Further Rise in Treasury Yields

March 15, 2012

The 10-year Treasury yield has climbed to 2.30% from 2.27% at yesterday’s close and 1.99% a week ago.  Money is stampeding out of fixed income securities, but equities also took a step backwards.  Doubt is mounting that the Fed will refrain from raising interest rates until late 2014.  Scheduled U.S. data today include the Philly and Empire State manufacturing indices, producer prices, Treasury capital flow figures, and weekly jobless insurance claims.  Yesterday saw a larger-than-expected current account deficit reported, plus news that import prices had risen 0.4% and 5.5% on year in February.

Other sovereign bond yields are also higher.  JGB and British gilts rose four basis points overnight.  German bunds are three bps higher.

Gold recovered only 0.2% to $1645.40 per ounce but is $65.50 lower than its Friday March 9 close.  Oil is unchanged at $105.40 per barrel.

Currencies have been tame compared to the action in bonds and stocks.  The dollar is flat against sterling, the loonie and the yuan.  The euro edged 0.1% higher against the dollar and remains above $1.3000.  The dollar slipped 0.5% against the kiwi, 0.3% versus the yen, and 0.2% relative to the Swissie and Australian dollar.

In the Pacific Rim, share prices fell another 0.8% in China after Wednesday’s big tumble.  J.P. Morgan analysts said China is already in a hard landing.  Stocks also fell 1.4% in India, where the central bank did not ease additionally, and by 0.2% in Australia.  Japan’s Nikkei rose 0.7% to 10,123, 19.7% above its 2011 closing level.  In Europe, the German Dax and Paris Cac are up 0.2% and 0.1%, while the Ftse has edged 0.1% lower.

The Swiss National Bank released its quarterly policy review.  No change was announced but projected inflation was revised even lower.  Officials will continue to impose a CHF 1.2000 per euro ceiling on the franc through intervention and keeping a highly liquid money market.  The target 3-month Libor range of 0-0.25% was kept.  Such has been hovering just under 0.1% lately.

The Reserve Bank of India. which last week cut the cash reserve requirement to 4.75% from 5.5%, did not reduce such further and also left its repo and reverse repo rates unchanged at 8.5% and 7.5%.  Central bank officials have reversed the bias of policy from tightening to easing, but continuing inflation risks will affect the implementation timing of this shifting focus to supporting growth.

Norway’s Norges Bank surprised analysts yesterday with a cut of its benchmark interest rate to 1.50% from 1.75%.  No bias was attached to the direction of subsequent moves.

A total of $2.6 billion of Greek credit default swaps were paid out.

Australian auto sales were unchanged in February and 1.7% above year-earlier levels.  Expected CPI inflation over the coming year ticked up to 2.7% from 2.5%.

On-year labor cost growth in the euro area accelerated to 2.8% last quarter from 2.6% in 3Q and 1.7% in the fourth quarter of 2010.  Employment was 0.2% lower than in 3Q11 and also 0.2% below its year-earlier level.

The Fitch credit rating agency warned that Britain may lose its top-grade status.

Dutch industrial production and retail sales in January were respectively 1.9% and 1.7% lower than a year earlier.  The jobless rate stayed at 6.0% last month.

Czech producer price inflation slowed more than forecast to 3.6% in February from 4.1% in January.  Import and export prices were 7.0% and 5.4% higher than a year earlier.  Czech retail sales were unchanged on month but 1.3% higher on year in January.  Danish producer prices in February advanced 1.0% on month, but their 12-month rate of increase dipped to 3.3% from 3.4% in January.  Sweden’s jobless rate firmed to 7.8% last month from 7.6% in January.  Norway’s trade surplus widened 2.8% in February.

Japanese stock and bond transactions last week generated a tiny JPY 9.8 billion inflow, down from JPY 742 billion in the prior week.  Retail sales in Singapore were 1.7% higher in January than in both December and January 2011.  Filipino unemployment rose to 7.2% last quarter.  South African wholesale prices were 9.2% above a year earlier in January.  Turkish unemployment held at 9.3% in December.

Copyright 2012, Larry Greenberg.  All rights reserved.  No secondary distribution without express permission.

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