Bonds at session highs as debt ceiling raised
NEW YORK, Aug 2 (Reuters) – U.S. Treasuries prices rallied strongly on Tuesday on deep concerns about the economic outlook in the United States and Europe.
Bonds reached session highs after the U.S. Senate approved a deal to cut spending and raise the debt ceiling and the White House said President Obama would sign the bill into law.
Reacting, Fitch Ratings said the pact to raise the United States’ borrowing capacity meant the risk of a sovereign default was “extremely low,” commensurate with a AAA rating.
“The vote is a positive in that it removes a great deal of uncertainty from the market,” said Michael Moran, chief economist at Daiwa Securities America in New York. <^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^ Full coverage of U.S. budget and debt [ID:nUSBUDGET] ^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^>
But bonds were already rallying and stocks in the midst of another sell-off before the Senate vote.
Fears about the global economic outlook spurred the bid for safe-haven U.S. government debt.
“The economic fundamentals have turned down and that’s why you see interest rates dropping,” said Steve Van Order, fixed income strategist with Bethesda, Md.-based Calvert Investment Management Inc, which has more than $14.5 billion in assets under management.
If U.S. debt is downgraded, will anyone care?
NEW YORK (Reuters) – The United States could lose its triple-A credit rating from at least one rating agency this year, raising the question: Who cares?
Strange as it may sound, a downgrade could resound in financial markets more with a whimper than a bang.
As debate raged in Washington over raising the debt ceiling and avoiding a default, markets had plenty of time to factor in the thinking of Standard & Poor’s, Moody’s and Fitch on a potential downgrade.
“Market participants have the same information that ratings agencies do,” said Michael Moran, chief economist at Daiwa Securities America in New York. “(That information) should already be reflected in interest rates.”
Two ratings agencies, elected by no one, said $4 trillion in deficit-cutting measures would allow them to confirm the U.S. triple-A rating. Lawmakers, who in contrast must answer to American voters, agreed on less than $2.5 trillion in budget cuts, only some of them immediate.
That means S&P could downgrade U.S. ratings in the next few days or weeks. Moody’s would likely confirm U.S. ratings, but slap a negative outlook on them, a sign of a possible downgrade in the next 12 to 18 months.
Still, historical experience suggests a downgrade would produce none of the bond-market angst some fear. Japan lost AAA status more that a decade ago and it has some of the lowest interest rates in the developed world.
Analysis: If U.S. debt is downgraded, will anyone care?
NEW YORK (Reuters) – The United States could lose its triple-A credit rating from at least one rating agency this year, raising the question: Who cares?
Strange as it may sound, a downgrade could resound in financial markets more with a whimper than a bang.
As debate raged in Washington over raising the debt ceiling and avoiding a default, markets had plenty of time to factor in the thinking of Standard & Poor’s, Moody’s and Fitch on a potential downgrade.
“Market participants have the same information that ratings agencies do,” said Michael Moran, chief economist at Daiwa Securities America in New York. “(That information) should already be reflected in interest rates.”
Two ratings agencies, elected by no one, said $4 trillion in deficit-cutting measures would allow them to confirm the U.S. triple-A rating. Lawmakers, who in contrast must answer to American voters, agreed on less than $2.5 trillion in budget cuts, only some of them immediate.
That means S&P could downgrade U.S. ratings in the next few days or weeks. Moody’s would likely confirm U.S. ratings, but slap a negative outlook on them, a sign of a possible downgrade in the next 12 to 18 months.
Still, historical experience suggests a downgrade would produce none of the bond-market angst some fear. Japan lost AAA status more that a decade ago and it has some of the lowest interest rates in the developed world.
Bonds rally as weak economy spurs safety bid
NEW YORK (Reuters) – U.S. Treasury debt prices rallied on Monday as a troubled outlook for the U.S. and global economies whetted appetite for safe-haven government debt, sending yields to their lowest level in over eight months.
A closely watched measure of U.S. manufacturing underscored the precariousness of the U.S. economic outlook after GDP figures last week showed minimal growth in the first half of the year.
The Institute of Supply Management (ISM) said its manufacturing index read 50.9 in July, barely above the 50 mark that separates expansion from contraction. For the first time since June 2009, new orders contracted.
News that European and Asian factory activity in July was the weakest since the 2009 recession underscored the gloomy economic outlook.
On the debt ceiling front, U.S. congressional leaders lined up votes for a White House-backed deal to raise the U.S. borrowing limit and avert an unprecedented debt default.
“If the debt ceiling and U.S. credit quality were the only concerns, then we might be looking at a rally in stock prices as risks declined and a flattening of the Treasury yield curve as uncertainty about the credit outlook improved,” said Robert Tipp, chief investment strategist for Prudential Fixed Income with $240 billion in assets under management.
“But a tectonic shift is occurring in people’s perceptions and expectations about the economy and that shift is not limited to the United States; it applies to Europe and, to some extent, China, as well,” Tipp said.
Debt deal could spur relief rally
NEW YORK (Reuters) – A $3 trillion deal that U.S. lawmakers could reach to raise the U.S. borrowing limit and avoid default could spur a relief rally in Wall Street stocks and a rise in U.S. government yields on Monday.
“We’re very close,” said Senate Minority Leader Mitch McConnell, the top Senate Republican who is playing a key role in the negotiations on a plan to reduce the deficit and permit a vote to raise the $14.3 trillion debt ceiling.
U.S. lawmakers were close to a last-gasp deal on Sunday to raise the U.S. borrowing limit and assure markets that the United States will avoid a default.
The tantalizing possibility of an agreement raised hopes that a bitter, weeks-long partisan battle over cutting the U.S. deficit might be near a close.
“If we can put this to bed, we can go back to a normalized market — one that trades on fundamentals and not fear,” said Steven Wolf, managing director of investments at Source Capital Group in Westport, Connecticut.
David Plouffe, a senior adviser to President Barack Obama, cited general agreement on a plan to cut the U.S. deficit over 10 years in two stages: $1 trillion up front and the rest based on the recommendation of joint bipartisan committee.
Anxiety over the debt crisis and the U.S. economic outlook sent the S&P 500 lower last week, resulting in the worst week and month for the benchmark index since last August.
NY exhibit explores how memory reconstructs reality
NEW YORK (Reuters Life!) – Israeli artist and filmmaker Maya Zack uses 3D technology to recreate the apartment of a Jewish family living in 1930s Berlin in a new exhibit that explores how the past is remembered.
“Living Room,” which will be on view at The Jewish Museum from July 31 to October 23, combines computer generated images of the apartment of Manfred Normburg, a German-born Jew, and his memories of everyday life in pre-war Berlin to study the intersection of personal memory with historical events.
“My entire body of work in the last few years has to do with memory and reconstructing reality through different processes,” Zack told Reuters.
Using four large-scale, computer-generated 3D prints, Zack shows cross-sections of the living room, dining room, kitchen and other spaces, including furniture, appliances, tableware, wallpaper and light fixtures. 3D glasses give the oversized images immediacy and depth.
Zack, who was born in Israel and lives and works in Tel Aviv, was struck during a trip to her grandmother’s childhood home in Slovakia with a sense of emptiness and absence when she tried to imagine her grandmother’s life inside that home. The experience inspired her attempt to reconstruct reality from borrowed memory.
Nomburg, who fled Berlin in 1938 as a boy and now lives in Israel, had vivid memories of his life in the Berlin apartment where he lived with his parents and brother before the war.
U.S. downgrade could arrive as a whimper
A potential downgrade of U.S. Treasury debt by a credit ratings agency, once seen as impossible for the world’s largest economy, could resound in financial markets more with a whimper than a bang. That’s because, as was evident in a Reuters poll, investors have largely come to expect it.
That Standard & Poor’s ratings agency will cut the U.S. debt rating from AAA to AA+ is “the market’s base case at the moment,” said Krishna Memani, fixed-income director at OppenheimerFunds, with $188 billion in assets under management.
The market does not expect a significant, long-term deficit reduction plan that would keep S&P from cutting the U.S. debt rating.
For markets, in other words, a U.S. debt ratings downgrade might not be that newsworthy, landing with a dull thud rather than a cataclysmic crash. Argues Daiwa Securities Chief Economist Michael Moran:
Market participants have the same information that ratings agencies do and are forming their views and expectations on the creditworthiness of the U.S. Those views should already be reflected in interest rates.
Consequently, a U.S. debt ratings downgrade would not cause yields to skyrocket, limiting the so-called “knock-on” effects on other kinds of interest rates like mortgages. How Treasury rates have behaved during the past couple of weeks of acrimonious budget talks is illustrative, says Moran:
A downgrade by a rating agencies would be following the market, rather than leading the market. Treasury rates have not fluctuated very much with the ebb and flow of the budget negotiations. Breakdowns in talks have not sent rates markedly higher and potential breakthroughs have not pushed rates noticeably lower. This lack of response suggests that investors have already built in some longer-term views on the credit worthiness of the U.S.
Exhibit highlights textiles’ role in modern interiors
NEW YORK (Reuters Life!) – The role of textiles in the history of modern interiors and design, often unrecognized, gets the spotlight at an exhibit at the Bard Graduate Center: Decorative Arts, Design History and Material Culture.
The overlooked status of modern textiles is perhaps best exemplified by the iconic “Womb” chair by Eero Saarinen, according to Earl Martin, a curator of the “Knoll Textiles, 1945-2010″ exhibit.
A feature of most 20th-century design collections, the “Womb” chair’s fabric, usually a Knoll textile and a dominant design element, is rarely, if ever, identified.
“In modern interior design, the role of the furniture designer is well documented, but the importance of the textiles on their furniture was never talked about,” Martin said.
The lack of recognition is perhaps partly attributable to the concentration of women in textile design.
“In the field of design, it was fairly characteristic for women to be pushed into textiles,” Martin explained.
US govt debt prices drop on euro zone hopes
NEW YORK, July 21 (Reuters) – U.S. Treasury prices fell on Thursday on optimism that a draft plan by euro zone leaders to tackle the problems of heavily indebted countries would calm concerns about imminent defaults.
The maturities on euro zone rescue loans to Greece, Ireland and Portugal would be extended and the interest rate cut, according to the draft agreement seen by Reuters on Thursday. For more, see [ID:nL6E7IK2VL]
“It’s a little more positive coming out of the EU summit. It’s just a little risk off for Treasuries,” said Justin Lederer, interest rate strategist at Cantor Fitzgerald in New York.
French President Nicolas Sarkozy said on Thursday that the European Financial Stability Facility would be able to intervene on primary and secondary debt markets when the European Central Bank deemed it necessary.
Further evidence that risk was back in favor came from the stock market where major indexes .SPX.IXIC.DJI were up more than 1 percent.
“This is the risk back on trade,” said Jerry Webman, chief economist at OppenheimerFunds in New York, which has $188 billion in assets under management. “Corporate earnings are okay. We’re starting to get some resolution in Europe. We’re getting some talk of a sensible solution in the debt ceiling talks in the United States. People are moving away from the safe-haven assets like U.S. Treasuries.”
While optimism from the European Union summit dominated trading in U.S. government bonds for much of the session, investors also looked for further signs that Washington lawmakers would agree on a deficit reduction plan or at least agree to raise the debt ceiling.
Euro zone, debt ceiling talks whipsaw bonds
NEW YORK, July 20 (Reuters) – U.S. Treasuries prices fell on Wednesday as the safety bid for U.S. government debt ebbed on the view that euro-zone leaders were making progress on a plan to ease Greece’s debt burden.
U.S. Treasuries have been variously buffeted by worries about the European debt crisis and a potentail U.S. default.
Concern about European sovereign debt and the banks that hold it have fed a persistent demand for what has commonly been viewed as a safe-haven: U.S. government debt.
Conversely, when constructive steps are made on the euro-zone debt predicament, demand for U.S. Treasuries wanes.
Euro-zone leaders are due to meet on Thursday to determine means of tackling Greece’s spiraling debt crisis.
“Some type of package should help ease some of the concerns there,” said Tom Tucci, head of government bond trading at RBC Capital Markets in New York.
The five-year Treasury notes US5YT=RR fell 5/32 in price, its yield rising to 1.48 percent from 1.43 percent on Tuesday.
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