The week's top news in world financial markets from Maximus Capital

  • 2009-10-28

Treasury Secretary Timothy Geithner's plans to lock in near record-low borrowing costs in 2010 may mean a second year of losses on longer-term bonds. After selling $1.9 trillion of short-term securities to finance President Barack Obama's efforts to end the worst recession since the 1930s, the Treasury plans to lengthen the average due date of its outstanding debt to 72 months from a 26- year low of 49 months. That may mean boosting sales of 10- and 30-year bonds by 40 percent over the next year, to $600 billion. Replacing bills with bonds may drive up the yield curve as the Federal Reserve keeps its target rate for overnight loans between banks unchanged near zero until the second quarter of 2010, according to the weighted average of 67 forecasts in a Bloomberg survey. The gap between yields on 2-year and 10-year notes widened to 2.47 percentage points, compared with an average of 0.8 point since 1977.

Euro zone

German consumer confidence unexpectedly fell for the first time in more than a year as concerns that rising energy prices and higher unemployment will erode spending power outweighed signs of economic recovery. GfK AG's sentiment index for November, based on a survey of about 2,000 people, fell to 4 from a revised 4.2 in October, the Nuremberg-based market-research company said in its statement. That's the first decline since September 2008. Economists had forecast an increase to 4.5 from an initially reported 4.3. Crude-oil prices rose to the highest in a year this month, threatening spending power at the same time as unemployment increases. While German business confidence rose to the highest in more than a year in October and manufacturing expanded, the expiry of government stimulus measures and a strengthening euro may curb the pace of the recovery next year.

CIS countries

The head of operations of Swiss UBS bank in Russia Steven Meehan in his interview of October 23, said that Russia's credit ratings undervalue the country's debt and won't hold back investors from showing an "abundance of demand" for next year's planned $18 billion in bond sales. The debt buyers and the sovereign buyers think that there is a mismatch between the ratings of the Russian sovereigns compared to the macro-fundamentals. Russia's government debt is rated Baa1 at Moody's Investors Service, three notches above junk, putting it in the same bracket as bailout-dependent Iceland. Fitch Ratings and Standard & Poor's rate the country's debt BBB, two grades higher than junk. This year, the government of the world's biggest energy exporter will have debt equivalent to 10.5 percent of gross domestic product, well below debt ratios in Germany and the U.K. Next year's debt sale is Russia's first since the country's 1998 default on $40 billion, and the decade-long pause has "built up demand," Meehan said. "People not only want to have it in their portfolio, they have to have it in their portfolio."

After the assessment of Ukrainian success in moving forward the necessary reforms the IMF has concluded that Ukraine's government must endorse a package of further policy steps and veto a wage and pension law approved by lawmakers before it gets the fourth chunk of a $16.4 billion bailout loan. The eastern European nation was due to receive $3.4 billion after a mission from the Washington-based fund arrived in Kiev on Oct. 12 to review implementation of economic reforms. Ukraine is relying on the loan, approved in November, to stay afloat after the global recession and credit crisis undermined demand for exports such as steel and hammered its banking industry. The IMF program was suspended for three months this year because of government disputes over state spending.

*** Written using materials from Bloomberg and Reuters