NEW YORK (Reuters) – A White House proposal to curb excessive risk-taking by banks has sparked fears it could crimp banks’ access to funding, which Standard & Poor’s on Tuesday said might cause it to downgrade its U.S. banking system assessment.

The biggest fear is that new regulations on risk-taking could expose bank bondholders to a greater chance of losses, which would undermine the attractiveness of bank bonds, said Tanya Azarchs, managing director, financial institutions ratings, with Standard & Poor’s in New York.

Legislation “could be detrimental to bondholders and could affect the BICRA rating further,” Azarchs said on a panel debate at an S&P conference on banking in New York.

The BICRA, or banking industry country risk assessment, reflects the chances that a country’s banking system may experience a systemic failure, Azarchs said. It is one of several factors S&P considers when determining a country’s credit rating.

S&P had revised down its BICRA on the United States to Group 3 from Group 2 on December 21 due to a higher estimate of the banking sector’s gross problematic assets.

The BICRA ratings range from a high of 1 to a low of 10. Other banking systems ranked 3 include the UK, Austria, Chile, Portugal and Saudi Arabia.

The risk of the U.S. credit culture in which consumers borrowed heavily during the boom years via mortgages and credit cards “has proven to be a lot higher than we thought,” Azarchs said.

NEW YORK (Reuters) – Emergency funding the U.S. government provided during the credit crisis has left financial institutions with huge cut-price loans that could harm banks’ profits and economic growth once borrowing costs rise.

Banks that borrowed cheaply in the corporate bond market with a government guarantee will see their borrowing costs rise sharply once the debt matures, analysts said. That may swell bank expenses and constrain their ability to lend.

By some time in 2012, about $309 billion of government-guaranteed debt outstanding under the Temporary Liquidity Guarantee Program (TLGP) will mature. Banks will have to refinance with their own stand-alone debt and will likely pay bondholders much higher yields.

“The rise in debt costs…will implicitly reduce banks’ ability to lend,” said Tim Backshall, chief strategist with Credit Derivatives Research, LLC.

The Program was one of many emergency measures the government brought in at the height of the financial crisis in late 2008 to stop lending markets from freezing up and prevent the financial system imploding.

Like other government stimulus programs, it has gone from reassuring financial markets to worrying them as investors await their eventual demise.

Back in 2008, investors were loath to buy any banks’ stand-alone debt, plowing money instead into the securities issued under the TLGP program and driving their yields down. Bond yields and prices move inversely.

NEW YORK, Jan 28 (Reuters) – The U.S. commercial paper market, a vital source of short-term corporate funding, expanded in the latest week, Federal Reserve data showed on Thursday, hinting the economy was still growing.

Businesses use short-term borrowing to finance restocking of shelves and to pay wages, so the increase in the debt issuance suggests companies are anticipating demand growth.

After dwindling to roughly half its $2.2 trillion peak size over two years during the credit crisis, the commercial paper market started growing again for three months through late October. Since then, the recent expansion trend has stalled.

For the week ended Jan. 27, the size of the market increased by $54.8 billion to $1.147 trillion outstanding from $1.092 trillion the previous week.

Unsecured financial issuance rose by $57.1 billion after falling by $9.9 billion the previous week.

While the jump in unsecured financial issuance appeared hefty at first blush, it likely was inflated by seasonal adjustments, said Ray Stone, economist with Stone & McCarthy Research Associates in Princeton, New Jersey.

“It is hard seasonally adjusting a weekly series, particularly a series that had such extraordinary movements a year ago,” Stone said, adding that he calculates the weekly rise in unsecured financial issuance at just $4.6 billion on a nonseasonal adjusted basis.

NEW YORK (Reuters) – U.S. consumer confidence in January hit its highest level in nearly a year and a half, but a closely watched housing index showed an unexpected decline in November home prices, giving a mixed picture of the economic recovery.

The Conference Board, an industry group, reported on Tuesday that consumer confidence rose for the third straight month in January, driven by improved economic conditions.

Its index of consumer attitudes rose to 55.9 in January, the highest reading since September 2008 and up from an upwardly revised 53.6 in December. The index topped the median forecast for a reading of 53.5 from analysts polled by Reuters.

“This really bodes well for consumer spending. It shows we are in a modest recovery and we will likely maintain a modest recovery for the next few quarters,” said Ward McCarthy, chief financial economist with Jefferies & Co in New York.

The confidence data helped drive U.S. stock indices higher in midday trade, while safe-haven Treasury debt prices pared gains and the dollar was steady.

A decline in job losses in recent months and a resurgent stock market have helped improve consumers’ mood as the U.S. economy returned to growth last year after the worst economic slump in decades.

Yet concerns remain about the sustainability of the recovery after the most severe housing market downturn and highest unemployment in more than a quarter century.

NEW YORK, Jan 26 (Reuters) – U.S. consumer confidence in January hit its highest level in nearly a year and a half, but a closely watched housing index showed an unexpected decline in November home prices, giving a mixed picture of the economic recovery.

The Conference Board, an industry group, reported on Tuesday that consumer confidence rose for the third straight month in January, driven by improved economic conditions.

Its index of consumer attitudes rose to 55.9 in January, the highest reading since September 2008 and up from an upwardly revised 53.6 in December. The index topped the median forecast for a reading of 53.5 from analysts polled by Reuters. For details, see [ID:nN26357538]

“This really bodes well for consumer spending. It shows we are in a modest recovery and we will likely maintain a modest recovery for the next few quarters,” said Ward McCarthy, chief financial economist with Jefferies & Co in New York.

The confidence data helped drive U.S. stock indices higher in midday trade, while safe-haven Treasury debt prices pared gains and the dollar was steady.

A decline in job losses in recent months and a resurgent stock market have helped improve consumers’ mood as the U.S. economy returned to growth last year after the worst economic slump in decades.

Yet concerns remain about the sustainability of the recovery after the most severe housing market downturn and highest unemployment in more than a quarter century.

NEW YORK (Reuters) – The next leg of a bear market in stocks has probably started and gold and corporate bonds are likely to slide as the U.S. economy suffers long-term weakness, technical analyst Robert Prechter said on Monday.

Prechter has previously said he believes the 2007-2009 markets crisis and U.S. recession were harbingers of a severe, longer economic downturn. His book “Conquer the Crash” first published in 2002 , warned about the dangers of a deflationary depression and Prechter maintains the United States economy will struggle for years to come.

“We probably have begun the next phase of the bear market,” said Prechter, president of research company Elliott Wave International in Gainesville, Georgia and known for predicting the 1987 stock market crash.

The U.S. S&P 500 index has fallen about 5 percent since hitting a 15-month peak on January 19 as some investors started to worry about the possibility of a double-dip recession.

Although many stock analysts expect a short term pullback of about 10 or 15 percent in U.S. stocks, Prechter, known for his bearish views, expects a steeper, longer term fall.

Within the bear market Prechter says started in 1999, this latest stock rally “is the third I think final peak,” he said in a telephone interview with Reuters.

For investors in equities, this is “the last chance to get out with the Dow in quintuple digits,” Prechter added.

NEW YORK, Jan 20 (Reuters) – Quarterly results from major U.S. banks including Bank of America Corp, <BAC.N> Citigroup, <C.N> and JPMorgan Chase & Co <JPM.N> have made stock investors hopeful and bond investors gloomy.

Although results have been helped by lower credit costs, the banks’ problems remain deep, and many bond investors are skeptical of any kind of rapid recovery.

“Stock investors are looking at their banks’ profitability and looking for that earnings growth, whereas the bond market is looking more at loan losses,” said William Larkin, fixed income portfolio manager at Cabot Money Management in Salem, Massachusetts.

While JPMorgan Chase reported its fourth-quarter profit soared to $3.3 billion on strong investment banking results, it suffered deep losses on mortgage and credit card loans, dampening hopes that consumer credit is on the mend.

The risk premiums on corporate bonds, as measured by the extra yield they pay over safe Treasury notes, widened by 0.02 percentage point to 2.37 percentage points on Tuesday indicating investor skepticism over the results.

Those risk premiums, or spreads, had been as narrow as 2.32 percentage points on Jan. 13, according to Bank of America Merrill Lynch data.

Bank stocks rose by about half a percentage point over the same time period, according to the KBW Bank index <.BKX>.

NEW YORK, Jan 8 (Reuters) – U.S. corporate borrowers rang in 2010 by selling the third biggest amount of debt on record this week, seizing on favorable borrowing conditions for fear rates will start to climb.

Borrowers sold about $45 billion of investment-grade debt this week, which is on track to rank as the third biggest week after the period of April 20, 2008, which saw $47.6 billion in new issues, according to Thomson Reuters data.

The week of May 4, 2008, recorded $45.2 billion in new issues.

The borrowing spree shows banks and companies have not forgotten the global financial crisis that paralyzed lending markets only a year ago. Borrowers are intent on issuing debt while the going is still good, before any future market shocks, analysts said.

“The consensus is that yields are going higher, and if you need to issue or refinance debt and strengthen your balance sheet at what a fair number of people expect to be at the low point for yield markets for 2010, it makes sense to do it early,” said Ian Lyngen, senior government bond strategist with CRT Capital Group in Stamford, Connecticut.

Unlike a year ago, many banks and other financial institutions that repaid government bailout money are no longer using the government’s Temporary Liquidity Guarantee Program to sell debt, instead issuing their own, stand-alone paper.

“This is a good sign for the functioning of the financial system as well as being a good thing for the financial issuers who are able to get things done,” Lyngen said.

NEW YORK, Jan 7 (Reuters) – The U.S. commercial paper market had its biggest weekly percentage contraction in a decade, suggesting companies were nervous about the prospects for a sustained economic recovery, analysts said.

Businesses use short-term borrowing to finance restocking of shelves and pay wages, so the paring back of such debt issuance hints at worries that economic growth may falter again, after the longest U.S. recession in decades ended in 2009.

For the week ended Jan. 6, the size of the U.S. commercial paper market, a vital source of short-term funding for companies’ day-to-day operations, fell by $94.2 billion to $1.076 trillion outstanding, from $1.170 trillion outstanding the previous week, Federal Reserve data showed on Thursday.

“Businesses remain nervous about the pace of economic expansion over the next one or two quarters,” said Dan Greenhaus, chief economic strategist with Miller Tabak & Co. in New York.

After the global credit crisis chopped the market’s size by almost half over two years, in late 2009 the market expanded for about three months, before its recent contraction.

“It’s been trending lower since the end of October,” Greenhaus said. “The (economic) rebound was one of the things that was supportive of things getting better, but there is a limit to how far this went if end demand wasn’t materializing.”

However, other factors may have caused this week’s plunge in commercial paper.

NEW YORK, Dec 16 (Reuters) – After a meteoric 10-month rally, U.S. corporate bonds now face the hurdle of rising interest rates, which will likely limit returns in 2010 as an economic recovery takes hold.

The pressure of trillions of dollars of U.S. government debt issuance is expected to push interest rates higher next year, causing yields to rise and weighing on prices of bonds of all stripes, including corporates.

Lackluster investment performance may be a “new normal” after a steep sell-off in the 2008 global credit crisis and huge bounce back in 2009. If volatility continues to abate, investors may get their interest coupon from bonds and perhaps not much more.

“Next year I am calling the year of the coupon return,” said James Sarni, managing principal with Payden & Rygel in Los Angeles, which manages some $50 billion of fixed income.

“What you are likely to see is the coupon plus a little bit extra,” said Sarni, who expects high-grade corporate bond total returns of about 4.5 percent to 5 percent in 2010.

Year-to-date, investment grade corporates have delivered 20 percent total returns, just shy of their record 21.6 percent return in 1995, according to Bank of America Merrill Lynch.

CHALLENGING YEAR FOR BONDS