US bond yields spark concern

By Michael Mackenzie and Kiran Stacey in New York and David Oakley in London

Published: June 10 2009 20:23 | Last updated: June 11 2009 14:57

US long-term interest rates continued to test important levels on Thursday as investors worried about the level of national debt and whether the Federal Reserve might have to raise interest rates to combat inflation.
투자자들은 국가채무와 인플레이션 때문에 미국장기채권의 이자율을 걱정하고 있다.

The yield on the 10-year Treasury note, the benchmark rate for US mortgages, briefly traded above 4 per cent, only to attract buyers once more after weekly jobless claims and retail sales data were published in line with expectations.
10년물은 4% 이상으로 거래된다. 실업률과 소매판매율이 기대에 맞게 나왔다.

The 10-year note was recently trading at 3.97 per cent, up 3 basis points, having hit 4 per cent during Wednesday after an auction of $19bn in 10-year government debt came at higher than expected yields.
10년 국채는 3.97에 거래 되었다.

The next test of the US Treasury’s issuance programme looms later on Thursday with the sale of $11bn in 30-year bonds. An auction of 30-year bonds last month went badly as investors signalled their concerns about the budget deficit.

“That did not go well last time, so there is also some additional concern,” said Dominic Konstam, head of interest rate strategy at Credit Suisse.

The yield on the 30-year bond was up 6 basis points at 4.81 per cent early Thursday. Last week, the yield was trading below 4.50 per cent.

“Once the 30-year is out of the way, the market should have a window to rally,” said analysts at MF Global. “The bull story rests in higher mortgage rates slowing the recovery.”

On Thursday, the 30-year mortgage coupon rose to a peak of 5.12 per cent, having surged from 3.90 per cent over the past month. This week, the latest survey from the Mortgage Bankers Association showed that its mortgage refinancing application index fell 12 per cent to its lowest weekly level since mid-November. That was prior to the Federal Reserve’s announcement of its plan to buy mortgages.

Concerns about the growth of government borrowing on Wednesday forced the US Treasury to give investors in an auction of $19bn in 10-year notes a yield of 3.99 per cent – 4 basis points higher than the yield available before the auction. That constituted the biggest yield markup since a 10-year auction in May 2003, said Morgan Stanley.

Traders said the good news of the day was that buyers entered the market when yields reached 4 per cent. “There should be natural support for the 10-year note around 4 per cent,” said Mr Konstam.

“We are seeing traders draw a line in the sand at 4 per cent” on 10-year notes, said Tom di Galoma, head of US rates trading at Guggenheim Capital Markets.

In recent months, auctions have often been awarded at higher-than-expected yields, with dealers and investors being asked to buy higher amounts of debt as the US Treasury seeks to fund a growing budget deficit.

Copyright The Financial Times Limited 2009

Rising government bond rates prove policy works
By Martin Wolf

Published: June 2 2009 20:24 | Last updated: June 2 2009 20:24





EDITOR’S CHOICE
Martin Wolf: This crisis is a moment, but may not be a defining one - May-19Martin Wolf: Why Obama’s conservatism may not prove good enough - May-12Economists’ forum - Oct-01Martin Wolf: Tackling Britain’s fiscal debacle - May-07Is the US (and a number of other high-income countries) on the road to fiscal Armageddon? Are recent jumps in government bond rates proof that investors are worried about fiscal prospects? My answers to these questions are: No and No. This does not mean there is no reason for worry. It is rather that there are powerful arguments against fiscal retrenchment right now and strong reasons for welcoming recent moves in the bond markets.

Last week, the Financial Times carried two columns arguing that the US fiscal path was unsustainable, one by Stanford University’s John Taylor and the other by the Harvard historian Niall Ferguson. The latter, in turn, was a comment on a debate with, among others, the New York Times columnist and Nobel laureate Paul Krugman at the end of April.

On one point all serious analysts agree: public debt cannot rise, relative to gross domestic product, without limit. To embark on fiscal stimulus in the short run, one must be credible in the long run.

So what is the disagreement? Prof Ferguson made three propositions: first, the recent rise in US government bond rates shows that the bond market is “quailing” before the government’s huge issuance; second, huge fiscal deficits are both unnecessary and counterproductive; and, finally, there is reason to fear an inflationary outcome. These are widely held views. Are they right?

The first point is, on the evidence, wrong. The jump in bond rates is a desirable normalisation after a panic. Investors rushed into the dollar and government bonds. Now they are rushing out again. Welcome to the giddy world of financial markets.

At the end of December 2008, US 10-year Treasury yields fell to the frighteningly low level of 2.1 per cent from close to 4 per cent in October (see chart). Partly as a result of this fall and partly because of a surprising rise in the yield on inflation-protected bonds (Tips), implied expected inflation reached a low of close to zero. The deflation scare had become all too real.

What has happened is a sudden return to normality: after some turmoil, the yield on conventional US government bonds closed at 3.5 per cent last week, while the yield on Tips fell to 1.9 per cent. So expected inflation went to a level in keeping with Federal Reserve objectives, at close to 1.6 per cent. Much the same has happened in the UK, with a rise in expected inflation from a low of 1.3 per cent in March to 2.3 per cent. Fear of deflationary meltdown has gone. Hurrah!

It is true that spreads between conventional US bonds and bonds issued by Germany and the UK have narrowed (see chart). But US yields were extraordinarily depressed during the panic. Normality returns.

If inflation expectations are not worth worrying about, so far, what about the other concern caused by huge bond issuance: crowding out of private borrowers? This would show itself in rising real interest rates. Again, the evidence is overwhelmingly to the contrary.

The most recent yield on Tips is below 2 per cent, while that on UK index-linked securities is close to 1 per cent. Meanwhile, as confidence has grown, spreads between corporate bonds and Treasuries have fallen (see chart). One can also use estimates of expected inflation derived from government bonds to estimate real rates of interest on corporate bonds. These have also fallen sharply (see chart). While riskier bonds are yielding more than they were two years ago, they are yielding far less than in late 2008. This, too, is very good news indeed.

Now turn to the fiscal policy. The argument advanced by opponents is either that fiscal policy is always unnecessary and ineffective or, as Prof Ferguson suggests, redundant, because this is not a “Great Depression”. Monetarists argue fiscal policy is always unnecessary, since monetary expansion does the trick. Economists who believe in “Ricardian equivalence” – after the early-19th-century economist David Ricardo – argue fiscal policy is ineffective, because households will offset any government dis-saving with their own higher savings.

Economists disagree fiercely on these points. My approach is “Keynesian”: in extreme moments, the excess of desired savings over investment soars. Again, monetary policy, while important, becomes less effective when interest rates are zero. It is then wise to wear both monetary belt and fiscal braces.

A deep recession proves there is a huge rise in excess desired savings at full employment, as Prof Krugman argues. At present, therefore, fiscal deficits are not crowding the private sector out. They are crowding it in, instead, by supporting demand, which sustains jobs and profits.

Prof Ferguson argues that fiscal expansion was unnecessary because this is only a mild recession. The question, however, is why it is only a mild recession, since precursors of a depression were surely present.

The answer, in part, is the aggressive monetary policies of central banks and the rescue of the financial system. But is that all? What would have happened if governments had decided to cut spending and raise taxes? One might disagree on how much deliberate fiscal loosening was needed. But one of the most important reasons this is not the Great Depression is that we have learnt a lesson from experience then, and in Japan in the 1990s: do not tighten fiscal policy too soon. Moreover, historically well-run economies are certainly able to support higher levels of public indebtedness very comfortably.

This, then, brings us to the last concern: the fear of inflation. This is essentially the question of how to exit from current extreme policies. People need to believe that the extraordinarily aggressive monetary and fiscal policies of today will be reversed. If they do not believe this, there could well be a big upsurge in inflationary expectations long before the world economy has recovered. If that were to happen, policymakers would be caught in a painful squeeze and the world might indeed end up in 1970s-style stagflation.

The exceptional policies used to deal with extreme circumstances are working. Now, as a result, policymakers are walking a tightrope: on one side are premature withdrawal and a return to deep recession; on the other side are soaring inflationary expectations and stagflation. It is irresponsible to insist either on immediate tightening or on persistently loose policies. Both the US and the UK now risk the latter. But their critics risk making an equal and opposite mistake. The answer is both clear and tricky: choose sharp tightening, but not yet.

martin.wolf@ft.com

Robust output data boost markets
활발한 생산성 지표가 시장을 부양하고 있다.
By Daniel Pimlott in London and Krishna Guha in Washington

Published: June 1 2009 20:21 | Last updated: June 1 2009 22:48

Stock markets round the world surged on Monday as robust manufacturing data raised hopes that the global economy could soon be past the worst of the recession.
세계의 주식시장이 월요일에 되살아났다. 활발한 생산성지표가 세계경제를 최악의 경기침체에서 벗어나게 할 거란 믿음때문이다.

The FTSE Eurofirst 300 index of leading European shares rose 2.8 per cent to a five-month high. In New York, the S&P 500 index was up 2.9 per cent by late afternoon, also at a five-month high, following a surge in Asian stock prices. The price of crude oil jumped to more than $68 a barrel to a seven-month high.
유럽주식지수는 5개월 최고치인 2.8%로 올랐다. 뉴욕에서도 S&P 500지수가 2.9% 올르면서 5개월 최고치를 경신했다. 아시아 주식가격도 상승을 뒤따랐다. 원유가격은 7개월 최고치인 배럴당 68$까지 올랐다.

The improvement in risk appetite undermined the dollar’s appeal as a haven and the currency touched its lowest level of the year against the euro.
위험을 감수하려하면서 안전자산인 달러의 매력은 줄었고 유로대비 환율은 연중 최저치까지 떨어졌다.

Government bonds also resumed their downward path as investors flocked to equities. The yield on the 10-year US Treasury bond soared to within a whisker of last week’s six-month high of 3.75 per cent.
투자자들이 주식시장에 몰리면서 국채는 하락세를 이어갔다. 10년물의 수익률은 지난주 6개월 최고치인 3.75에서 약간 올랐다.

China’s manufacturing sector expanded for the third straight month in May, according to the country’s official purchasing managers’ index.
중국의 생산부분은 3개월 연속으로 증가했다.

The US ISM survey of manufacturing activity came in higher than expected, showing strong new orders – though consumer spending for April came in down 0.1 per cent.
미국 산업생산지수는 4월 소비지출이 0.1% 감소했지만 신규주문량의 증가로 기대보다 높게 나타났다.

In the UK, the purchasing managers’ index hit its highest level in a year .
영국에서는 구매지수가 연중 최고치를 기록했다.

In the eurozone, the manufacturing recession also appeared to be easing, with indices rising at a record rate.
유로존에서는 생산지수가 상승세로 전환하면서 생산침체가 완화되었다.

A survey of manufacturing activity in India showed an increase for a second month, while in Australia the performance in manufacturing index rose to a eight-month high.
인도의 생산성지수는 이번해 들어 두번째로 상승했고, 호주의 생산성지수도 8개월 최고치를 기록했다.

Analysts said the improvement round the world suggested that the recessionary forces buffeting the global economy were starting to abate.
애널리스트들은 세계경제가 침체압력에서 벗어나기 시작했다고 말했다.

One composite measure of factory activity in the US, Japan, Germany, France, UK, China and Russia showed that manufacturing declined at its slowest pace for nine months in May. The global index, produced by JPMorgan with research and supply management organisations, rose to 45.3 in May from 41.8 in April, where any level below 50 points to contraction.
세계주요국의 공장활동성지표는 5월 들어 하락세가 점차 감소하기 시작했다. JPMorgan생산자지수는 45.3을 기록하며 41.8을 기록했던 지난달 보다 올랐다.

The slowing decline in global manufacturing in recent months comes after businesses sought to save their cash in the wake of the collapse of Lehman Brothers last September by slashing inventories rather than making new orders for goods.
리만브로더스 파산 이후 기업들이 새로운 주문을 하지 않고 재고를 팔아치워 현금을 확보하면서 생산량이 감축했었다.

As they held off from new orders production lines round the world ground to a halt, prompting a precipitous decline in manufacturing output.
그들이 새로운 생산라인을 구축하고도 생산하지 않으면서 생산성은 급속하게 줄어들었다.

But now companies are beginning to run low on stocks, forcing them to make fresh orders once again.
그러나 지금은 기업들이 저장상품을 줄이고 새로운 주문을 하고 있다.

Monday’s US reports confirmed that consumption was on a weak trajectory, with spending 1.2 per cent lower in April than on average in the first three months of the year. The personal savings rate rose to 5.7 per cent on stimulus tax cuts.
월요일 미국은 소비가 1.2%하락했다. 개인저축률은 5.7%까지 올랐다.

But while the rebound in manufacturing has been growing for several months in many economies, economists remain concerned that it merely reflects restocking and will peter out as struggling consumers and businesses around the world struggle to resume spending.
그러나 생산성이 재상승하더라도 전문가들은 재고가 다시 증가하고 지출이 점차 줄어드는 것을 걱정하고 있다.

“The critical next phase of the crisis is whether we will see an improvement in end demand,” said Mr Jeffrey. “I doubt the progress we’ve seen [in manufacturing] will be sustained.”
"이번 위기의 다음은 년말에 수요가 살아나느냐에 달려있다. 나는 생산성의 증가가 계속될 걸로 생각한다."

Additional reporting by Kathrin Hille and Amy Kazmin
Copyright The Financial Times Limited 2009

-생산성증가->실업율감소->소비증가->생산증가 의 선순환은 일어나지 않음
-소비성지표는 여전히 하락.
-생산력 증가가 소비증가로 파급되기까지는 시간이 걸림
-설사 실업율이 하락하더라도 소비증가는 급격히 늘어나지 않을 듯
-저축률 증가로 이전과 같이 빚내서 소비하는 행태는 사라졌기 때문.
-다른 기사에서 보면 모기지 부실은 점차 커지고 있기 때문에 금융불안이 실물위기를 가져올 위험은 여전히 존재함.

Overhauling financial regulation
경제제제를 분해한다.

The regulatory rumble begins
제제가 몰려오기 시작했다.
May 28th 2009 | BERLIN AND NEW YORK
From The Economist print edition

In America and Europe, new rules are running into stiff resistance—from regulators themselves
미국과 유럽에서 새로운 규칙이 규제주의자들 스스로에게서 반대자들에게도 적용되기 시작했다.

“YOU want to move at the point where people still have the memory of the trauma,” Tim Geithner explained recently when asked about financial regulation. Aware that the crisis is moving into a new phase, with the emphasis shifting from firefighting to working out how supervision should be restructured, America’s treasury secretary wants to seize the moment. He plans to unveil a comprehensive regulatory overhaul by mid-June. Barack Obama has said he wants to sign the changes into law by the year’s end.

"당신은 사람들이 트라우마를 가지고 있는 시점에서 벗어나고 싶죠."
팀가이트너는 금융규제에 관해 질문 받았을 때 이렇게 대답했다. 충격이 새로운 단계로 이동하고 있음을 일깨우는 것이었다. 진화작업에서 감독체계를 어떻게 재설계해야 하는 지로 중심은 변하고 있었다. 그는 6월 중순까지 포괄적인 규제분해의 베일을 벗기겠다고 설명했다. 오바마는 년말까지 법을 개정하겠다고 선언했다.

In Europe, too, the pressure is on. “There’s no room for more delays,” José Manuel Barroso, president of the European Commission, said on May 27th when he unveiled a blueprint for reform of financial supervision. He announced plans to form two new grandly named institutions: a European Systemic Risk Council, which is supposed to provide early warning of possible risks, and a European System of Financial Supervisors, which would be a super-committee of regulators from across the European Union.

유럽에서도 마찬가지로 압박이 시작됐다. "더이상 지체할 수 없다." 유럽위훤회 위원장인 바로쏘는 5월 27일 금융관리감독에 대한 개혁을 공개하며 말했다. 그는 두개의 새로운 거대기관을 설립하겠다고 밝혔다. 조기에 위험을 알리는 기능을 할 유럽시스템위험위원회와 유럽연합의 감독당국을 관장할 유럽금융시스템관리국이 그것이다.

The goals of the two new institutions are admirable. Both are intended to correct a fundamental flaw in European bank regulation and supervision; namely, that although banks are free to operate across borders, they are supervised only by their home countries. Slack oversight by one country can, as the crisis has revealed, spread chaos across many. Yet it is not at all clear that the proposals have been thought through properly. “The European Commission is confusing speed with haste,” says Nicolas Véron of Bruegel, a think-tank in Brussels. “The governance, mandate and funding of these new authorities is not really addressed.” Britain, which has the biggest banking centre, is particularly concerned about the proposed rules, which may cede aspects of the City of London’s banking supervision to Brussels.

새로운 두 기관의 목표는 칭찬할만 하다. 두기관 모두 금이 간 유럽은행규제와 감독을 바로잡고자 만들어졌다. 이름에서도 알 수 있듯이 은행들은 두 기관의 감독을 받지는 않고 해당국가의 관리만 받으면 된다. 한국가라도 감시가 느슨해지면 이번 위기처럼 수많은 나라들이 혼란에 빠질 수 있다. 그러나 제안을 모두 좋게 받아들이지는 않는다. 유럽위원회는 지나치게 빠르다. 브뤼셀의 씽크탱그에 브뤼겔은 말했다. "새로운 기구의 구조와 인력, 근원은 명확하지 않다." 유럽의 금융중심지인 영국은 자국은행의 감독권이 런던에서 브뤼쉘로 가게될까봐 규제제안에 대해 걱정하고 있다.

In America, meanwhile, the plans taking shape face resistance, partly from the bankers they will shackle but even more from regulators and lawmakers. Bankers accept they will be forced to build up bigger capital buffers, which will crimp profitability, and that the liquidity of their balance-sheets will be policed more intensively. The regulatory net will be cast over the “shadow” banking network of hedge funds, money-market funds and the like, to which much financial activity gravitated during the boom.

반면 미국에서는

Big banks, however, still have enough lobbying power to ensure that not every decision goes against them. True, they are still licking their wounds after the recent passage of draconian credit-card reforms. But they are happier with the government’s proposals on derivatives, under which dealers will be able to continue peddling customised swap contracts away from exchanges, albeit with a higher capital charge.

As the crisis has deepened, American bankers have tempered their opposition to the idea of new rules that reduce the chances of another blow-up. “Would I accept regulation that slows innovation a bit and knocks three percentage points off my returns if it promised greater stability? Absolutely,” says the head of one large bank.

For some, more stringent regulation even has a silver lining. With tougher mortgage rules, banks will no longer have to lower their standards to compete with the industry’s unregulated parts. The survivors could also benefit from higher barriers to entry.

On the whole, Wall Street sees a welcome disconnect between the Obama administration’s rhetoric and its actions. The Treasury is “gradually learning” how to square the circle of showing that it understands the public’s anger on the one hand, and maintaining a dynamic financial sector on the other, says one bank lobbyist. Another test of its capacity to resist pitchfork-wielding urges will come in the next few weeks, when it is expected to issue guidelines on executive pay.

The stiffest resistance to change is coming not from Wall Street but from Washington, DC, where government officials, regulators and congressional leaders are locked in turf wars and ideological battles. “Opinion has splintered. Everyone is fighting everyone,” says Bert Ely, a consultant on regulatory issues.

Even the main banking agencies are at odds with each other. Sheila Bair of the Federal Deposit Insurance Corporation (FDIC) and John Dugan, the Comptroller of the Currency, have fallen out over Ms Bair’s deposit-insurance reforms. Mr Dugan also opposes the FDIC’s push for sole authority to liquidate failing non-banks, as it already does with banks.

Worse, there is no consensus on the proposed systemic-risk regulator, which would identify and act on emerging “macro-prudential” dangers. The administration wants the Fed to assume the role, but many in Congress oppose this. Dick Shelby, an influential senator, has accused Mr Geithner of using the crisis to hand the Fed unacceptable levels of power. Meanwhile, Ms Bair has suggested that systemic regulation be done (or at least overseen) by a multi-agency council, an idea that is gaining traction even if others (including, again, Mr Dugan) worry that such supervision-by-committee is a recipe for inaction.

An even bigger battle is brewing over the shake-up of existing regulators. No one doubts that the archaic, overlapping patchwork of agencies needs modernising, with regulation refocused on a firm’s activities rather than its legal form. Reportedly, the White House is considering rolling the four banking-supervision agencies into one, though the idea is still in flux.

But an embryonic plan to create a super-regulator for consumer products, such as mortgages, credit cards and mutual funds, is already encountering stiff opposition. The Securities and Exchange Commission (SEC), which would lose out in such a shuffle, has powerful friends on Capitol Hill, especially on the Senate banking committee that oversees the agency—and any overhaul would require congressional approval. Public pension funds have also joined together to lobby against a reduction in the SEC’s power.

Moreover, the economically rational may not be politically feasible. Though it would make sense to merge the SEC with the Commodity Futures Trading Commission, which regulates derivatives, Congress’s powerful agriculture committee would probably block the move.

Debate about other thorny issues, such as what restrictions to place on, or whether to dismantle, banks that are too big to fail has barely begun. Congressional leaders cannot even agree on whether to pass new rules in pieces or roll them up into one mega-bill.

All of which explains why pundits now expect to see few, if any, further financial reforms passed in 2009. Delay could play into the financial industry’s hands, to the extent that it reduces the likelihood of heat-of-the-moment laws like Sarbanes-Oxley, rushed through after the Enron scandal. But if measures that would increase stability fall victim to politics, everyone will be worse off.