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from Breakingviews:

Settling is hard to refuse in EU rates probes

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By George Hay

The author is a Reuters Breakingviews columnist. The opinions expressed are his own.

Brussels has handed banks a tactical quandary. The European Commission’s antitrust arm is preparing to hand some 5 billion euros of fines to the industry for its now-infamous attempts to manipulate interbank lending rates like Euribor and yen Libor. But some banks aren’t willing to settle. They face a tricky choice: buy peace now, or risk the ire of a powerful regulator – and a possibly larger fine later.

The standard protocol for dealing with the Commission is ready compliance. A quick settlement gives visibility to investors on the size of the penalty, and helps smooth future dealings with EU authorities. Royal Bank of Scotland, Deutsche Bank and Societe Generale are taking this traditional route, according to some reports.

Yet at least three banks – reportedly HSBC, Credit Agricole and JPMorgan – are dragging their feet. They may have good reasons to do so. Their lawyers may feel they can argue that their bank’s involvement in fiddling benchmark rates was either non-existent or restricted in number or scope. Banks may also dislike the rough and ready way in which fines are determined: in some antitrust cases, penalties reflect market shares on the relevant market, which hits larger firms harder.

from MacroScope:

The limits of Federal Reserve forward guidance on interest rates

The ‘taper tantrum’ of May and June, as the mid-year spike in interest rates became known, appears to have humbled Federal Reserve officials into having a second look at their convictions about the power of forward guidance on interest rate policy.

Take James Bullard, president of the St. Louis Fed. He acknowledged on Friday that the Fed’s view of the separation between rates guidance and asset purchases had not been fully accepted by financial markets. “This presents challenges for the Committee,” he noted.

from MacroScope:

Recalculating: Central bank roadmaps leave markets lost

Central banks in Europe have followed in the Federal Reserve’s footsteps by adopting “forward guidance” in a break with traditionBut, as in the Fed’s case, the increased transparency seems to have only made investors more confused.

The latest instance came as something of an embarrassment for Mark Carney, the Bank of England’s new superstar chief from Canada and a former Goldman Sachs banker. The BoE shifted away from past practice saying it planned to keep interest rates at a record low until unemployment falls to 7 percent or below, which it said could take three years.

from Breakingviews:

China’s PBOC serves reformists an amuse-bouche

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By John Foley

(The author is a Reuters Breakingviews columnist. The opinions expressed are his own.)

China’s central bank has just whetted the appetites of reformists. The People’s Bank of China said on Friday that starting immediately it will let banks lend as cheaply as they like, removing the floor of around 6 percent for one-year loans. It smells like interest-rate liberalisation, but it’s only an amuse-bouche.

from Breakingviews:

Next economic “It girl” is about to be discovered

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By Agnes T. Crane
The author is a Reuters Breakingviews columnist. The opinions expressed are his own.

The next economic “It girl” is about to be discovered. In 2008, the obscure Baltic Dry Index was suddenly the subject of every financial conversation. The TED spread and the ABX also briefly rocketed to fame. Now, as investors try to find a telltale gauge of when interest rates will start rising, the JOLTS report, forward curves and the overnight index swap could soon be in vogue.

from Money on the markets:

Subbarao goes against his panel, again

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(Any opinions expressed here are those of the author, and not necessarily those of Thomson Reuters)

Finance Minister P. Chidambaram is not the only one walking alone.

Duvvuri Subbarao, the Reserve Bank of India (RBI) chief, also seems to be on a solitary, and one hopes, contemplative walk.

from Alison Frankel:

Barclays hit with Libor securities class action

There's a new entry in the category of no-brainers: A holder of Barclays American Depository Receipts has brought the first of what is sure to be a string of Libor-related securities fraud class actions. The 47-page complaint, filed by Wolf Haldenstein Adler Freeman & Herz in federal court in Manhattan, asserts that Barclays and its former CEO, Bob Diamond, and outgoing chairman, Marcus Agius, lied to shareholders when they failed to disclose the bank's manipulation of reports to the authorities who calculate the daily London interbank offered rate (or Libor), a benchmark for short-term interest rates.

Barclays told shareholders that it was a model corporate citizen even though since at least 2007 it was "participating in an illegal scheme to manipulate rates in a way that would allow defendants and other bankers to exploit the market," the complaint asserted. On the day Barclays' settlements with U.S. and British financial regulators were announced, the complaint said, the price of its ADRs fell 12 percent; the next day the ADRs tumbled an additional 5 percent. (If you're wondering why the complaint was filed by ADR holders, it's because Morrison v. National Australia Bank bars claims in the United States by common stockholders in the British-listed bank.)

from MacroScope:

Bonds take a dive

U.S. Treasuries have taken quite a battering this week, and there has been no shortage of explanations from market pundits. For some, the downturn reflects an improving economy and the pricing out of expectations for further monetary easing from the Federal Reserve. For others, the market is playing catch up after eyeing firmer inflation numbers and a better if still anemic employment backdrop.

The Fed’s statement this week lent itself to a hawkish interpretation since what few changes were made appeared positive. The bond market responded in kind, adding to a selloff that has seen ten-year note yields rise nearly 40 basis points in just over a week. George Goncalves at Nomura describes the price action:

from Expert Zone:

Will higher interest rates lower growth?

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(The views expressed in this column are the author’s own and do not represent those of Reuters)

The Reserve Bank of India (RBI) increased the repo rate by 50 bps on May 3 and there was an outburst of opinions that the rate of GDP growth will drop. The consensus seemed to be that it would drop to 8 pct, a 100 bps less than what we had been used to.

Of course, May 3 was the first time in two years that the RBI raised the repo rate by a hefty 50 bps. In the earlier eight installments, the increase was only 25 bps.

from The Great Debate UK:

Rubbish rates – what is a saver to do?

-Rachel Mason is PR manager at Fair Investment Company. The opinions expressed are her own.-

The base rate is going to be stuck at 0.5 percent for years to come, according to experts, so where does that leave savers?

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