall to 5.1 pct by the end of 2009 -- in line with market forecasts -- in order to keep inflation within the 2.0 pct target.
When the first cut will be delivered is now the matter of speculation.
"Given near-term inflationary pressures from the surge in oil prices as well as signs that the economy remains resilient, we believe the BoE is unlikely to ease rates next month already," said Matthew Sharratt at Bank of America, who forecasts the first cut in February.
Despite the downside risks to growth, inflationary pressures linger in the economy as oil prices remain near record highs, suggesting more weak UK economic data will be required before the BoE kicks off its monetary easing cycle.
London 1605 GMT London 1340 GMT
US dollar
yen 111.39 down from 111.51
sfr 1.1214 up from 1.1209
Euro
usd 1.4685 down from 1.4694
stg 0.7110 up from 0.7098
sfr 1.6301 down from 1.6470
yen 163.57 down from 163.83
Sterling
usd 2.0652 down from 2.0704
yen 230.04 down from 230.67
sfr 2.3159 down from 2.3186
Australian dollar
usd 0.9009 down from 0.9038
stg 0.4362 down from 0.4363
yen 100.36 down from 100.67
New Zealand dollar
usd 0.7648 down from 0.7658
Equities were helped by US retail sales figures that showed a 0.2 pct monthly rise in October, in line with the market consensus. At the same time PPI was up only 0.1 pct, below expectations for a 0.3 pct rate.
The encouraging news helped further improve risk appetite among investors, who returned to selling lower-yielding currencies like the dollar and the yen in favour of the higher-yielding euro and commodities-based currencies.
"Carry trades are revived due to the return of risk appetite -- courtesy of strong US retail sales," said Ashraf Laidi at CMC Markets.
On top of this, the euro was helped this morning by robust 3Q GDP data, which showed a 0.7 pct quarterly gain for a 2.6 pct yearly rate.
"The data have powered up the euro against the dollar... and with central banks and sovereign wealth funds eyeing an increased allocation into euro-denominated assets, the latest euro zone releases continue to show no considerable drag on growth as has been the case in the US and UK," Laidi said.
Meanwhile, the pound was lower across the board after the Bank of England today gave its clearest indication yet in its Inflation Report that it would need to cut interest rates in the future.
In its official forecasts, the central bank said that interest rates would have to fall to 5.1 pct by the end of 2009 -- in line with market forecasts -- in order to keep inflation within the 2.0 pct target.
When the first cut will be delivered is now the matter of speculation.
"Given near-term inflationary pressures from the surge in oil prices as well as signs that the economy remains resilient, we believe the BoE is unlikely to ease rates next month already," said Matthew Sharratt at Bank of America, who forecasts the first cut in February.
Despite the downside risks to growth, inflationary pressures linger in the economy as oil prices remain near record highs, suggesting more weak UK economic data will be required before the BoE kicks off its monetary easing cycle.
London 1605 GMT London 1340 GMT
US dollar
yen 111.39 down from 111.51
sfr 1.1214 up from 1.1209
Euro
usd 1.4685 down from 1.4694
stg 0.7110 up from 0.7098
sfr 1.6301 down from 1.6470
yen 163.57 down from 163.83
Sterling
usd 2.0652 down from 2.0704
yen 230.04 down from 230.67
sfr 2.3159 down from 2.3186
Australian dollar
usd 0.9009 down from 0.9038
stg 0.4362 down from 0.4363
yen 100.36 down from 100.67
New Zealand dollar
usd 0.7648 down from 0.7658
Saturday, November 10, 2007
Argentina Bonds, Stocks Buck Wall Street To Rebound
Of DOW JONES NEWSWIRES
BUENOS AIRES(Dow Jones)--Argentine stocks and bonds rebounded Friday, breaking ranks with Wall Street as pension funds jumped in seeking bargains as they continue to adhere to a government requirement to reduce their exposure to investments in neighboring Brazil.
Meanwhile, the peso closed at ARS3.1275 against the dollar in interbank trading, virtually unchanged from Thursday's close at ARS3.1325.
The Buenos Aires Stock Exchange's benchmark Merval Index ended 2.26% higher at 2,314.23, while the broader General Index rose 2.97% to 128,034.41. Volume rose to ARS218.8 million, with ARS182.9 million of that in local trades.
"Today we saw a small technical rebound," said Pedro Kohn, an analyst with local Bull Market Brokers. Among standouts, Telecom Argentina (TEO) shot up 10.87% to ARS15.80, on stronger-than-expected third-quarter earnings. Among Merval heavyweights, Pampa Holding (PAMP.BA) rose 1.73% to ARS2.94, while steel-tube maker Tenaris (TS) fell a mild 0.66% to ARS75 after taking a hit Thursday on lower-than-expected third-quarter results.
In the local debt market, bonds also gained after sharp losses earlier this week on a U.S.-led flight to quality. Among gainers Friday, the price of the Discount bond in pesos rose to ARS117 from ARS116.20, while the Bocon Pro 12 rose to ARS167.50 from ARS165.50.
Kohn said the day's rebound won't be sustainable if Wall Street's downturn continues for much longer.
Besides, "the government has to fix the problem with INDEC," he said, referring to allegations all year that the government is manipulating monthly inflation data downward. The persistent allegations of manipulation have undermined inflation-linked peso notes, such as the heavily traded Discount note.
BUENOS AIRES(Dow Jones)--Argentine stocks and bonds rebounded Friday, breaking ranks with Wall Street as pension funds jumped in seeking bargains as they continue to adhere to a government requirement to reduce their exposure to investments in neighboring Brazil.
Meanwhile, the peso closed at ARS3.1275 against the dollar in interbank trading, virtually unchanged from Thursday's close at ARS3.1325.
The Buenos Aires Stock Exchange's benchmark Merval Index ended 2.26% higher at 2,314.23, while the broader General Index rose 2.97% to 128,034.41. Volume rose to ARS218.8 million, with ARS182.9 million of that in local trades.
"Today we saw a small technical rebound," said Pedro Kohn, an analyst with local Bull Market Brokers. Among standouts, Telecom Argentina (TEO) shot up 10.87% to ARS15.80, on stronger-than-expected third-quarter earnings. Among Merval heavyweights, Pampa Holding (PAMP.BA) rose 1.73% to ARS2.94, while steel-tube maker Tenaris (TS) fell a mild 0.66% to ARS75 after taking a hit Thursday on lower-than-expected third-quarter results.
In the local debt market, bonds also gained after sharp losses earlier this week on a U.S.-led flight to quality. Among gainers Friday, the price of the Discount bond in pesos rose to ARS117 from ARS116.20, while the Bocon Pro 12 rose to ARS167.50 from ARS165.50.
Kohn said the day's rebound won't be sustainable if Wall Street's downturn continues for much longer.
Besides, "the government has to fix the problem with INDEC," he said, referring to allegations all year that the government is manipulating monthly inflation data downward. The persistent allegations of manipulation have undermined inflation-linked peso notes, such as the heavily traded Discount note.
Thursday, November 8, 2007
Treasurys end mixed amid credit fears
NEW YORK (AP) - Treasury prices closed mixed Wednesday as deepening fears about mortgage-linked assets spurred strong buying of shorter maturities.
Government-backed bonds generally perform well in times of financial crisis. Wednesday's fear was fueled by notes from analysts at Deutsche Bank and Foxx-Pitt Kelton predicting Morgan Stanley will take billions of dollars in new losses on mortgage-linked assets, according to Tom di Galoma, head of Treasury trading at Jefferies & Co.
"The market is being driven by worries about more headline risk," he said.
The worries about subprime contagion were reinforced after a Moody's Investors Service decision downgraded or placed on a watch list for possible downgrade $33 billion in holdings in structured investment vehicles, including several affiliated with Citigroup Inc. SIVs are off-balance sheet entities, some of which are ailing because they invested heavily in below-prime mortgages.
Since credit markets tightened up last August, Treasurys have been one of the few fixed-income assets to attract strong demand as investors have moved away from risky instruments.
Corporate debt markets improved significantly in October, but are under pressure once again this month after mortgage-related turmoil led to the departures of the top executives at Citigroup and Merrill Lynch & Co.
Bonds of banks and brokerages have been hit hardest, and investors in the credit default swap market this week are hedging more heavily against a default on those bonds.
A credit default swap amounts to an insurance policy against a bond default. The costs of buying those contracts rose sharply Wednesday for debt of Citigroup, Wachovia Corp., Morgan Stanley, Wachovia Corp., Washington Mutual Inc., Capital One Financial Corp. and Countrywide Financial Corp., according to derivatives broker Phoenix Partners Group.
Wednesday's price gains were limited by some surprisingly strong Commerce Department data on wholesale sales, which rose 1.3 percent in September, and inventories, which were up 0.8 percent. The figures were above analysts' expectations. Evidence of economic strength weakens demand for low-risk assets.
In addition, the Labor Department said third-quarter productivity increased 4.9 percent. The gain was the biggest in four years and outpaced analysts' expectations.
The benchmark 10-year Treasury note rose 10/32 to close at 103 8/32 with a yield of 4.34 percent, down from 4.38 percent in late trade Tuesday. Prices and yields move in opposite directions.
The 30-year long bond fell 11/32 to 105 7/32 with a yield of 4.67 percent, matching its late Tuesday level.
The 2-year note rose 7/32 to 100 232 with a 3.59 percent yield, down from 3.70 percent late Tuesday.
The yield on the 3-month note fell to 3.48 percent from 3.75 percent Tuesday as the discount rate dropped to 3.40 percent from 3.65 percent.
An afternoon auction of $13 billion in 10-year notes was well-received, but had little impact on trade. The auction attracted strong demand from both foreign and U.S. buyers.
The Treasury market also is being buffeted this week by a mercurial stock market. On Wednesday stocks staged a massive sell-off after the dollar sank to new lows against the euro amid speculation that China will seek to diversify some of its foreign currency stockpiles beyond the greenback.
Unease about the dollar dogged stock markets worldwide and, in the U.S., came a day after stocks finished with a sizable gain.
Government-backed bonds generally perform well in times of financial crisis. Wednesday's fear was fueled by notes from analysts at Deutsche Bank and Foxx-Pitt Kelton predicting Morgan Stanley will take billions of dollars in new losses on mortgage-linked assets, according to Tom di Galoma, head of Treasury trading at Jefferies & Co.
"The market is being driven by worries about more headline risk," he said.
The worries about subprime contagion were reinforced after a Moody's Investors Service decision downgraded or placed on a watch list for possible downgrade $33 billion in holdings in structured investment vehicles, including several affiliated with Citigroup Inc. SIVs are off-balance sheet entities, some of which are ailing because they invested heavily in below-prime mortgages.
Since credit markets tightened up last August, Treasurys have been one of the few fixed-income assets to attract strong demand as investors have moved away from risky instruments.
Corporate debt markets improved significantly in October, but are under pressure once again this month after mortgage-related turmoil led to the departures of the top executives at Citigroup and Merrill Lynch & Co.
Bonds of banks and brokerages have been hit hardest, and investors in the credit default swap market this week are hedging more heavily against a default on those bonds.
A credit default swap amounts to an insurance policy against a bond default. The costs of buying those contracts rose sharply Wednesday for debt of Citigroup, Wachovia Corp., Morgan Stanley, Wachovia Corp., Washington Mutual Inc., Capital One Financial Corp. and Countrywide Financial Corp., according to derivatives broker Phoenix Partners Group.
Wednesday's price gains were limited by some surprisingly strong Commerce Department data on wholesale sales, which rose 1.3 percent in September, and inventories, which were up 0.8 percent. The figures were above analysts' expectations. Evidence of economic strength weakens demand for low-risk assets.
In addition, the Labor Department said third-quarter productivity increased 4.9 percent. The gain was the biggest in four years and outpaced analysts' expectations.
The benchmark 10-year Treasury note rose 10/32 to close at 103 8/32 with a yield of 4.34 percent, down from 4.38 percent in late trade Tuesday. Prices and yields move in opposite directions.
The 30-year long bond fell 11/32 to 105 7/32 with a yield of 4.67 percent, matching its late Tuesday level.
The 2-year note rose 7/32 to 100 232 with a 3.59 percent yield, down from 3.70 percent late Tuesday.
The yield on the 3-month note fell to 3.48 percent from 3.75 percent Tuesday as the discount rate dropped to 3.40 percent from 3.65 percent.
An afternoon auction of $13 billion in 10-year notes was well-received, but had little impact on trade. The auction attracted strong demand from both foreign and U.S. buyers.
The Treasury market also is being buffeted this week by a mercurial stock market. On Wednesday stocks staged a massive sell-off after the dollar sank to new lows against the euro amid speculation that China will seek to diversify some of its foreign currency stockpiles beyond the greenback.
Unease about the dollar dogged stock markets worldwide and, in the U.S., came a day after stocks finished with a sizable gain.
Saturday, November 3, 2007
Loonie Set to Surge Further
The Canadian Dollar, or Loonie, recently cleared a 47-year high against the US Dollar. Its next major milestone is crossing a level last seen in the late 19th century! There are a few reasons for the Loonie’s continued strength, namely interest rate parity and economic strength. As a result of the Fed cutting rates for the second time in as many months, the Canadian benchmark interest rate is now equal to the American federal funds rate, both at 4.5%. In addition, record-breaking oil and commodity prices will ensure that Canada’s economy will expand further, perhaps as the same pace as its currency. Reuters reports:
If the U.S. Central bank signals another rate cut in December, or if it goes against expectations and chops rates by 50 basis points, it could pull the rug out from under an already unsteady U.S. dollar and clear the way for the Canadian currency to shoot higher.
If the U.S. Central bank signals another rate cut in December, or if it goes against expectations and chops rates by 50 basis points, it could pull the rug out from under an already unsteady U.S. dollar and clear the way for the Canadian currency to shoot higher.
Thursday, November 1, 2007
Treasurys drop on Fed statement
Treasury prices caved in Wednesday after the Federal Reserve, while cutting interest rates a quarter point, warned that higher inflation risks could make further reductions unlikely.
The widely expected rate cut left the benchmark federal funds rate at 4.50 percent. But the Fed's accompanying economic assessment statement said higher inflation risks roughly balance out the downside risks to growth from recent credit market problems. The Fed also said "strains in financial markets have eased somewhat on balance."
Analysts said the Fed was putting the markets on notice that Wednesday's rate cut and September's half-point reduction might be all the central bank plans for a while.
"The main reason the bond market does not like the statement is it indicates the Fed is on pause, barring some economic weakness that they don't see and we don't see either," said Alan Tedford, fixed-income portfolio manager at Stephens Capital Management.
The news did not depress other markets in the way it hurt Treasurys. The stock market at first wobbled and then rallied after the news, while the dollar dropped on the rate cut, helping gold futures to top $800 an ounce. Other commodities also gained in after hours trade, including crude futures which neared $94 a barrel.
The benchmark 10-year Treasury note fell 22/32 to 102 6/32 with a yield of 4.47 percent, up from 4.39 percent late Tuesday. Prices and yields move in opposite directions.
The 30-year long bond dropped 1 4/32 to 104 1/32 with a 4.74 percent yield, up from 4.68 percent late Tuesday.
The 2-year note fell 7/32 to 99 14/32 with a 3.92 percent yield, up from 3.81 percent late Tuesday.
The yield on the 3-month note dropped to 3.92 percent from 3.96 percent Tuesday as the discount rate fell to 3.82 percent from 3.87 percent.
Selling pressure in the Treasury market was intensified by rumors this week that the central bank would order a full half percentage point rate decrease, as it did last month. The size of the actual reduction added to investors' disappointment.
"It appears that a significant minority of investors were looking for a half point decrease and/or a clear signal of more eases ahead," said Ian Shepherdson, chief U.S. economist at High Frequency Economics. "They got neither."
The Fed statement said core inflation readings have improved modestly this year, but recent increases in energy and commodity prices could increase inflationary pressure.
If the Fed concludes inflation is the primary risk to the economy, it could in theory switch to a bias toward rate increases. However, Stephens Capital's Tedford said this was unlikely as many expect inflationary pressures to ease at the start of 2008.
The next Fed meeting is Dec. 11.
A report released earlier in the session also held hints that the Fed may not feel the need to cut at the December meeting. The government reported brisk economic expansion during the summer despite the rapid deterioration seen in the credit and housing markets.
The Commerce Department's preliminary third-quarter gross domestic product report showed an annual growth rate of 3.9 percent, exceeding the 3.1 percent expected by economists. The advance was the strongest seen in six quarters and was linked to strong consumer activity and business and military spending. It set helped stoke buying of stocks and selling of low-risk Treasurys.
A regional manufacturing report showed some weakness last month. The Chicago purchasing managers index showed a drop to 49.7 this month from 54.2 in September. Readings below 50 show that more companies are contracting than growing.
Separately, the Commerce Department said construction spending rose 0.3 percent in September, when business construction offset the weakness in home building.
The Treasury Department announced it will auction $13 billion in 10-year notes and $5 billion in 30-year bonds next week to refund maturing securities and pay down debt.
The widely expected rate cut left the benchmark federal funds rate at 4.50 percent. But the Fed's accompanying economic assessment statement said higher inflation risks roughly balance out the downside risks to growth from recent credit market problems. The Fed also said "strains in financial markets have eased somewhat on balance."
Analysts said the Fed was putting the markets on notice that Wednesday's rate cut and September's half-point reduction might be all the central bank plans for a while.
"The main reason the bond market does not like the statement is it indicates the Fed is on pause, barring some economic weakness that they don't see and we don't see either," said Alan Tedford, fixed-income portfolio manager at Stephens Capital Management.
The news did not depress other markets in the way it hurt Treasurys. The stock market at first wobbled and then rallied after the news, while the dollar dropped on the rate cut, helping gold futures to top $800 an ounce. Other commodities also gained in after hours trade, including crude futures which neared $94 a barrel.
The benchmark 10-year Treasury note fell 22/32 to 102 6/32 with a yield of 4.47 percent, up from 4.39 percent late Tuesday. Prices and yields move in opposite directions.
The 30-year long bond dropped 1 4/32 to 104 1/32 with a 4.74 percent yield, up from 4.68 percent late Tuesday.
The 2-year note fell 7/32 to 99 14/32 with a 3.92 percent yield, up from 3.81 percent late Tuesday.
The yield on the 3-month note dropped to 3.92 percent from 3.96 percent Tuesday as the discount rate fell to 3.82 percent from 3.87 percent.
Selling pressure in the Treasury market was intensified by rumors this week that the central bank would order a full half percentage point rate decrease, as it did last month. The size of the actual reduction added to investors' disappointment.
"It appears that a significant minority of investors were looking for a half point decrease and/or a clear signal of more eases ahead," said Ian Shepherdson, chief U.S. economist at High Frequency Economics. "They got neither."
The Fed statement said core inflation readings have improved modestly this year, but recent increases in energy and commodity prices could increase inflationary pressure.
If the Fed concludes inflation is the primary risk to the economy, it could in theory switch to a bias toward rate increases. However, Stephens Capital's Tedford said this was unlikely as many expect inflationary pressures to ease at the start of 2008.
The next Fed meeting is Dec. 11.
A report released earlier in the session also held hints that the Fed may not feel the need to cut at the December meeting. The government reported brisk economic expansion during the summer despite the rapid deterioration seen in the credit and housing markets.
The Commerce Department's preliminary third-quarter gross domestic product report showed an annual growth rate of 3.9 percent, exceeding the 3.1 percent expected by economists. The advance was the strongest seen in six quarters and was linked to strong consumer activity and business and military spending. It set helped stoke buying of stocks and selling of low-risk Treasurys.
A regional manufacturing report showed some weakness last month. The Chicago purchasing managers index showed a drop to 49.7 this month from 54.2 in September. Readings below 50 show that more companies are contracting than growing.
Separately, the Commerce Department said construction spending rose 0.3 percent in September, when business construction offset the weakness in home building.
The Treasury Department announced it will auction $13 billion in 10-year notes and $5 billion in 30-year bonds next week to refund maturing securities and pay down debt.
Subscribe to:
Posts (Atom)