| Philippine gov’t defers foreign bond swap plan The Aquino administration has deferred indefinitely a plan to undertake a bond swap in the international capital market, citing the unfavorable environment resulting from the downgrade of the US credit rating. “Now is not the right time to do it [bond swap] given that the market is too volatile,” National Treasurer Roberto Tan said Tuesday after the Senate hearing on the proposed 2012 national budget. Tan said the Bureau of the Treasury would study the market and determine first if jitters arising from the debt situation of the United States have subsided before considering any bond swap. Under the bond swap, formally called the Debt Consolidation Program, the government issues new bonds and offers these to existing holders of bonds that are about to mature. The objective is to lengthen the maturity of the country’s foreign debts. The swap may also entail an exchange in currency denomination. The government may swap newly issued peso-denominated bonds with dollar-denominated securities to reduce the country’s exposure to foreign exchange risk. Last month, the government was able to successfully implement a bond swap in the domestic capital market, exchanging P323.5 billion worth of bonds. This time, the government wanted to undertake a similar activity involving dollar-denominated bonds in the international capital market. The finance department has yet to announce how much new bonds it would offer for the exchange. The planned bond swap has been already approved by the Bangko Sentral ng Pilipinas, which said the plan was not expected to create problems related to liquidity and the exchange rate. However, Tan said the behavior of the international market since last weekend has made it imprudent to pursue the debt swap now. Tan said the Treasury was monitoring the international bond market to determine the proper time to undertake the bond swap. “The timing will depend on market conditions,” Tan pointed out. Last Saturday, the credit rating of the United States was downgraded by a notch, or from AAA to AA+ by Standard & Poor’s, which raised concern over the debt situation in the world’s biggest economy. The downgrade came after a tedious debate by legislators over whether or not to raise the US debt ceiling. Congress eventually agreed to raise the debt ceiling, beating the August 2 deadline. Without such a move, the US government would have been prevented to borrow and risked being declared in default. Although the debt ceiling was raised, S&P said the long debate in Congress that placed the Obama administration at risk of defaulting reflected a deterioration in the credit-worthiness of the United States. |
| Stocks Rally, 10-Year Yield Hits Record Low After Fed Statement By Michael P. Regan and Rita Nazareth Aug. 9 (Bloomberg) -- U.S. stocks jumped the most in more than two years, rebounding from the worst drop since 2008, and 10-year Treasury yields touched a record low as the Federal Reserve vowed to keep interest rates near zero through mid-2013. The dollar weakened and the Swiss franc rose the most since at least 1971. The Standard & Poor’s 500 Index jumped 4.7 percent to 1,172.53 at 4 p.m. in New York, its biggest gain since March 2009, after tumbling 6.7 percent yesterday. The 10-year Treasury yield fell as much as 28 basis points to 2.03 percent before trimming its decline. The Dollar Index slid 1.2 percent, its biggest drop since October, while the Swiss franc strengthened as much as 6.5 percent to a record $1.4099. In pledging to keep its benchmark rate at an all-time low, the Fed also discussed a range of policy tools to bolster the economy, saying it is prepared to use them “as appropriate.” The statement fueled speculation the central bank may consider a third round of quantitative easing through bond purchases to revive a recovery that’s “considerably slower” than anticipated. “The Fed is clearly setting up a situation that could offer them the potential to do something significant, if necessary,” Bruce McCain, who helps oversee $22 billion as chief investment strategist at the private-banking unit of KeyCorp in Cleveland, said in a telephone interview. “That could be viewed as a positive,” he said. “People are starting to realize that what we’ve had in the market was an overreaction.” Rebound After Rout U.S. stocks rebounded from a rout that wiped out $1 trillion yesterday in the first trading session after the government was stripped of its AAA rating at S&P. The S&P 500 sank 11 percent in the previous three days and started today trading at 12.3 times reported earnings, compared with its average of 16.4 since 1954, according to data compiled by Bloomberg. The MSCI All-Country World Index rose 2.1 percent for its biggest gain of the year, rebounding from a drop of as much as 2 percent earlier today that threatened to extend declines from this year’s high in May to 20 percent or the threshold for a bear market. The index started the U.S. session valued at about 12.1 times profits, down from 21 in 1995..The MSCI Emerging Markets Index pared today’s drop to 2.2 percent after tumbling as much as 4.4 percent. Dow Rallies The Dow Jones Industrial Average rallied 429.92 points, or 4 percent, to 11,239.77 for the biggest percentage gain since the month the bull market began in March 2009. The Dow’s advance today was the 10th largest point-gain in the history of the index, according to Bespoke Investment Group LLC. All 30 stocks gained at least 0.8 percent. Financial shares in the S&P 500 led today’s advance, surging more than 8.2 percent as a group for the biggest rally since May 2009 and recovering from yesterday’s two-year low. Bank of America Corp. surged 17 percent and Hartford Financial Services Group Inc. climbed 16 percent to lead gains among 80 of 81 banks, insurers and investment firms in the index. The Fed’s statement represents the biggest effort since November to spark the U.S. economy and revive confidence while stopping short of initiating a third round of large-scale asset purchases. Chairman Ben S. Bernanke and his colleagues acted after reports showed the economy was slowing and an unprecedented downgrade to the U.S. credit rating sent stocks tumbling from Sydney to New York. Three members of the policy committee dissented, preferring to maintain the pledge to keep rates low for an “extended period” without a specific timeframe. ‘Major Policy Change’ The central bank’s plan to keep the federal funds rate in its range of zero to 0.25 percent for two more years is a "major policy change," according to Augustine Faucher, director of macroeconomics at Moody’s Analytics in West Chester, Pa. "By providing a more explicit time line for raising rates, the Fed is telling markets it is concerned about recent economic weakness and the potential for a near-term contraction, and is dedicated to spurring stronger economic growth, Faucher wrote in a note. MEMC Electronic Materials Inc. climbed 19 percent for the biggest increase in the S&P 500. Four executives, including Chief Executive Officer Ahmad Chatila, bought a combined 87,500 shares of the second-largest U.S. manufacturer of polysilicon on Aug. 5, according to regulatory filings. Treasury note and bond yields plunged after the Fed’s statement was issued at 2:18 p.m. New York time, before paring the declines later in the afternoon. Record Low Yields Two-year Treasury yields also touched a record low, dropping as much as 10 basis points to 0.16 percent before trading at 0.20 percent. Thirty-year rates were little changed at 3.65 percent. The Treasury’s sale of $32 billion in three- year notes drew stronger-than-average demand in the first note sale since the U.S. debt rating was cut. Moody’s Investors Service reiterated yesterday that it affirmed the U.S. government’s top Aaa ranking because the dollar’s status as the main reserve currency allows it to support higher debt levels than other countries. Fitch Ratings affirmed its AAA grade for the U.S. last week. The U.S. AA+ rating at S&P is still higher than Japan or China. European shares recovered from early losses amid speculation that the Fed would bolster investor confidence. The Stoxx Europe 600 Index snapped a seven-day slump and rebounded from a two-year low, climbing 1.4 percent after plunging 5.1 percent in early trading. Basic-resource stocks rebounded from an 11-day slide, led by gains at Antofagasta Plc. Thomas Cook Group Plc, Europe’s second-largest tour operator, surged 17 percent. RWE AG, Germany’s second-biggest power company, led utilities lower after profit fell. Italian Bonds The yield on Italy’s 10-year note fell 11 basis points to 5.18 percent, after dropping 81 basis points yesterday. The extra yield investors demand to hold Italian 10-year securities instead of benchmark German bunds dropped 21 basis points to 281 basis points today, the least since July 22. The European Central Bank bought Italian and Spanish bonds for a second day, people familiar with the transactions said. Spain’s 10-year yield fell eight basis points to 5.08 percent today, extending yesterday’s slide. Four years after BNP Paribas SA marked the start of a financial crisis by freezing withdrawals from investment funds because it wasn’t able to value subprime mortgage bonds, a reduction of the U.S. debt rating and escalating sovereign woes in Europe show credit markets are still fragile. The Markit iTraxx Crossover Index of credit-default swaps on mostly junk- rated European companies increased for an eighth day, adding 18 basis points to a mid-price of 592 today. The S&P GSCI index of 24 commodities lost 1 percent. Oil lost 2.5 to $79.30 a barrel, the lowest level since September. Gold futures pared gains after adding as much as 4.1 percent to a record $1,782.50 an ounce. |
| Crude Oil Surges After Federal Reserve Statement, Drop in U.S. Stockpiles Oil rebounded from a 10-month low in New York as investors bet fuel demand will increase amid shrinking stockpiles and comments by the Federal Reserve that it is prepared to use a range of tools to bolster the economy. Futures gained for the first time in three days after the Fed said in a statement it will keep interest rates near zero until mid-2013 and use other tools “as appropriate.” Crude supplies declined the most since June, the industry-funded American Petroleum Institute said. U.S. equities jumped the most in more than two years. “It looks like markets want to turn back up,” Peter Beutel, president of Cameron Hanover Inc., an energy adviser in New Canaan, Connecticut, said in an e-mailed note. Traders bought oil after the settlement and “prices were back in positive numbers after the API report, which showed inventory draw-downs across the board,” he said. Crude for September delivery gained as much as $3.13, or 4 percent, to $82.43 a barrel in electronic trading on the New York Mercantile Exchange and was at $81.62 at 8:54 a.m. Sydney time. The contract yesterday fell 2.5 percent to $79.30, the lowest since Sept. 29. Prices are 1.7 percent higher the past year. |
Sources: Bloomberg, Reuters, www.inquirer.net, www.philstar.com, www.bworldonline.com, www.cnnmoney.com
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