Market Rumours

2010/04/27 11:32=DJ MONEY TALKS: Oops, Bernanke Does It Again
Having inflated two bubbles in the space of a decade, the Greenspan/Bernanke Fed is puffing hard to blow another one.There are several reasons for this.The Federal Reserve has, since the 1987 stock market crash, become increasingly aggressive about easing monetary policy to defend asset prices, and investors know it. The Fed has looked to wealth effects to drive economic growth. But since money flows much more easily into assets than into the real economy, this has led to booming prices even in times of fairly ordinary underlying economic growth.Meanwhile, the Fed has been indifferent to asset bubbles, arguing they cannot be identified in advance and that they cannot be tempered by conventional monetary policy responses without jeopardizing the wider economy. In other words, to stifle an asset bubble before it becomes dangerous, the central bank would first have to be confident that that's what it was, rather than a normal appreciation in asset prices associated with positive expectations about their economic prospects, and then be willing to drive unemployment sharply higher by tightening monetary policy in order to control it.During the worst of the credit crunch, the Fed responded by pulling out all the stops. Not only were interest rates slashed as never before, but unorthodox policy responses were also instituted. Investor confidence returned. And there's every reason that's mutated into over-confidence. Equities worldwide are richly priced. Other assets have started to race away. Risk premia have collapsed. Investor optimism predominates. Bad news gets ignored because, if anything bad happens, central banks will pump even more liquidity into the system.The background is now in place for the next bubble, argues Jeremy Grantham, chief strategist of the fund firm GMO. Writing in his latest quarterly note to investors, he figures there's about a 50% chance the Fed will inflate the currently expanding equity bubble back to the peak levels hit in 2007, before they collapsed. And then prices will collapse again. Expect that next time, the Fed and the government will have less ammunition with which to pump up asset prices yet again. By contrast, Grantham figures there's a one-in-five chance the market breaks during the coming few months before a full-on bubble has been created, after which the last of the speculative mania will have been wrung out of the market. Or, at a 30% chance, the economy has a sustained recovery, forcing the Fed to raise interest rates, causing the market to ease back a bit, but without a major collapse.Investors have become conditioned to these manias. They 'know' that each bust is followed by a massive rally. If only they can get out in time, they can make their fortune. There's a very good chance that's what's happening again. But if this bubble bursts, will they be so keen to experiment yet again? Possibly not. If this is a bubble, there's a good chance it'll be the last one for a while. Investors, central banks and governments just won't have the money to do it all again.

2010/04/27 11:26=DJ ECB WATCH: Most Banks Expected To Snub ECB's 3-Month Tender
FRANKFURT -In a sign that the financial system is returning to normal, the European Central Bank will hold its first competitive liquidity action in more than a year Wednesday and most euro-zone banks are expected to stay away.The banks, which have successfully strengthened their balance sheets, will turn instead to one another because they can borrow more cheaply on the interbank market, analysts said.Responding to severe market stress, the ECB in the autumn of 2008 switched to a fixed-rate procedure with full allotment for its refinancing operations to provide banks with as much cash as needed at a time when they weren't lending among themselves.This unprecedented step is now being gradually reversed as the condition of the money market improves, starting with the ECB's three-month auction on Wednesday.That auction will mark a return to a variable-rate tender procedure, offering EUR15 billion in three-month funds at a rate that isn't yet known. The ECB has set the minimum rate at 1.0%.'Banks will probably treat the tender as a test. They'll want to see first what kind of rate they can expect at those tenders,' said Christoph Rieger, the co-head of rate strategy at Commerzbank AG.Moreovermore, there remains plenty of excess liquidity in the banking system as the ECB continues to honor all bids in its main, weekly refinancing operation, he said.Financial institutions on Sunday parked a total of EUR217.364 billion with the ECB overnight, instead of lending out funds to their peers. The amount represents a sign that there is plenty of cash in the system.'The tender should go smoothly. EUR15 billion is a fair amount, given the level of liquidity in the system,' said Lena Komileva, the head of economics for the Group of Seven leading nations at inter-dealer money broker Tullett Prebon.According to the ECB, EUR15 billion is only an 'indicative' figure, allowing for higher or lower allocation.'It's a precautionary amount, but it would certainly be an embarrassment for the ECB if demand would exceed EUR15 billion,' said a Frankfurt-based money-market dealer, who estimated bids will total 'between EUR3 billion and EUR8 billion.'Banks had already shown weak appetite for the ECB's previous three-month funds tender at the end of March, when 11 institutions placed bids totaling EUR2.015 billion.'There has been a shift in the market's drawdown of ECB liquidity toward short-term funds, where you have less policy risk,' said Komileva.Analyst say the ECB's tenders of longer-dated funds are no longer competitive versus market rates, which tend to be much lower.The ECB sold three-month funds at 1% in an auction in late March. By comparison, the market rate on three-month funds stood at 0.645% Monday, unchanged from Friday.Only those banks that have trouble raising cash in the interbank market are expected to participate in Wednesday's tender, analysts said.The ECB doesn't disclose the names of the banks participating in its refinancing operations, but analysts estimate that Greek banks account for a good share of it.'I expect the tender to be dominated by banks that struggle to raise sufficient liquidity in the market, because of their weaker collateral quality,' Komileva said. 'The stability and functioning of the financial system is still dependent on ECB support, even if the ECB's role has become more marginal.'

2010/04/27 11:22=DJ FOCUS:IMF Softens Stance On Greece; More Time For Budget Cuts
WASHINGTON -The International Monetary Fund, long-criticized for the strict conditions attached to its loans, is advocating a gentler approach to Greece's debt crisis.Greece on Friday formally asked the IMF and euro-zone countries for financial help. At this juncture, euro-zone governments have pledged to give the debt-addled country up to EUR30 billion in the first year of any aid program, while the IMF is expected to provide a further EUR15 billion.Officials from the IMF, the European Commission and the European Central Bank currently are in Athens negotiating the terms of this aid. Greece undoubtedly will be forced to keep tightening its budget deficit, which was worth 13.6% of gross domestic product last year.But there are signs emerging that the IMF wants less strict conditions for Greece's aid program than euro-zone countries have demanded. Euro-zone finance ministers earlier this year ordered Greece to bring its budget deficit below 3% of GDP by the end of 2012. European Commissioner for Economic and Monetary Affairs Olli Rehn says a later deadline now is being considered.Such an extension would underscore how the IMF has changed its approach to helping countries facing financial trouble. In the wake of the Asian financial crisis, the IMF was criticized for forcing countries to adopt severe austerity measures. These policies crimped economic growth, deepening the region's woes.'I must emphasize, and you can pass this message to the Greek people: It's a different institution,' Egypt's Finance Minister and head of the IMF's policy-steering committee Youssef Boutros-Ghali told a news conference at the IMF's spring meeting on Saturday.Boutros-Ghali said the IMF now is less rigid about budget policies, focusing instead on economic growth and the effect its loan conditions have on poverty, income distribution and other issues. He noted that in 2008 IMF Managing Director Dominique Strauss-Kahn was the first policy maker to call for increased fiscal spending to combat the global economic downturn.Euro-zone governments initially wanted to avoid IMF involvement in any Greek aid package. They feared that calling in the IMF would undermine the credibility of the euro and embarrass the European Union's institutions. Another worry was that the IMF might give Greece a loan with more lenient terms than euro-zone countries were demanding.The IMF and EU came into conflict last spring when they jointly created a EUR20 billion aid package for Romania. The IMF eventually changed its budget recommendations to suit the EU's stricter timetable, according to an EU official familiar with the matter.When they finally asked for IMF involvement at the end of March, euro-zone officials said they had assurances from Strauss-Kahn that he would accept their timetable for Greece to slash it budget deficit.But the IMF's softer stance now looks set to prevail. Rehn said in an interview Thursday that he will suggest a later deadline for Greece to bring its budget deficit back below 3% of GDP, the upper limit outlined in the EU's budget rules.'We may need to reconsider the path of adjustment and an extension of reaching the 3% target beyond 2013,' Rehn said, just before Greece asked for funds.This revised timetable is allowed under EU rules, Rehn said, noting that Greece's budget deficit in 2009 came in higher than the 12.7% of GDP that had been forecast.Rehn said the EU and IMF are working well together, noting that in Romania's case, the two sides reached an agreement after 'some initial difficulties.''It is not a matter of a power game between the institutions. It is, in fact, related to the different institutional traditions and somewhat different rules and practices.'Rehn might have trouble convincing euro-zone countries to see things the IMF's way. The region's finance ministers will have to approve any changes to the country's 2012 deadline.'It is certainly one of the challenges,' Rehn said.Germany, the region's largest economy, could be a formidable obstacle to any leniency. The German government reluctantly agreed to pledge its support for Greece last month, fearing a backlash from skeptical voters. Now that Greece formally has asked for funds, German officials are balking.'The fact that neither the European Union nor the German government has taken a decision means it could be positive or negative,' German Finance Minister Wolfgang Schaeuble told Bild newspaper in an interview published on Sunday.Greece says it has enough money to cover its spending needs through April, but the country faces roughly EUR9 billion in debt redemptions next month, including a EUR8.5 billion, 10-year bond that matures May 19.Greek Finance Minister George Papaconstantinou says he trusts Germany will help and that Greece will get the financial help it needs.'We're all confident that this will be done in time and that we will be able to finance Greek public debt without any problem,' Papaconstantinou said during a news conference on Sunday at the IMF's headquarters in Washington.Negotiations in Athens are expected to continue for another week or so. Strauss-Kahn said these talks were accelerated after Greece asked for help on Friday. He declined to comment on the terms and conditions under consideration.'I am confident that we will conclude discussions in time to meet Greece's needs,' he said in a written statement on Sunday.

2010/04/27 08:16DJ ECB Trichet Interview: Confident In Rapid Greek Aid Program
NEW YORK -Europe's top central banker expressed confidence Monday that euro-zone and International Monetary Fund officials can rapidly piece together a much-anticipated financial aid package for the crisis-stricken Greek government.Speaking in a video interview with the Wall Street Journal, ECB President Jean-Claude Trichet said he expected that negotiations now underway in Athens between Greek officials and representatives of the IMF, the European Central Bank, and the European Commission will 'go fast.''They are working very, very hard and also very rapidly, but I am very confident,' Trichet said.On the sidelines of weekend meetings in Washington of the Group of 20 developed and developing nations and the International Monetary Fund, various European officials stressed the need for rapid implementation of a planned rescue package for Greece following Prime Minister George Papandreou's decision Friday to tap that program. Some acknowledged that delays and disputes about the size and nature of the program among European leaders had unnecessarily sown uncertainty in the market for Greek debt, which sank to new lows Monday.Under a euro-zone agreement, the three-year program would involve up to EUR30 billion in loans from European countries in the first year, along with lending and economic surveillance from the IMF. Details of the plan, however, including the schedule of disbursements and the macroeconomic and fiscal targets that will serve as conditions for those transfers must now be worked out between all the interested parties.Reflecting on the weekend's meetings, Trichet also said there was 'a good understanding' among different governments 'on what has to be continued to be done' in terms of financial regulatory reform. He said there was 'work in progress on all domains' of financial reform.But he also said it was important that countries closely studied the impact of introducing a new regime of taxes on banks--a plan proposed by the IMF that's aimed at paying for bank rescues in the event of future crises and to constrain risk-taking--before implementing them.Trichet warned against 'overloading the ship' if too much of a burden were imposed on the banking system.While he acknowledged widespread concerns that the U.S. might not accede to new capital and liquidity rules that the Bank of International Settlements' Basel Committee is drafting, Trichet said his discussions with various U.S. authorities left him confident this would not happen.'It makes me absolutely convinced that the U.S. authorities understand that it is absolutely necessary to apply the new rules,' he said.But while he was generally confident that governments recognized the need for common rules in this and other aspects of the reform process, Trichet singled out the convergence of accounting standards as one issue in need of greater international coordination.He raised concern about continued divergence between the rules of the London-based International Accounting Standards Board, which are widely adopted around the world, and those of the U.S.-centric Financial Accounting Standards Board.'I would urge them to converge,' Trichet said, 'because accounting is at the heart' of financial reform.Speaking generally, Trichet called for a bit of 'self-censorship' from national governments over their own domestic concerns about aspects of the proposed financial reforms.'We need a financial system that is much more resilient,' Trichet said.

2010/04/27 06:49DJ CREDIT MARKETS: Supply Subtle In The Primary Market
NEW YORK -Volume ticked back up in high yield issuance as the Bank of America Merrill Lynch U.S. High Yield Master II Index approaches par for the first time in three years. Nearly $4 billion in junk bonds is slated to sell this week, led by a $1 billion senior note offering by Reynolds Group. But financial institutions were seized by the possibility new derivatives regulation would hurt revenue, and agency mortgages were still as investors look to the Federal Reserve for action. Investment-Grade Corporates Bank and broker bonds fell and the cost of credit default swaps rose Monday as Congress debated sweeping new derivatives-market regulations that would likely hurt revenue at most big banks. Citigroup (C) credit default swaps were last quoted at 183 basis points, according to Phoenix Partners Group. That means it cost $183,000 to protect a notional $10 million of Citi's senior bonds for five years. On Friday, the cost was $162,000. Citigroup is under additional pressure as the Treasury Department said Monday it would approve an initial sale of 1.5 billion shares of Citigroup common stock. The government currently holds a 27% stake in the bank. But losses weren't limited to Citigroup. Other banks, including in the headlines Goldman Sachs (GS), also lost ground. Goldman's CDS were also higher, at 164 basis points, up from 155 basis points first thing Monday. Meanwhile, supply was subtle in the primary space, while NBC Universal Inc. was priming its debt sale for Tuesday. BB&T and U.S. Bank NA were each selling $500 million in securities. BB&T launched its $500 million offering of 6-year senior unsecured notes with a risk premium of 140 basis points over Treasurys. Final maturity is scheduled for April 29, 2016. U.S. Bank NA sold its $500 million sale of 10-year fixed-to-floating rate securities, offering a risk premium of 120 basis points over Treasurys. The issue will be noncallable for five years. USB is part of holding company U.S. Bancorp. Meanwhile, NBC Universal was readying its benchmark-sized 3-part debt offering to include 5-, 10-, and 30-year tranches. The issue is expected to be sold Tuesday in the private placement Rule 144A market via active bookrunners Goldman Sachs, JPMorgan and Morgan Stanley. It will include a change of control option at a price of 101 if the company's merger has not closed by June 10, 2011. The FCC had set May 3 as the deadline for comment on Comcast's bid to acquire 51% of NBC, but pushed that deadline back last week as U.S. regulators requested more information on the merger. And the benchmark high-grade derivatives index, the CDX IG14, which measures the cost of insuring a basket of U.S. investment-grade corporate debt against defaults, was weaker by 1.5 basis points, to 90 basis points, according to Markit. The index was brought down by weak CDS bank performance--a result of proposed changes to the derivatives market. Junk Bonds Refinancings into the high yield market continued their charge Monday as companies took advantage of robust demand to issue new bonds to repay issues with impending deadlines. Lennar Corp. (LEN) said today it would sell $250 million in 8-year senior notes and $250 million in 10-year convertible notes as part of a refinancing of $200 million of three tranches of existing bonds. The tender offer covers the 5.125% notes due 2010, the 5.95% notes due 2011 and the 5.95% notes due 2013. The homebuilder said it may use the remaining proceeds to pay off additional existing debt. Advance Auto Parts launched and was set to price $300 million in 10-year senior notes. Standard & Poor's upgraded to BBB- from BB+ its rating on the auto retailer, citing better operating performance and the company's ability to lower its leverage. Meanwhile, Reynolds Group looks ready to price a $750 million credit facility due May 2016, with talk around 425 basis points above the London interbank offered rate, a benchmark at which banks lend to one another. Reynolds also plans to sell $1 billion in 8-year notes. The proceeds will help fund its acquisition of Evergreen Packaging. Both companies are food packagers based in New Zealand. Asset-Backed Toyota Motor Credit Corp. is offering a $775 million auto loan-backed deal, according to a prospectus. The bond is dubbed TAOT 2010-A and joint leads on the deal are JP Morgan Chase & Co., Barclays Capital and Bank of America Merrill Lynch. The auto sector has been the most active in terms of issuance in the asset-backed market. Of the $20 billion or so issued so far this year, about half are auto loan-backed bonds. Other recent issuers include Mercedes Benz, BMW, Ford Motor Co. and Ally Master Owner Trust. Issuance of consumer loan-backed deals has been strong despite the end of the Federal Reserve's program to support this market. The Term Asset-Backed Securities Loan Facility, or TALF, rekindled investors' interest in the bonds by providing cheap loans to buy them. Mortgages Agency mortgages have had little action Monday as most investors sat out of this market. Though there's not much concern about the Federal Reserve selling its mortgage holdings anytime soon, market participants say they would like to see a clearly spelled out plan. Most, though, are in the camp that expects the Fed to use runoff to reduce its holdings. Risk premiums nudged slightly tighter, to 129 basis points from Friday's close at 130 basis points. Treasurys***********U.S Treasurys were mostly flat on the day, shedding early gains after disappointingly weak demand for the government's sale of $11 billion in five-year inflation-protected securities.The Treasury received bids totaling $34.6 billion for the securities commonly known as TIPS. While direct bidders received a record high 13% of the sale, indirect bidders--a category that includes foreign central banks--were awarded 23%, their lowest percentage ever for this security.Moreover, at $11 billion, the size of Monday's auction was $4 billion more than the last five-year TIPS sale in October--adding to the sale's challenge.Yields on the auctioned note were three basis points higher than the market had expected--indicating the government had to pay up slightly to sell the notes.The weak auction was sufficient to erode the gains seen earlier in the day in low-risk government debt, which had benefited from uncertainties over Greece's fiscal crisis and investor demand for safer assets.In recent trading, the 10-year Treasury note was up 2/32, to yield 3.809%. The 30-year Treasury bond was flat, at 4.665%. The yield on the 30-year had dropped to 4.63% earlier in the day.

2010/04/27 04:18DJ ECB Weber: No Risk Of Euro Collapsing -CNBC
Despite debt crises in Greece, Spain and Portugal, there is "no such risk" that the euro will collapse, said Axel Weber, who represents Germany's central bank at the European Central Bank. "We have been able for 10 years to deliver price stability just as the best members of the euro area," Weber told CNBC Monday, "so there is no credibility problem for the currency."Weber added that he thinks the notion of Greece being removed from the euro zone is "unrealistic."Web site: www.cnbc.com