January 12, 2012
JLN Interest Rates - http://www.jlninterestrates.com
Conversation Starter
NERA Economic Counseling: The Use of ABX Derivatives in Credit Crisis Litigation
By Dr. Ethan Cohen-Cole and Dr. Faten Sabry
Since 2007, the losses and write-downs resulting from the credit crisis have reached over $2 trillion worldwide. As the losses have mounted, securities litigation has followed and over 450 related securities cases, both class actions and others, have been filed. Of particular interest to the litigation are a set of credit default swaps (CDS), or credit derivatives, known as the ABX indices (ABX). Plaintiffs have cited the ABX indices in a variety of credit crisis cases, where they allege that the ABX indices should have been used as market indicators to mark subprime-related securities -- including mortgage-backed securities and collateralized debt obligations -- to foresee additional losses on subprime investments, and to revise loan loss reserves. In addition, the ABX indices have been cited in various court decisions.
In this NERA paper, Special Consultant Ethan Cohen-Cole and Senior Vice President Faten Sabry examine the ABX indices, explain their economic functions, and explore how these indices are currently used in related litigation. Cohen-Cole and Sabry begin with a brief introduction about the non-agency mortgage market, the CDS market, and how CDS became a mechanism through which to participate in the non-agency mortgage market. The authors then focus on a specific type of CDS, the ABX indices, and how they are administered, priced, and traded. Then, the authors discuss the allegations and decisions involving the ABX. Finally, they assess the current academic literature that analyzes the role of the ABX derivatives in the liquidity and valuation of securities that are backed by subprime mortgages.
See the entire report here:
-- Christine Nielsen
Lead Stories
Fed poised to adopt inflation target
The Federal Reserve could announce an official inflation target as early as its January 24-25 meeting, part of an ongoing effort to boost transparency.
Most analysts expect the central bank will stick with the target previously pronounced by Fed Chairman Ben Bernanke of 2 percent or a bit lower.
http://jlne.ws/AbReos
**CN: Under Alan Greenspan, the Fed was reluctant to adopt an inflation target because some officials thought it would hinder flexibility in setting policy.
U.S. Dec. budget deficit $86 billion: Treasury
The U.S. government ran a deficit of $86 billion in December, the Treasury Department reported Thursday, pushing the federal budget shortfall to $322 billion in the first quarter of fiscal 2012. Receipts were $240 billion in December, compared to spending of $326 billion by the government in the month. For the fiscal year to date, the deficit fell by $47 billion compared to the first quarter of fiscal 2011.
http://jlne.ws/xqWQyr
Transcripts from 2006 show Fed wanted housing slowdown
The US Federal Reserve fretted about a slowdown in housing in 2006, but never considered the possibility that it could cause a financial crisis, according to complete transcripts of that year’s meetings.
http://jlne.ws/w1GSf5
CFTC Votes 4-to-1 for Rules Aimed at Wall Street Swap Abuse
BusinessWeek
U.S. regulators moved to soften Dodd-Frank Act rules designed to protect less-sophisticated customers in swap trades after banks, pension funds and municipalities said the original plan could damage the market.
http://jlne.ws/AuQ0PW
CFTC adds protections to customers' money
International Business Times
The futures regulator on Wednesday adopted new protections for customer collateral posted in swap trades, and said it plans a broader look into client safeguards, as the search continues for hundreds of millions of dollars in missing MF Global customer money.
http://jlne.ws/yloOaK
Merkel Party Lawmaker Says Greece Must Leave Eurozone
Zero Hedge
Even as we are drowned by yet another avalanche of lies and cow feces that the Greek private sector bailout negotiation is going well, despite everyone knowing very well by now that various hedge funds like Saba, York and CapeView are holding the entire process hostage and the culmination will be a CDS trigger, the underlying dynamics of the Greek "bailout" once again resurface.
http://jlne.ws/zAIxV5
Greek finance minister to meet IIF head
Erie Times-News
Greece's finance minister is to hold talks in Athens with the head of a global banking association that is representing private bond holders in negotiations over a critical debt reduction deal that is part of the country's second international bailout.
http://jlne.ws/xMhCVD
Greek bond swap talks enter crucial phase
Washington Examiner
ELENA BECATOROS Associated Press ATHENS, Greece The Greek government was holding crucial talks with its private investors on Thursday to finally reach a deal on a bond swap that would reduce the country's debt load and is an integral part of its second bailout package.
http://jlne.ws/w65ZPk
ECB Holds Rates at 1 Percent And Waits For Policy to Work
CNBC
The European Central Bank left interest rates on hold on Thursday, pausing to assess the impact of back-to-back cuts and a slew of other measures it unleashed late last year that are showing some signs of helping fight the euro zone debt crisis.
http://jlne.ws/yv9Aeg
EU faults Hungary's economic policy
Associated Press via Yahoo! News
BLUNT WARNING: The European Union said Hungary's fiscal policies were unsustainable, underlining the difficulty Budapest will face in negotiating an international rescue package from the EU and the International Monetary Fund.
http://jlne.ws/zr6kBp
A credit freeze in Europe may mean higher CD rates for U.S. savers, according to a new report by Dan Geller of Market Rates Insight
http://jlne.ws/xO6cst
Bernanke Doubles Down on Fed Bet Defied by Recession: Mortgages
BusinessWeek
Ben S. Bernanke is signaling his willingness to double down on a three-year bet that's failed to revive housing, showing the extent of the Federal Reserve chairman's effort to wrest a recovery from the deepest recession.
http://jlne.ws/Ajpcxu
Bernanke: Fannie, Freddie may have to suck up more losses
Seattle Times
Ben Bernanke says restoring the health of the housing market is a necessary part of a broader strategy for economic recovery.
http://jlne.ws/wrSrax
Federal Reserve pays $77 billion to Treasury
CNN Money
Ben Bernanke is about to hand Timothy Geithner a very large check.
http://jlne.ws/ylH2IX
US economy growing slowly: Fed
AFP via Yahoo! News
The US economy continued to grow in recent weeks, but only at a moderate pace at best though there were continued signs of improvement, the Federal Reserve said in a report Wednesday.
http://jlne.ws/xRr33r
Federal Reserve economist sees slow recovery in 2012
New Bern Sun Journal
One Federal Reserve economist speaking in New Bern Thursday sees shades of gray coloring state and national economic recovery in 2012.
http://jlne.ws/wOeVj4
Fed Officials Split on Easing as They Prepare Rate Forecasts
BusinessWeek
Federal Reserve officials disagreed on the need for more easing amid signs of improvement in the economy that may shape the interest-rate forecasts they will reveal for the first time this month.
http://jlne.ws/wfj9Zq
Fed Officials Raise Bond-Buying Option Even as Economy Improves
BusinessWeek
Some Federal Reserve officials are saying the central bank should keep the option of further asset purchases on the table even as the economy strengthens, deepening divisions with colleagues who oppose further action.
http://jlne.ws/vZzgaO
Fed Officials Push Changes To Housing Policy
NPR
The Federal Reserve usually worries about interest rates and inflation. But lately, Fed officials have been focusing on housing. They've been out in public, pushing measures they think will help the housing market. David Wessel, economics editor at The Wall Street Journal , talks to David Greene about proposed changes to mortgage financing.
http://jlne.ws/xh9rQR
New FOMC Appointees Express Support for Stimulus
International Business Times
Fed Chairman Ben Bernanke is receiving reinforcements in the form of new dovish members of the Federal Open Market Committee (FOMC) this year.
http://jlne.ws/xHWjen
Republican urges Fed to limit housing advice
Market Watch
WASHINGTON (MarketWatch) - A top Republican senator on Tuesday warned Federal Reserve Chairman Ben Bernanke to "refrain" from advising Congress on the housing market after the central bank chief last week released a series of policy ideas for the housing market.
http://jlne.ws/zR2LTh
Draghi May Copy Bernanke on Path to Record-Low Interest Rate
BusinessWeek
European Central Bank President Mario Draghi may act more like Ben S. Bernanke than Jean-Claude Trichet in 2012.
http://jlne.ws/zF6ic0
Claim deadline may illuminate MF Global "hole"
Reuters via Yahoo! News
(Reuters) - One of the hottest debates raging from Wall Street to the farm belt is destined to stretch into next month, as the trustee overseeing the bankruptcy of broker MF Global Inc collects the final claims by customers who are missing some $1.2 billion - or, maybe, only half as much.
http://jlne.ws/AykwwA
Corzine Sued by Montana Farmers Over MF Global Futures Account Money
Bloomberg
Jon Corzine , former chief executive officer of collapsed commodity brokerage MF Global Holdings Ltd. (MFGLQ) , was sued for fraud by Montana farmers who claim he oversaw the misappropriation of their commodity trading account funds.
http://jlne.ws/AxnVSR
Geithner Presses China on Currency, Seeks Support on Iran
BusinessWeek
U.S. Treasury Secretary Timothy F. Geithner will urge Asia's two biggest economies to cut Iranian oil imports and seek to narrow differences with China on trade and currency disputes on a visit to Beijing and Tokyo this week.
http://jlne.ws/w8pBqr
Gross Raises Treasury Holdings in Fund to Highest in 13 Months
BusinessWeek
Bill Gross, who runs the world's biggest bond fund at Pacific Investment Management Co., increased holdings of U.S. government debt to the highest in 13 months on concern risks to the global economy are increasing.
http://jlne.ws/yM4E3u
Roach Sees China Better Placed Than India to Withstand Slowdown
Bloomberg
China has scope to loosen fiscal and monetary policy, making it better placed than India to weather a global economic slowdown, said Stephen Roach, non-executive chairman of Morgan Stanley Asia.
http://jlne.ws/ydesbv
Swiss central bank chief quits over wife's currency deal
Reuters via Yahoo! News
BERNE (Reuters) - Swiss National Bank Chairman Philipp Hildebrand resigned with immediate effect on Monday, saying he could not prove he had been unaware of a currency trade made by his wife and wanted to protect the integrity of the central bank.
http://jlne.ws/y3VLmT
SNB Supervisor Says Next Central Bank Chief Should Be Found Soon
BusinessWeek
Swiss central bank supervisory council member Gerold Buehrer said Philipp Hildebrand's replacement as president should be found sooner than April, suggesting the government's hiring timetable is too slow.
http://jlne.ws/yz4MXT
Japan Officials Tell U.S. Volcker Rule May Hamper Government Bond Trading
Bloomberg
Japan's central bank and financial regulator told U.S. authorities that the Volcker Rule restricting proprietary trading would hamper the market for Japanese government bonds, according to a letter released today.
http://jlne.ws/yKLLEN
30-year mortgage rate at record low 3.89%
Mortgage rates have hit record lows, Freddie Mac said Thursday in its weekly report on these rates, following "mixed" labor-market indicators. The average rate on the 30-year fixed-rate mortgage fell to a record low of 3.89% in the week ended Jan. 12, compared with 3.91% in the prior week, according to Freddie, a buyer of residential mortgages.
http://jlne.ws/xuJUc2
**CN: Perhaps Bernanke will refinance again.
ISDA Unveils Members, Mission Of Industry Clearing Committee
By Katy Burne Of DOW JONES NEWSWIRES
NEW YORK -(Dow Jones)- The International Swaps and Derivatives Association disclosed the members and goals of its Industry Clearing Committee Wednesday as market participants band together to iron out kinks in the way some contracts are processed and to increase the volume of trades cleared overall.
http://jlne.ws/zjyLvD
Italy's Monti supports tax on financial transactions so long as it's on European level
Washington Post
BERLIN - Italian Prime Minister Mario Monti on Wednesday threw his support behind a new tax on financial transactions, backing a push by Germany and France, but said he would prefer to have it apply across the whole European Union.
http://jlne.ws/wMsdiJ
IMF to visit Egypt this week for loan talks: source
Reuters via Yahoo! News
WASHINGTON (Reuters) - Egyptian authorities and the International Monetary Fund will begin talks in Cairo this week on a possible 18-month IMF loan program worth about $3 billion, an IMF source said on Tuesday.
http://jlne.ws/A6eJMx
Emerging Markets Mobile Banking Runs Ahead Of Google Wallet
Forbes
Mobile phones have changed banking faster in emerging markets than in developed countries, so they may provide an indication of where hot tech like the Google Wallet might go if it ever catches up with South Africa, Kenya or Bangladesh.
http://jlne.ws/Asqwuu
The Bancorp Bank to Issue The Approved Prepaid MasterCard Created By Suze Orman
Business Wire
WILMINGTON, Del.--(BUSINESS WIRE)--The Bancorp Bank ("Bancorp"), a wholly owned subsidiary of The Bancorp, Inc. (Nasdaq: TBBK), is pleased to announce that it will be the issuing Bank for Suze Orman's Approved Prepaid MasterCard. The Bancorp and Suze Orman launched The Approved Prepaid MasterCard to empower Americans to effectively manage their finances.
http://jlne.ws/zln3Tk
Is a pension a stand-in for bonds?
CNN Money
Our 401(k) and Roth investments are in stock index funds and commodities. We own no bonds. With a pension and Social Security, can we keep forgoing bonds? -- D.F., Washington, D.C.
http://jlne.ws/yb3zw6
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
Retail Banking in Europe
March 13 and 14, 2012
Marketforce And The IEA’s 13th Annual Conference
http://jlne.ws/wNoXDO
ifm willing to do this. people wondering what your role - only four firms -- so need to broadn
Exchanges, Clearing Houses & MTFs
CME Chief Speaks Out on CFTC Inquiry
By TERRENCE DUFFY
To expand on the article by Ben Protess and Azam Ahmed on Friday, Jan. 5 (“MF Global Inquiry Turns to its Primary Regulator”), it is no surprise that CME Group is included in the Commodity Futures Trading Commission’s review. In November, the C.F.T.C. requested that CME Group not conduct its own investigation, but rather take part in the agency’s inquiry, and since then we have worked together closely.
http://jlne.ws/yUh7FX
Firms & Banks
Deutsche Bank Said to Choose Asset Management Sale After Bids
BusinessWeek
Deutsche Bank AG executives decided to pursue a sale of asset-management units after they were satisfied with early interest in the business, according to two people with knowledge of the matter.
http://jlne.ws/zcwqvN
Raymond James buys Morgan Keegan in $930 million deal
St. Petersburg Times
By Jeff Harrington, Times Staff Writer Wednesday, January 11, 2012 St. Petersburg-based Raymond James Financial is buying Morgan Keegan & Co. from Regions Financial for $930 million, creating one of the largest wealth management and investment banking firms not headquartered on Wall Street.
http://jlne.ws/yM7q87
UBS hires three MSSB advisers in California
Reuters via Yahoo! News
NEW YORK (Reuters) - Advisers Shawn Shafer, James Forsyth and Steven Miller are the third team of advisers UBS said has joined from Morgan Stanley Smith Barney since early December.
http://jlne.ws/w8rAil
Royal Bank of Scotland Cuts 272 Jobs at U.K. Corporate Bank
BusinessWeek
Royal Bank of Scotland Group Plc, Britain's biggest government-owned lender, will cut 272 jobs from its U.K. corporate banking unit as slowing growth and rising volatility force Chief Executive Officer Stephen Hester to shrink the lender.
http://jlne.ws/xUCwXz
RBS Plans to Cut 3,500 Investment Bank Jobs [Video]
Bloomberg
Jan. 12 (Bloomberg) -- Royal Bank of Scotland Group Plc, Britain's biggest government-owned bank, will cut 3,500 jobs at its investment bank over the next three years as it jettisons unprofitable cash equities and mergers advisory operations.
http://jlne.ws/y6M1s4
The Royal Bank Of Scotland Group Plc Announces Strategic And Organisational Changes In Its Investment Banking/Wholesale Business
Press Release
http://jlne.ws/A1OuhO
WaMu reorganization plan headed for creditor vote
Reuters
The stage is set for creditors to vote on bank holding company Washington Mutual Inc.'s latest reorganization plan and for a hearing next month on whether a Delaware bankruptcy judge should confirm the plan after she approved a document describing the plan Wednesday.
http://jlne.ws/A2SGrx
Regulators
Evans Says 'Only Modest' Pickup in Economy Warrants Federal Reserve Action
Bloomberg
Federal Reserve Bank of Chicago President Charles Evans said signs of improvement in the economy are modest and the central bank should push forward with "substantial" monetary stimulus.
http://jlne.ws/zWZ97Q
Lacker 'Nervous' About Fed's Independence With Fiscal Forays
BusinessWeek
Federal Reserve Bank of Richmond President Jeffrey Lacker said he is concerned how the central bank will be treated in the 2012 elections.
http://jlne.ws/xtpkhT
Fed's Bullard Says Monetary Policy Effective Even at Zero Rates
BusinessWeek
Federal Reserve Bank of St. Louis President James Bullard said monetary policy has influenced inflation and price expectations, even with the benchmark interest rate near zero since December 2008.
http://jlne.ws/zyAVE5
Kocherlakota Shines Light on Mechanics of Fed Meetings
Wall Street Journal Blogs
Federal Open Market Committee proceedings may be a bit more scripted and slow-moving than many understand.
http://jlne.ws/z7yHwS
Shirakawa Says Reforms Needed as Loose Monetary Policy Has Costs
BusinessWeek
Bank of Japan Governor Masaaki Shirakawa said there are limits to what monetary policy can achieve and governments must implement "necessary" reforms to aid the global economy.
http://jlne.ws/wv6lCr
Global News
UK Central Bank Keeps Key Rate At 0.50%, QE At GBP 275 Bln
RTT News
The Bank of England decided to leave the size of quantitative easing unchanged at GBP 275 billion and the interest rate again at a historic low, as expected, on Thursday amid the economy undergoing a harsh economic situation.
http://jlne.ws/xyB2Vk
Brazilian November Retail Sales Increase at Fastest Pace in 15 Months
Bloomberg
Brazil's November retail sales rose at the fastest pace in 15 months, sending interest-rate futures yields higher as traders pared bets on rate cuts.
http://jlne.ws/zj5MnF
Brazil Suffers Assault on Bank Integrity With Tombini Rate Cuts
BusinessWeek
Brazilian central bank board member Carlos Hamilton so disagreed with a surprise interest-rate cut in August that he slammed phones and stomped through hallways, according to three bank officials familiar with his reaction.
http://jlne.ws/A2UZpi
South Korea to Start OTC Derivatives Clearing House to Cut Risks
BusinessWeek
Korea Exchange Inc. plans to start a clearing house for over-the-counter derivatives trading in the fourth quarter as Asia's bourses join global efforts to reduce risk in the largely unregulated market.
http://jlne.ws/xWIByg
Poland's central bank keeps rates on hold at 4.5%
Market Watch
LONDON (MarketWatch) -- Poland's central bank on Wednesday kept its benchmark interest rate unchanged at 4.5%. The decision was in line with market expectations.
http://jlne.ws/zFUKPH
Indonesia Holds Policy Rate at 6% as Currency Drop Revives Inflation Risk
Bloomberg
Indonesia kept interest rates unchanged for a second month, extending a pause in monetary easing as a weakening rupiah and a government plan to contain fuel subsidies threaten to spur inflation.
http://jlne.ws/ABfmGY
China inflation eases to 15-month low, policy easing eyed
Reuters via Yahoo! News
BEIJING (Reuters) - China's inflation rate eased to a 15-month low in December, though sticky food prices are a reminder of the risks the government is weighing as it tilts policy towards boosting growth as internal and external demand for Chinese goods falters.
http://jlne.ws/xGL9x5
Russian Bank Fraud Is Now Equal To 10% Of The Country's GDP
Business Insider
The Central Bank and the Interior Ministry have calculated the total illegal turnover in the financial sector during 2011 to be 5 trillion rubles ($158 billion), about 10 percent of Russia's annual gross domestic product.
http://jlne.ws/wkP5q3
Investor Confidence in Austria Rapidly Deteriorating: Fitch
International Business Times
A day after re-affirming its top sovereign credit rating on Austrian government bonds, a research arm of respected French credit rating agency Fitch has issued a report noting the rapidly deteriorating level of confidence investors in the derivatives market are displaying towards that country's debt.
http://jlne.ws/wex3s7
Roubini Says India `Better Placed' Among BRICs
Bloomberg
Jan. 11 (Bloomberg) -- New York University professor Nouriel Roubini talks about the outlook for growth India and the U.S. He speaks from New Delhi with Bloomberg UTV's Harsha Subramaniam.
http://jlne.ws/y9BDBD
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