December 22, 2011
JLN Interest Rates - http://www.jlninterestrates.com
Conversation Starter
Federal Reserve Bank Of New York: Central Bank Imbalances In The Euro Area
Matthew Higgins and Thomas Klitgaard
The euro area sovereign debt crisis sparked an outflow of bank deposits from countries in the periphery to commercial banks in Germany and other core countries. The outflow highlighted a key aspect of the payments system linking national central banks in euro area countries. In particular, net outflows from private commercial banks in a given country are matched by credits to that country’s central bank, with those credits extended by central banks elsewhere in the euro area. In this post, it's explained how the credits affected the adjustment pressures faced by countries in the euro area during the ongoing debt crisis.
See the full Federal Reserve Bank Of New York report here.
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SIFMA Issues 2012 Municipal Bond Issuance Survey
--Forecast shows $402 Billion in Issuance for 2012--
New York, NY, December 21, 2011—The Securities Industry and Financial Markets Association (SIFMA) today released its 2012 Municipal Bond Issuance Survey. Compiled from responses provided by large and regional municipal bond underwriters and dealers, the report forecasts what type of activity is expected in the taxable and tax-exempt municipal securities market in 2012.
Respondents expected total municipal issuance, both short- and long-term, to reach $402.0 billion in 2012, a significant recovery from their expectation of $342.0 billion in 2011. Additionally, excluding short-term notes, long-term issuance is also expected to recover in 2012, with a forecasted $347.0 billion total in 2012 compared with $288.0 billion in 2011.
See the entire survey here.
**CN: Survey respondents also offered relatively uniform views on interest rate trends in the coming year, generally expecting little to no change in rates throughout 2012.
Lead Stories
European Banks Rush to Grasp Lifeline
WSJ.com
Hundreds of euro-zone lenders took out €489.19 billion ($640 billion) in low-interest loans from the European Central Bank on Wednesday, as the currency area extended a massive financial lifeline to its struggling banking industry. The unexpectedly heavy demand from 523 banks for the three-year loans highlighted the severity of Europe's financial crisis, while also stirring some hopes that the action could help defuse it, or at least prevent it from getting worse.
http://jlne.ws/so9Csf
Bernanke Tells Senators Fed Plans No Aid to European Banks
BusinessWeek
Federal Reserve Chairman Ben S. Bernanke told Republican senators the Fed plans no additional aid to European banks amid the region's sovereign debt crisis, according to two lawmakers who attended the meeting.
http://jlne.ws/uECNms
Italian Parliament Approves Monti’s Budget
Bloomberg
Prime Minister Mario Monti’s emergency budget plan won final approval in Parliament today as Italy struggles to tame surging borrowing costs before facing 53 billion euros ($69 billion) in debt repayments early next year.
http://jlne.ws/umOnS5
PIMCO Cyclical Outlook: Deleveraging, Austerity and Europe’s Potential Minsky Moment
The year ahead will likely be very challenging for the global economy. Growth faces several hurdles that we believe collectively will impose a sense of greater uncertainty and increased volatility on financial markets. These hurdles include the need for accelerated balance sheet deleveraging, slowly creeping but surely rising risks of financial and economic de-globalization, and the constant drum beat of re-regulation, particularly in developed country banking systems.
http://jlne.ws/uRvsro
Boost from ECB lending seen limited
Reuters
Europe's banks borrowed nearly 490 billion euros from the European Central Bank at its first-ever offer of three-year loans on Wednesday, encouraging demand for the euro and stocks on hopes the funding will ease the two-year old debt crisis. But the very heavy take-up of the ECB money also highlighted the scale of the pressures European banks are under and some of the initial gains in asset prices were quickly given back.
http://jlne.ws/stcx0D
ECB's Mario Draghi Tells Financial Times More Resilient Financial System Needed
http://jlne.ws/uTXEg2
**CN: Draghi says a financial system with less debt and more capital is required.
Roubini: Euro Zone 'In Denial,' US Postpones Reforms
CNBC
Famous economist Nouriel Roubini, credited for predicting the financial crisis, made a plea to policymakers to take the tough action needed to address current economic problems, in an article published on the Financial Times website.
http://jlne.ws/vGIYF0
Federal Reserve says large banks should hold more capital to cushion against crisis
Washington Post
NEW YORK - The Federal Reserve on Tuesday said the largest U.S. banks and financial companies should hold extra cash on their balance sheets to cushion themselves against financial crises. The proposal by the chief U.S. banking regulator will affect banks with over $50 billion in assets. There are even stricter rules for companies with over $500 billion in assets such as JPMorgan Chase & Co.
http://jlne.ws/uxO7Df
Real Reasons That Bankers Don't Like Basel Rules: Clive Crook
Bloomberg
The Federal Reserve, according to reports, has decided that big U.S. banks will have to comply with an emerging new global rule on capital. It's a move the banks have fought, arguing that it will increase their costs and discourage lending.
http://jlne.ws/u8Oltm
Obama endorses McConnell payroll tax cut plan
USA Today
President Obama today endorsed a proposed compromise by the Senate Republican leader on the payroll tax cut impasse: to have House Republicans pass a temporary two-month extension, while Senate Democrats agree to negotiate a year-long extension at the same time.
http://jlne.ws/vbbxFv
NYSE-Deutsche Boerse Merger Given U.S. Approval Pending Direct Edge Sale
Bloomberg
The U.S. approved the $9 billion merger of NYSE Euronext (NYX) and Deutsche Boerse AG (DB1) on the condition that the German exchange sells its 31.5 percent stake in Direct Edge Holdings LLC to preserve competition among stock exchanges.
http://jlne.ws/tYxu5Q
Fannie Mae, Freddie Mac Sued by California in Foreclosure Probe
Bloomberg Businessweek
Fannie Mae and Freddie Mac were accused in a lawsuit by California Attorney General Kamala Harris of hindering her probe into mortgage lending and foreclosure practices.
http://jlne.ws/spoU7E
Daniel Mudd, ex-Fannie Mae CEO, takes leave of absence from hedge fund firm
The Washington Post
Former Fannie Mae chief executive Daniel Mudd, who was charged with fraud last week by the SEC, is taking a leave of absence from his job as chief executive of hedge fund manager Fortress Investment Group, the firm said Wednesday.
http://jlne.ws/tYdJSt
Municipal Bond ETFs Turn in Solid Year
Yahoo! Finance
Municipal bonds were one of the best-performing categories in fixed-income exchange traded funds in 2011 despite talk of widespread defaults earlier in the year. One of the largest muni bond ETFs is up about 12% year to date.
http://jlne.ws/tJUlbX
U.S. Faces 2013 Fitch AAA Downgrade Unless Deficit Cuts Made
Bloomberg Businessweek
The U.S.’s AAA rating will probably be cut by Fitch Ratings by the end of 2013 unless lawmakers are able to formulate a plan to reduce the budget deficit after next year’s congressional and presidential elections.
http://jlne.ws/sd39uZ
Freddie Mac: Record-Breaking Low Mortgage Rates for the Holidays
Press Release
Freddie Mac today released the results of its Primary Mortgage Market Survey, showing average fixed mortgage rates at or near all-time record lows helping to keep homebuyer affordability high. The 30-year fixed averaged 3.91 percent for the week, a new all-time low, dropping below last week's 3.94 percent, the previous record low. The 15-year fixed matched last week's all-time record low at 3.21 percent. Adjustable rate products also hit new all-time lows in this week's survey.
http://jlne.ws/t5vKag
Mortgage rates fall to historic lows again
AP/USA Today
The average rate on 30-year fixed mortgages fell to a record 3.91% this week, third time this year that rates have hit new lows. Freddie Mac says the rate on the 30-year home loan fell from 3.94% the previous week. The average on the 15-year fixed mortgage was unchanged at 3.21%. That's also a record.
http://jlne.ws/t6wSOB
ISDA: OTC Derivatives Market Analysis: Despite Increase in Notionals, Over 50% of IRS Market Is Cleared
Reuters/Press Release
The International Swaps and Derivatives Association, Inc. (ISDA) published today its analysis of the over-the-counter (OTC) derivatives market based on June 30, 2011 statistics. According to the ISDA analysis, the notional amount of OTC derivatives outstanding (adjusted to exclude FX transactions and for the impact of clearing) increased 18 percent from $416.7 trillion at year-end 2010 to $491.3 trillion at June 30, 2011. This increase in notional outstanding reverses declines in 2008, 2009 and 2010. From year-end 2007 through year-end 2010, the OTC derivatives markets decreased in size by approximately 12 percent when measured on this adjusted basis.
http://jlne.ws/rp8Vj9
Why The Fed Can't Be Counted On To Save The Economy
Forbes
The Federal Reserve was established in 1913 supposedly to maintain economic stability, but it presided over America’s worst depression (1930s), the worst peacetime inflation (mid-1960s to mid-1980s) and probably the worst asset bubble and bust (early 2000s to the present). In addition, there have been 18 recessions or depressions during the Fed era, generally the result of prior inflations.
http://jlne.ws/t1Lqe4
Feds approve RBC sale to PNC
Rocky Mount Telegram
WASHINGTON - The Federal Reserve has given approval for PNC Financial Services Group Inc. to purchase the U.S. retail operations and credit-card assets of Royal Bank of Canada.
http://jlne.ws/tnPXwQ
The Fed: 2012 to be Year of the Dove on Fed
Market Watch
The makeup of the Federal Open Market Committee in 2012 will be decidedly more dovish and willing to back Fed chairman Ben Bernanke's activist policies, Fed watchers said.
http://jlne.ws/shhiy1
U.S. 10-Year Yields May Fall to 1.5% in 2012, Deutsche Bank's Konstam Says
Bloomberg
Treasury 10-year note yields could drop to a record low 1.5 percent in 2012 as global growth concern persists and the Federal Reserve buys more debt to support the U.S. economic recovery, according to Deutsche Bank AG's Dominic Konstam.
http://jlne.ws/tYEDly
Treasury headquarters attains LEED Gold certification
Federal Times
The Treasury Department announced today that their headquarters has attained LEED Gold certification by the U.S. Green Building Council. Gold is the second-highest rating. The building was made more energy and water efficient, resulting in a 7 percent decrease in electricity use and a 53 percent decrease in steam use over 2008 levels.
http://jlne.ws/uAsrvx
Events
Fixed Income Markets 2012
January 24, 2012
Tabb Forum Looks At Changes Ahead And Staying Ahead In Fixed Incomes
http://jlne.ws/snQ3VO
Treasury Futures: Using International Fixed-Income and Money Market Spreads
January 31, 2012
The IFM Instructs On Using Fixed Income And Money Market Spreads
http://jlne.ws/u7MgUK
National Association of Home Builders' Show
February 10, 2012
Special Session With Fed's Bernanke Open To All Registered Attendees
http://jlne.ws/tEcqjW
Economic News
Unemployment applications lowest since April '08
CBS News
The number of people applying for unemployment benefits dropped last week to its lowest level since April 2008, extending a downward trend that shows the job market strengthening.
http://jlne.ws/vQmvBU
Unemployment Fell in Nearly All States in November
CNBC
Unemployment rates in almost all U.S. states dropped in November, and 45 states had jobless rates lower than the year before, U.S. Labor Department data showed Tuesday.
http://jlne.ws/vFEbZU
3rd straight decline puts jobless claims at April 2008 levels
Dow Jones Newswires/Chicago Tribune
New claims for unemployment benefits unexpectedly fell last week, reaching the lowest level since April 2008 and providing another sign of improvement for the weak labor market.
http://jlne.ws/tuSBjq
Housing Starts in U.S. Increase to Highest Level in a Year
Bloomberg Businessweek
Builders broke ground in November on the most houses in over a year, a sign that the market is stabilizing heading into 2012. Starts increased 9.3 percent to a 685,000 annual rate, exceeding the highest estimate of economists surveyed by Bloomberg News and the highest level since April 2010, Commerce Department figures showed today in Washington. Building permits, a proxy for future construction, also climbed to a more than one- year high.
http://jlne.ws/tkLMli
GDP Growth Revised Lower
WSJ.com
The U.S. economy expanded less than thought during the third quarter as consumer spending fell short of an earlier estimate, though signs point to stronger growth in the final months of the year.
http://jlne.ws/uWIrS9
Consumer Sentiment Rose More Than Forecast
Bloomberg
Confidence among U.S. consumers rose more than forecast in December, to a six-month high, as Americans began wrapping up their holiday spending. The Thomson Reuters/University of Michigan final index of consumer sentiment climbed to 69.9 from 64.1 at the end of November. The median estimate in a Bloomberg News survey called for 68 after a preliminary reading of 67.7. The gauge averaged 89 in the five years leading up to the recession that began in December 2007 and ended in June 2009.
http://jlne.ws/uiTarr
Exchanges, Clearing Houses & MTFs
SwapClear Enhancements Drive Additional $32.7 billion of IRS Client Clearing
PR Newswire via Yahoo! Finance
NEW YORK , Dec. 19, 2011 /PRNewswire/ -- LCH.Clearnet Limited (LCH.Clearnet), the world's leading independent clearinghouse, today announced that SwapClear, its interest rate swap (IRS) clearing service.
http://jlne.ws/tPoVIh
Firms & Banks
First Midwest Bancorp, Inc. Repurchases Warrant From U.S. Treasury
Marketwire
ITASCA, IL--(Marketwire - Dec 22, 2011) - First Midwest Bancorp, Inc. ("First Midwest" or the "Company") ( NASDAQ : FMBI ) announced today that it has repurchased the warrant the Company issued to the United States Department of the Treasury ("Treasury") as a part of the Capital Purchase Program ("CPP").
http://jlne.ws/unStjA
Massachusetts Saves as JPMorgan Beats Bank of America on Bond-Sale Bidding
Bloomberg
The competition between JPMorgan Chase & Co. (JPM) and Bank of America Merrill Lynch to be the top underwriter of municipal bonds offered by auction helped Massachusetts save $880,000 on a $400 million borrowing.
http://jlne.ws/s4i9xO
FINRA Fines Wells Fargo $2 Million Over Broker's Sales, Missed Discounts
Nasdaq
The Financial Industry Regulatory Authority fined Wells Fargo & Co. (WFC) $2 million for unsuitable sales of reverse convertible securities through one broker to 21 customers and for failing to provide sales charge discounts to unit investment trust transactions to eligible customers.
http://jlne.ws/uDhhCq
NYC pension funds want tougher Wall Street clawbacks
Yahoo! News
New York City's pension funds want three big Wall Street banks to impose tougher compensation-clawback rules for top executives. NYC Pension Funds and City Comptroller John Liu called on the boards of Goldman Sachs Group Inc, Morgan Stanley and JPMorgan Chase & Co to strengthen language in top executives' compensation agreements. The funds held $483.3 million worth of stock in the three banks as of Monday.
http://jlne.ws/rXCUd1
Jefferies shares close up 23%
CNN Money
The investment bank Jefferies has taken steps to shrink its assets, and fourth quarter results were "mediocre," according to CEO Richard Handler. Yet, for Handler, these results were a vindication, after rumors swirled in the wake of MF Global's collapse that Jefferies could swiftly suffer a similar fate.
http://jlne.ws/vpptXQ
Auctions & Statistics
Treasury prices fall after weak demand at an auction of $29 billion of 7-year notes
The Washington Post
U.S. Treasury prices fell Wednesday after an auction of $29 billion seven-year notes failed to generate strong demand from investors. The government had to pay a yield of 1.43 percent on the notes, sharply higher than the 1.38 percent yield the seven-year note was trading at prior to the sale.
http://jlne.ws/tudcmr
Spanish borrowing costs plunge in debt auction
AP
Spain's borrowing costs plummeted in a short-term debt auction Tuesday, indicating market confidence in the country's ability to handle its debt is recovering as conservative Mariano Rajoy prepared to take over as the new prime minister. The Treasury said it sold euro5.6 billion ($7.3 billion), way above the euro4.5 billion it had initially sought.
http://jlne.ws/rIBOtV
Regulators
CFTC Approves 30-Minute Delay in Swap-Trade Price Reporting
Bloomberg Businessweek
Prices for swaps traded on so-called swap execution facilities or exchanges will be delayed for 30 minutes under a rule approved by the U.S. Commodity Futures Trading Commission.
http://jlne.ws/tWuyda
CFTC sheds light on real-time reporting of swaps
Reuters
Wall Street will be required to report complex swap trades in "real time" under a final rule the U.S. futures regulator approved on Tuesday, moving to lift the veil on the murky $700 trillion market, but the agency delayed a decision on block trades until next year.
http://jlne.ws/rLN9BE
FINRA spent $280K lobbying in third quarter
Yahoo! Finance
The Financial Industry Regulatory Authority, the securities industry's self-policing organization, spent $280,000 in the third quarter to lobby on regulation of brokers and investment advisers, and on new rules putting the financial overhaul law into effect, a disclosure report shows.
http://jlne.ws/tWk7BN
Federal Reserve Bank of San Francisco Elects Megan Clubb and Richard Galanti to its Board of Directors
Business Wire via Yahoo! Finance
The Federal Reserve Bank of San Francisco announced the election of Ms. Megan Clubb, president and CEO of Baker Boyer National Bank in Walla Walla, Washington, and Mr. Richard Galanti, executive vice president, CFO, and director of Costco Wholesale Corporation in Issaquah, Washington to its board of directors.
http://jlne.ws/sklVrk
Lacker sees no need for Fed to ease
Reuters via Yahoo! News
CHARLOTTE (Reuters) - The Federal Reserve is unlikely to need to ease monetary policy further given the country's steady if moderate pace of economic growth, Richmond Fed President Jeffrey Lacker said on Monday. Lacker, an inflation hawk who will rotate into a voting seat in the policy-setting Federal Open Market Committee next year, said he expects the economy to expand.
http://jlne.ws/w4ShA5
OTC
ISDA Updates OTC Derivatives Market Analysis: Despite Increase in Notionals, Over 50% of IRS Market Is Cleared
Yahoo! Finance
According to the ISDA analysis, the notional amount of OTC derivatives outstanding (adjusted to exclude FX transactions and for the impact of clearing) increased 18 percent from $416.7 trillion at year-end 2010 to $491.3 trillion at June 30, 2011. This increase in notional outstanding reverses declines in 2008, 2009 and 2010. From year-end 2007 through year-end 2010, the OTC derivatives markets decreased in size by approximately 12 percent when measured on this adjusted basis.
http://jlne.ws/s3SQK8
ICE Recognised for Leading Role in Emissions Markets
Yahoo! Finance
IntercontinentalExchange, a leading operator of regulated global futures exchanges, clearing houses and over-the-counter (OTC) markets, has been recognised as "best exchange" in four categories by Environmental Finance and Carbon Finance Magazine in its 12th Carbon Finance Annual Market Survey.
http://jlne.ws/sOQYvG
Global News
U.K. Budget Deficit Narrowed More Than Forecast in November
Bloomberg
Britain’s budget deficit narrowed more than economists forecast in November as tax revenue rose and the government’s fiscal squeeze restrained spending.
http://jlne.ws/taplTs
Japan's trade deficit widens in November
Market Watch
Japan posted its second straight trade deficit in November, the Ministry of Finance reported Wednesday, with the trade gap growing to 684.7 billion ($8.79 billion) from ¥273.8 billion in October. The deficit was also wider than a Dow Jones Newswires survey median forecast of ¥440 billion. Exports for the month were 4.5% lower than those a year earlier, while imports rose 11.4%.
http://jlne.ws/utlg0E
Sweden Lowers Repo Rate First Time Since 2009 As Euro Crisis Dampens Growth
Nasdaq
The Swedish central bank on Tuesday decided to cut its benchmark repo rate for the first time since July 2009. Additionally, the bank lowered the repo rate path as recent economic developments in the euro area dampened domestic economic activity.
http://jlne.ws/stNBLu
Credit Suisse Races UBS Building Buffers in Fortress Switzerland
Businessweek
UBS AG and Credit Suisse Group AG, Switzerland’s largest banks, are finding that the advantages of Europe’s toughest capital requirements are helping offset the costs as the region’s sovereign-debt crisis escalates.
http://jlne.ws/tCY5Ew
French Banks Won't Be Able To Handle Inevitable Italian Restructuring
Forbes
Despite the latest attempt by the European Central Bank to kick the proverbial can far down the road, the Eurozone remains under heavy pressure, and France’s AAA credit rating hangs from a thread. According to research by Nomura, France’s exposure to peripheral Europe tops €680 billion ($887 billion), more than 25% of its GDP, putting its banks at substantial risk in the event of another debt restructuring or an outright default among the PIIGS.
http://jlne.ws/tvu9TY
Citigroup Said to Face Suspension of Some Operations in Japan
Businessweek
Citigroup Inc., the third-biggest U.S. bank, will be ordered by regulators to suspend some operations in Japan after a probe revealed compliance violations, according to two people familiar with the matter.
http://jlne.ws/sREE8v
Germany's Word of the Year: 'Stress Test'
ABC News
"Stress test" has beaten out "leverage" in the race to become Germany's word of the year as the deepening debt crisis makes its mark on the language.
http://jlne.ws/tzW7IT
Brazil's Unemployment Rate Tumbled to Record Low 5.2 Percent in November
Bloomberg
Brazil's unemployment rate fell to its lowest on record in November, showing a resilience in Latin America's biggest economy that may limit policymakers ability to enact further rate cuts. Interest-rate futures rose.
http://jlne.ws/sQnSdr
RBA Rate Cut Reflected `Non-Trivial' Risk of Sharp Europe Slump
BusinessWeek
Australia's central bank lowered its benchmark interest rate this month because increased risks to global growth from Europe's sovereign-debt crisis overshadowed evidence the nation's mining boom is intensifying, minutes of its Dec. 6 meeting showed.
http://jlne.ws/rRMWLZ
New Zealand Economy Perks Up, but Rates on Hold
CNBC
New Zealand's economy grew at its fastest pace in almost two years in the September quarter as manufacturing and retail spending rose during the Rugby World Cup, but markets remained wary of the impact from the European debt crisis and continued to expect low interest rates for longer.
http://jlne.ws/tYXqSb
China Economy, Monetary Policy, Political Outlook
Bloomberg
Dec. 22 (Bloomberg) -- Andy Rothman, China macro strategist at CLSA Asia Pacific Markets, talks about the outlook for China's economy, central bank monetary policy and government in 2012.
http://jlne.ws/spzY7F
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