US bond yields up on data, debt ceiling uncertainties
March 15, 2006
In the US on Wednesday, Treasury notes were affected by a report that showed foreign demand weakening, with purchases by foreign investors at a net $4.4 billion in January, substantially lower than the $18.3 billion in Treasury bonds purchased by foreign investors in December. The December number had been the lowest level of foreign participation in six months. Additionally, The New York Federal Reserve’s Empire State index was up to 31.2 in March, after a previous reading of 21, a far larger jump than had been expected.
Meanwhile, the Treasury Department has asked Congress to raise the debt limit, having already reached the current limit. If Congress does not act by Thursday evening, new sales of two-year and five-year notes, expected to be announced next week, could be put off.
At late morning in New York, yields on two-year Treasury bonds were up 2.1 basis points to 4.67 percent, while ten-year bond yields were up 4.7 basis points to a yield of 4.745 percent.
US Treasury yields fall
March 7, 2006
Prices were up and yields fell on US Treasury bonds on Tuesday after four straight days of price declines. Early in the day in New York, yields hit their highest levels in almost two years, with ten-year bonds yielding 4.805 percent and two-year issues at a yield of 4.809 percent. By midday, however, ten-year yields had dropped 1.6 basis points to 4.738 percent. Two-year yields were about the same at 4.775 percent. The price rises came after an attempt to reverse the current yield curve inversion were not successful.
US bond yields rise on strong data
February 16, 2006
US Treasury bonds traded very close to previous levels on Thursday as investors had several items of economic data to take into consideration while making buy and sell decisions.
New housing starts in the US were reported up in January and a report from the Federal Reserve Bank in Philadelphia showed a very strong increase in its February activity index. Meanwhile, new Fed chairman Ben Bernanke continued his testimony before Congress. Yesterday’s comments by Mr. Bernanke included his opinion that the inversion of the Treasury yield curve did not imply anything negative for the overall economic outlook in the US.
Immediately after the release of the Philadelphia Fed data, two-year bond yields had advanced by 0.3 basis points to 4.672 percent and ten-year yields were up 0.2 basis points to 4.602 percent.
US 30-year bond sale huge success
February 10, 2006
The US Treasury’s sale of 30-year long bonds in the US on Thursday, the first in over four years, was met with great success.
The U.S. Treasury received bids for 2.05 times the $14 billion in new 30-year bonds being offered for sale. Indirect bidders, which are an indication of demand from foreign investors and “real” money fund managers, amounted to a very strong 65.4 percent of the bids.
John Snow tries to reassure on “housing bubble” in wake of Katrina rebuilding
September 20, 2005
In remarks before the National Association of Federal Credit Unions on Tuesday, US Treasury Secretary John Snow said that some of President George W. Bush’s domestic agenda will be put on hold for a period of time in order to deal with recovery from the devastation of Hurricane Katrina along the Gulf Coast of the United States.
He said that the short-term economic impact on the zone directly affected by the hurricane will be “devastating” and that the rest of the nation will suffer what he called a temporary slowdown in growth of jobs and the economy.
He also said that the nationwide downward turn in the economy should last about a quarter, but then also said that the rebuilding effort will likely push economic growth in 2006 higher than it would have been had Hurricane Katrina not hit the United States.
Among the domestic agenda items that will be sidetracked by the recovery from Katrina, according to Mr. Snow, are work on the estate tax and making the Bush administration tax cuts permanent.
In response to a question about the housing bubble, Mr. Snow said that some easing in the market is inevitable, but that he thinks it is improbable that the market will collapse. He called the characterization of the housing market as a “bubble” a “misnomer”.
Credit cards becoming more popular than checks
September 12, 2005
According to the president of the Federal Reserve Bank of Philadelphia, paper checks are rapidly being replaced by credit cards and debit cards as the most popular way, other than cash, to pay for goods and services in the United States.
In remarks before the Pennsylvania Association of Community Bankers, Anthony Santomero said that only around 45 percent of non-cash payments for retail purchases are paid for by paper check now, while the balance are paid for through electronic means.
If the current rate continues, both credit cards and debit cards will individually surpass paper checks as methods of payment. In addition, many paper checks are now cleared by many banks using an electronic clearing system that transfers an image of the check rather than the check itself.
Mr. Santomero commented that this trends shows an evolution in the nation’s pattern of payments and that this evolution will continue as new innovations in payment technology are made. He also said that the Federal Reserve has encouraged these new technologies.
Greenspan warns on deficits
August 26, 2005
Outgoing Federal Reserve Chairman Alan Greenspan said in a speech to a
conference in Jackson, Wyoming on Friday that large budget deficits and growing trade protectionism pose risks to the health of the United States economy.
He said that these limit economic flexibility, which he characterized as an important characteristic for maintaining a healthy economy. He said that it is important that people not count on paper wealth created by rising stock prices and prices on homes which make consumers feel wealthier than they actually are but can evaporate quickly when bad economic times hit.
The Fed chairman said that stock and house prices must be increasingly taken into consideration when the Fed sets its interest-rate policies.
Mr. Greenspan also warned monetary policy makers that they should not focus exclusively on any one economic model, because those models are invariably a simplification of the real world, at odds with a complicated and intricate real world.
US Treasury announces new debt sale
August 3, 2005
The US Treasury announced on Wednesday that it would resume auctions of 30-year government bonds early next year. It had stopped issuing the 30-year paper in 2001, a time of budget surpluses.
Treasury said it was resuming issuance of the longer-dated bonds in order to give the government more options in its borrowing, made necessary by the government’s current deficit.
Dealers have asked for the return of 30-year bonds. The Chicago Board of Trade reacted to the announcement by saying that the bonds would be a benefit to investors by providing a secure long-term investment alternative.
In announcing the upcoming issuance of the new bonds, Treasury Secretary John Snow said from Brazil that they would be auctioned twice a year and that the auctions would be of modest size. Assistant Secretary Timothy Bitsberger said that $20 billion to $30 billion of the bonds would be sold each year, and that the first auction would come some time in the first three months of 2006.
The first of the new bonds to be sold will mature in February 2036. In another announcement related to government bonds, the Treasury Department said that it would sell only $44 billion in 3-year, 5-year, and 10-year bonds next week, below the $46 billion it had expected to sell due to a better short-term deficit outlook.
Greenspan to make last semi-annual report to Congress
July 18, 2005
When Federal Reserve Chairman Alan Greenspan addresses the US Congress on Wednesday and Thursday in his semi-annual testimony on the economy, investors will be waiting to see what, if anything, he says about the continuing string of interest rate rises in the US.
Most analysts feel that there will be no news that the rate rises will stop in the near future, and that the fourth quarter is the earliest that the Fed might halt the series of quarter-point hikes, and in fact some analysts feel that Mr. Greenspan will actively promote a continuation of the rate hikes to Congress.
Additionally, Mr. Greenspan is expected to address the boom in housing prices as well as the current “conundrum” concerning low long-bond prices, but he will likely paint an overall positive picture of the US economy.
Perhaps the most notable thing, however, about Mr. Greenspan’s semi-annual report to Congress is the fact that it will likely be his final time to deliver the report, as he is set to retire as chairman of the Fed on January 31, 2006.
Greenspan speaks against sanctions on Chinese imports
June 23, 2005
Federal Reserve Chairman Alan Greenspan said today in testimony before the finance committee of the US Senate that trade sanctions against China would not hold any advantages for the United States.
The hearings grew out of increasing concerns about China on the subjects of that nation’s exports and it’s current high interest in investing in US companies. The hearings are especially relevant in light of China state-controlled National Offshore Oil Corporation’s almost $20 billion bid Wednesday for US oil company Unocal.
Mr. Greenspan addressed a couple of issues, including the imposition of proposed tariffs against China and revaluation of China’s currency. Tariffs would not have any effect in protecting jobs in the US, Mr. Greenspan said, because lower imports from China would only mean that more good would be imported from other low-cost markets in Asia and Latin America.
Instead, the tariffs would threaten growth in living standards worldwide, including in the United States.
Snow criticises China and Europe
June 14, 2005
In Brussels on Tuesday, US Treasury secretary again admonished the Chinese on revaluation of their currency. He also warned European leaders about criticizing capitalism.
John Snow once again told the Chinese that they must act immediately to revalue the renminbi, something he has been saying for some time now.
Mr. Snow also accused European leaders of using “anti-capitalist rhetoric”, warning them that if they continued to do so they risked driving away US investors.
His comments came at a time when German Social Democrats, the ruling party, have been using what has been characterized as anti-business language.
As an example, the leader of the party recently called hedge-fund managers and private equity investors “locusts”. Additionally, France has recently made criticisms of “Anglo-Saxon” capitalism.
Mr. Snow said that such language and the policies it spawns makes US investors feel unwelcome. He pointed out that there are lots of investment opportunities for capital around the world, and that if nations make investors feel unwelcome, they will find places to invest where they feel more comfortable.
Greenspan denies oil will impact economy as feared
May 20, 2005
Alan Greenspan said on Friday that even though surging energy prices in the past two years have had a “prominent” effect on the economy in the United States, it has not had as big an effect as have other events, including the September 11 attacks, two stock market slumps, and a number of corporate scandals have had.
The remarks were included in prepared remarks for a speech to be given Friday before the Economic Club of New York. Greenspan played down the comparisons some analysts have made between the current energy situation and the energy crisis of the 1970s. He pointed out that current oil prices, when adjusted for inflation, are only at three-fourths of the peak level reached in 1981.
Greenspan also held out the possibility that current stockpiles of oil are at higher levels than they have been in years and that unless something changes - demand rises, output falls, or storage space runs out - inventories will continue to rise, and that this could work in favor of slowing or halting oil price increases.
The Fed’s chairman also expressed his opinion that changes in the ways and amounts of energy consumed by the US could change the economy in significant ways.
Figures confuse US inflation outlook
April 28, 2005
The U.S. dollar was slightly up Thursday against both the euro and the yen. The dollar was up to $1.2913 in relation to the euro and stood at ¥105.97 against the yen.
Meanwhile, analysts were debating weather just-released gross domestic product (GDP) data was a harbinger of a rising or falling value for the dollar.
The GDP showed 3.1 percent growth in the first quarter, lower than expected However the core personal consumption expenditures (PCE) deflator, which serves as the Federal Reserve’s preferred measure of inflation, had risen to 2.2 percent, up 1.7 percent from the previous quarter.
According to analysts, the first number could indicate to the Fed that it should let up its tightening of the economy, but the second figure is said to imply that the Fed should continue on its current course of tightening measures.
This means that the Fed could face the difficult choice of either controlling inflation or letting unacceptable unemployment levels persist. One expert warned that the economy was on the road to stagflation, but other experts argue that stagflation could actually have the effect of supporting the dollar.
Greenspan urges strong mortgage regulation
April 6, 2005
Alan Greenspan on Wednesday urged Congress to both enact stronger regulation and limit portfolios in order to lessen the risk that failure of mortgage finance companies Fannie Mae and Freddie Mac could require government bailout.
The U.S. Federal Reserve Chairman told the Senate Banking Committee that strengthened regulations are essential to protect the U.S. financial system, but that stronger regulations alone would not be enough.
He said that it would also be necessary to limit the portfolios of the two companies, currently totaling $1.5 trillion.
In the past, Greenspan has suggested a cap of $200 billion on the portfolios of each of the two government-sponsored enterprises (GSEs).
The chairman of the Fed admitted that his proposals could increase the perception that Fannie Mae and Freddie Mac, the biggest and second biggest buyers of home mortgages in the United States, are extensions of the government, but he said that the risks of not further regulating the two companies were too high not to act.
Greenspan insists that limiting the portfolios in this way would not increase mortgage rates. Fannie Mae and Freddie Mac were created by Congress to inject more money into the home-loan market in the U.S.
Greenspan suggests Consumption Tax
March 3, 2005
Federal Reserve chairman Alan Greenspan has suggested that a consumption tax, similar to the European VAT, should form a part of US tax reforms.
Speaking before a presidential tax advisory panel, he suggested that to reach a consumption tax only system would require a hybrid to be developed by initial reforms, combining income tax and consumption tax together.
The change is being viewed as just one measure that might help add longer-term financial stability to the US economy, particularly for encouraging saving and capital formation.
The idea of a consumption tax has already been suggested before, and critics have argued that it would mean that the poorer would get poorer.
Those in favour have suggested that a consumption-only tax could only result in the richer footing more of the bill.
However, Greenspan warned that any tax reforms had to try and keep the system as simple and accessible as possible.
Inflation up, housing down
February 28, 2005
The US Commerce Department has reported a strong increase of 0.3% in inflation, furthering speculation that quarter-percentile rises are to be expected in the coming months.
Although spending and income figures were in line with analyst predictions, a particular surprise was a downturn in the overall US housingmarket of almost 10%. This was against an expected rise of around 2.5%.
While there is no immediacy for corrective action as yet in the market data, and no rush for increasing lending rates, the fall in housing market has some observers concerned.
The property market has been a particular vehicle for economic growth over the past few years, and signs of declining property values could be indicative of declining economic strength.
Talk fails dollar strength
February 17, 2005
The US dollar slipped again after briefly rallying after Alan Greenspan’s semi-annual testimony to the Senate banking committee.
While there remained hints of action, there was little to satisfy the markets that any firm controls would be put in place to help the dollar gain strength in the currency markets.