Chinese government bonds have few buyers, but US treasuries is getting lots of demand in view that they are printing money like no tomorrow! This is a very strange world.
Personally I would be wary of holding these bonds long term. The environment is more unstable than ever and the herd keeps changing direction. Nothing is for buying and hold unless the price is right. Such assets needs much hard work to find and identify.
China Can’t Buy Enough Bonds as Dollar No Deterrent (Update1)
By Cordell Eddings and Lukanyo Mnyanda
Sept. 21 (Bloomberg) -- International investors are increasing purchases of Treasuries on a bet U.S. inflation will remain subdued, even as the dollar falls to the lowest levels of the year and the budget deficit tops $1 trillion.
Investors outside the U.S. bought 43.1 percent of the $1.41 trillion of notes and bonds sold by the Treasury Department this year, compared with 27.1 percent of the $527 billion issued at this point in 2008, government figures show. The Merrill Lynch & Co. Treasury Master Index of U.S. securities returned 1.18 percent in the third quarter after the worst first half on record as demand from the investor group that includes central banks climbed to record levels at Treasury auctions.
The trade-weighted U.S. Dollar Index’s 15 percent decline from its high this year on March 4 has proved no obstacle in Treasury auctions, aiding President Barack Obama’s efforts to sell an unprecedented amount of debt. Fund managers say their money is safe in the U.S. with expectations for inflation as measured by indexed bonds below the five-year average.
Treasuries are “starting to look like even a better value with a weaker dollar,” said Dave Chappell, who manages $90 billion in London at Threadneedle Asset Management Ltd., and has been buying longer maturity U.S. government debt.
The 10-year note yield rose 12 basis points last week, or 0.12 percentage point, to 3.46 percent, according to BGCantor Market Data. That’s the most since gaining 37 basis points in the five days ended Aug. 7. The 3.625 percent security due August 2019 fell 1, or $10 per $1,000 face amount, to 101 11/32.
Treasuries were unchanged today as of 10:01 a.m. in Hong Kong, with trading closed in Japan and Singapore for holidays.
Record Issuance
This week the U.S. will sell $112 billion of 2-, 5- and 7- year notes. The amount will be a record for that combination of maturities, exceeding the $109 billion sold the week of Aug. 24. Treasuries rallied that week, with the yield on the 10-year note falling 12 basis points to 3.45 percent.
Federal Reserve holdings of Treasuries on behalf of foreign accounts rose 16 percent to $2.07 trillion since the March high in the Dollar Index.
China, the biggest foreign owner of Treasuries, added $24.1 billion in July after net sales of $25.1 billion in June, raising its stake in U.S. government debt 3.1 percent to $800.5 billion, Treasury data showed on Sept. 16. The country’s holdings have risen 10 percent this year, after a 52 percent gain in 2008 amid the surge in demand for the safety of U.S. government debt as global credit markets froze.
Little Choice
Foreign governments have little choice than to buy Treasuries because they hold so many dollars. The U.S. dollar accounts for 65 percent for world currency reserves, up from 62.8 percent in mid-2008, according to the International Monetary Fund in Washington.
The Obama administration needs the foreign help to fund the debt sales needed for his $787 billion stimulus spending package. Chinese Premier Wen Jiabao said in March that the Asian nation was “worried” about the safety of its investment as a weakening dollar erodes the value of its record $2.1 trillion of foreign-exchange reserves.
“The interest rate on long-term Treasury bonds is at a very low level by historical standards,” said David Dollar, the U.S. Treasury Department’s economic and financial emissary to China on Sept. 11 at the World Economic Forum meeting in Dalian, China. “That says that the market has confidence the U.S. will get the fiscal problem under control.”
Inflation Protected Debt
Yields on U.S. inflation-protected debt show there’s little concern about consumer prices eroding the value of bonds’ fixed payments. The difference in rates on 10-year notes and Treasury Inflation Protected Securities, or TIPS, which reflects the outlook among traders for consumer prices, is 1.82 percentage points. While up from 0.04 points in November, the level is below the average of 2.19 points over the past five years.
The U.S. has the lowest so-called breakeven rates of any major sovereign debt market except Japan. The difference between three-year maturities is 0.71 point, below the average of 2.21 points this decade.
Prices of goods imported into the U.S. tumbled 15 percent in August from a year earlier, after a record 19.2 percent drop in July, the Labor Department said Sept. 11.
“There is no inflation on the horizon,” said Michael Cheah, who manages $2 billion in bonds at SunAmerica Asset Management in Jersey City, New Jersey. “The market is comfortable that the Fed will keep rates low and there isn’t much of an alternative.”
Current-Account Deficit
The Fed’s announcement June 24 that it anticipates the target rate for overnight loans between banks will stay at zero to 0.25 percent for an extended period is keeping two-year notes anchored near current levels. Policy makers meet Sept. 22-23 in Washington. Traders are pricing in less than a 50 percent chance of a rate increase before March, federal funds futures show.
A weaker dollar has increased concern among some investors as the budget and current-account deficits come back into focus in the currency market. The U.S. government and the Fed have spent, lent or committed more than $12 trillion in a bid to revive the economy and credit markets.
Economists forecast the current-account deficit will rise to 3.2 percent of gross domestic product in 2010 and 3.5 percent in 2011 from 2.9 percent this year as consumer and business spending boost imports and oil prices increase, according to the median estimates in Bloomberg News surveys.
‘Hard to Find’
“Even though U.S. asset markets are doing well, they’re not doing well enough,” Steven Englander, the chief currency strategist for the Americas at Barclays Capital Inc., said in an interview with Bloomberg Radio on Sept. 17. “The question is, what is there in the U.S. to attract capital? And that answer is hard to find.”
Investors buying a 10-year note today will lose 0.2 percent if yields rise to 3.57 percent by year-end as projected in a Bloomberg survey of forecasts. On an unhedged basis, European investors would have lost 13 percent on 10-year notes since the start of the year, according to Merrill Lynch index data.
Even with last week’s drop in bond prices, Treasuries have returned 2.8 percent in the past three months, including reinvested interest, beating the 2.3 percent return for mortgage-backed bonds, according to indexes compiled by Merrill. The rally reflects skepticism about the sustainability of the economic recovery once government stimulus ends.
Rising Unemployment
The Obama administration forecasts that unemployment in the world’s largest economy will rise above 10 percent in the first quarter. The jobless rate increased to 9.7 percent in August, a quarter-century high. Fed Chairman Ben S. Bernanke said in Washington Sept. 15 that the worst U.S. recession since the 1930s probably ended, while adding that growth may not be strong enough to quickly reduce unemployment.
“If you subscribe to the double dip school of thought this may not be a bad entry point for Treasuries,” said Steve Rodosky, the head of Treasury and derivatives trading at Newport Beach, California-based Pacific Investment Management Co., manager of the word’s biggest bond fund. “The longer-term risk is that the weaker dollar is the cause or affect of people diversifying their holdings or using other currencies as a global currency, but we are a long way from that.”
Yields on 10-year notes may fall toward 3 percent, the least in five months and down from 3.47 percent last week, as the inflation rate drops, Francesco Garzarelli, chief interest- rate strategist in London at Goldman Sachs Group Inc., wrote in a Sept. 15 research report.
“The international community has not lost favor with Treasuries, and the weakening currency allows an opportunity to increase their exposure,” Rodosky said.
Pimco’s Changes
Bill Gross, who runs Pimco’s Total Return Fund, increased holdings of government-related debt last month to the most in five years, according to the company’s Web site. Gross boosted the $177.5 billion fund’s investment in Treasuries, so-called agency debt and other bonds linked to the government to 44 percent of assets, the most since August 2004, from 25 percent in July.
The U.S. will sell $43 billion in two-year notes tomorrow, $40 billion of five-year debt on Sept. 23 and $29 billion in seven-year securities on Sept. 24.
Indirect bidders, the class of investors that includes foreign central banks, bought 49.4 percent of the notes at the two-year auction, up from 33 percent in July’s sale. They purchased 56.4 percent of the five-year notes, compared with 36.7 percent in July, and 61.2 percent of the seven-year securities, above the average of 43.7 percent at the prior six sales of that maturity.
“China and a few other central banks have grumbled about the dollar but they don’t have many other alternatives so they keep buying,” said Michael Atkin, head of sovereign research at Putnam Investments in Boston, who helps oversee $12 billion in fixed-income assets.
To contact the reporter on this story: Cordell Eddings in New York at Lukanyo Mnyanda in London at lmnyanda@bloomberg.net.
Last Updated: September 20, 2009 22:25 EDT
Monday, September 21, 2009
What I am sure of the financial market
The financial market is a confusing place. One of the few things we can be sure of is that its players are some of the most pain adverse people anywhere. Until the accumulated results of their actions take them to a place of unavoidable pain, they will never invite the good kind of pain for themselves. No painful restructuring, pay cuts etc., unless it is for the lower levels.
Tuesday, September 8, 2009
Men in White
I got my copy from Times at Jelita. There were many copies on display. I don't think this book will be moving fast but it is probably a necessary piece of work.
I could have waited for it to be available in our libraries but at so many hundreds of pages, it is not a practical proposition.
Monday, September 7, 2009
A New Blog
Started a new blog last night, not exactly. It is more like spawning off a more focused blog out of the NaviMap one. I have named this new blog "Virtuous Cycles". It is self explanatory actually. One will find lots of NaviMaps with special focus on how virtuous cycles are formed.
Thursday, September 3, 2009
A beautiful message
Here is a card from a friend to all of us. Looks like she has covered every ground. Also she probably isn't writing to young people. You can tell from the list of challenges and trials the folks are facing. Young people today, old tomorrow, you know what could be in store for you. Prepare now even if it means having less of a life now.
Ok, I'm sure that some of you are saying, "OH NO, not another greeting card from that crazy woman!"
But today I know of at least one friend who is VERY near to the California wild fires; one friend who was at work, on the 13th floor of a building in Jarkarta when a 7.3 magnitude earthquake hit; one friend who is living with multiple sclerosis; one friend who is grieving the loss of two beloved pets; one friend who is raising a child with autism; one friend who is in between homes;. other friends who are facing career, relationship, financial or health challenges; a few who may think that they are all alone; several who think that their government has gone to hell in a hand basket; several who are gripped by fears of the future; and, one or two who are having a crisis of faith.
So, here's another card because I don't always know what you're going through on any given day but I always care.
Signed
Wednesday, September 2, 2009
The Search For Meaning
I am trying to find the time to begin reading Viktor E. Frankl, "Man's Search For Meaning". May be I will make a quick survey of it today.
In times of prosperity, a book like this seems so unnecessary. Suffering, may be just hardship without its end in sight (think of unpleasant work or preparing for unending tests and exams) will force one to examine the meaning of all these briefly before returning to the pressure cooker.
Even without starting on the book, I believe this is a deeply personal journey which no one can accompany you. Nevertheless we should be able to help each other along the way with our sharing of experience. Isn't Dr. Fankl trying to do this?
For some, the search for meaning will turn out to be the search for God; but for many it would be alloys of denial, ignorance and inner conflict, which is more akin to rebellion. What alloy it will be depends on your natural endowments, defects and the environment.
In times of prosperity, a book like this seems so unnecessary. Suffering, may be just hardship without its end in sight (think of unpleasant work or preparing for unending tests and exams) will force one to examine the meaning of all these briefly before returning to the pressure cooker.
Even without starting on the book, I believe this is a deeply personal journey which no one can accompany you. Nevertheless we should be able to help each other along the way with our sharing of experience. Isn't Dr. Fankl trying to do this?
For some, the search for meaning will turn out to be the search for God; but for many it would be alloys of denial, ignorance and inner conflict, which is more akin to rebellion. What alloy it will be depends on your natural endowments, defects and the environment.
Tuesday, September 1, 2009
GIC smarter than Temasek
GIC is smarter about this matter. It has appointed regional presidents for Europe/ME and North America. These senior executives will work quietly to help potential investees understand GIC's point of view.
It is best for both SWFs that they are mostly ignored by the foreign media. Temasek has not succeeded here. The way they are running it now, they might as well give us shares as our citizen rights to exercise as we wish.
From WSJ.com opinion piece 31 August 2009
Temasek's Revised Charter
In name, a commercially driven investment company, but in reality, another government appendage.
Temasek released a revised charter last week that emphasized that the Singaporean state-owned fund is managed on "commercial principles" and eradicated any reference to government investment. That's a commendable goal, but it skirts the basic conflict of interest between the public interest of protecting citizens' earnings and the private-market imperative of taking risks to seek returns.
This issue of transparency has come to the fore in the city-state of late because the approximately 127 Singaporean dollar ($88 billion) fund lost a bundle in last year's financial crisis and the new CEO-designate, Chip Goodyear, inexplicably resigned in July. The public uproar is loud enough that even legislators from the ruling People's Action Party have asked for more disclosure.
Temasek released a raft of accompanying documents alongside the one-page charter last week to help clarify its goals. "Temasek is a commercially-driven investment company and is responsible to its sole shareholder, the Singapore Government, for delivering sustainable long-term returns," the company said. But nowhere did Temasek explain what a "sustainable long-term return" is, who sets that goal, or how it is set.
Temasek adds it has "institutionalized its financial discipline" by issuing an annual report since 2004, maintaining a credit rating and issuing bonds. These steps are commendable, but they are also incomplete. The annual report doesn't give complete historical financials, nor does it say how much Temasek pays in dividends to its 100% owner, the Ministry of Finance. A credit rating is one guide to financial health, but given the agencies' recent track records, it's not infallible. As for the bonds, they are only lightly traded, meaning the market signal they send about Temasek's performance is weak, at best.
The fund's relationship with government is equally confused. The accompanying documents say the government "does not involve itself in the operations and business decisions of Temasek" or "direct or influence the investment or divestment decisions of Temasek." Yet the President of Singapore must concur with board member and CEO appointments or removals and has to approve any transactions in which Temasek draws on "past reserves." The fund's Chairman and CEO also report to the President twice a year.
Temasek might gain more public acceptance as a "commercially driven investment company" if it separated itself fully from government and gave Singaporeans the option to keep their money with the fund or take it elsewhere. That's called competition and free choice, and it's the only true test of commercial success.
It is best for both SWFs that they are mostly ignored by the foreign media. Temasek has not succeeded here. The way they are running it now, they might as well give us shares as our citizen rights to exercise as we wish.
From WSJ.com opinion piece 31 August 2009
Temasek's Revised Charter
In name, a commercially driven investment company, but in reality, another government appendage.
Temasek released a revised charter last week that emphasized that the Singaporean state-owned fund is managed on "commercial principles" and eradicated any reference to government investment. That's a commendable goal, but it skirts the basic conflict of interest between the public interest of protecting citizens' earnings and the private-market imperative of taking risks to seek returns.
This issue of transparency has come to the fore in the city-state of late because the approximately 127 Singaporean dollar ($88 billion) fund lost a bundle in last year's financial crisis and the new CEO-designate, Chip Goodyear, inexplicably resigned in July. The public uproar is loud enough that even legislators from the ruling People's Action Party have asked for more disclosure.
Temasek released a raft of accompanying documents alongside the one-page charter last week to help clarify its goals. "Temasek is a commercially-driven investment company and is responsible to its sole shareholder, the Singapore Government, for delivering sustainable long-term returns," the company said. But nowhere did Temasek explain what a "sustainable long-term return" is, who sets that goal, or how it is set.
Temasek adds it has "institutionalized its financial discipline" by issuing an annual report since 2004, maintaining a credit rating and issuing bonds. These steps are commendable, but they are also incomplete. The annual report doesn't give complete historical financials, nor does it say how much Temasek pays in dividends to its 100% owner, the Ministry of Finance. A credit rating is one guide to financial health, but given the agencies' recent track records, it's not infallible. As for the bonds, they are only lightly traded, meaning the market signal they send about Temasek's performance is weak, at best.
The fund's relationship with government is equally confused. The accompanying documents say the government "does not involve itself in the operations and business decisions of Temasek" or "direct or influence the investment or divestment decisions of Temasek." Yet the President of Singapore must concur with board member and CEO appointments or removals and has to approve any transactions in which Temasek draws on "past reserves." The fund's Chairman and CEO also report to the President twice a year.
Temasek might gain more public acceptance as a "commercially driven investment company" if it separated itself fully from government and gave Singaporeans the option to keep their money with the fund or take it elsewhere. That's called competition and free choice, and it's the only true test of commercial success.
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