Portugal Pays Higher Rate to Sell Debt

  China Ex-PBOC Advisor Repeats Call to Cut Tsy Holdings – China should cut its holdings of U.S Treasuries to minimize losses on its foreign exchange reserves and let the yuan move more freely, Yu Yongding said in an opinion piece published in Caijing magazine.  Moving towards a more market-driven exchange rate would mean reduced intervention in the foreign currency markets, giving China the option of winding down its holdings of U.S. debt, Yu said.  "China should strive to reduce instead of further increasing (its holdings of) dollar assets," he said. "Specifically, China should reduce the growth of its foreign exchange reserves as soon as possible
 

Portugal Pays Higher Rate to Sell Debt – Portugal successfully raised euro500 million in a Treasury bill sale Wednesday but had to pay sharply higher interest to attract investors, fueling fears its borrowing costs could spiral and force it to follow Greece and Ireland in seeking a multibillion-euro bailout. The auction showed that the debt crisis that plagued Europe all last year is still very much around despite efforts to calm markets with a new bailout fund to backstop governments that get into trouble. Though debt-laden Portugal is one of the eurozone’s smallest economies, representing less than 2 percent of the bloc’s gross domestic product, Europe may need to assist Portugal to prevent the continent’s financial crisis spreading to much bigger Spain.

U.S. Shopping Center Vacancies Rise as Unemployment Rate Climbs -Vacancies at U.S. neighborhood and community shopping centers climbed in the fourth quarter from a year earlier as unemployment lingered close to 10 percent, real estate research company Reis Inc. said. The vacancy rate at shopping centers rose to 10.9 percent from 10.6 percent a year earlier, the New York-based firm said today in a report. It was unchanged from the prior two quarters, when the rate reached the highest level since 1991. The record of 11.1 percent was set in 1990, according to Reis data going back 30 years. Retail tenants and landlords are grappling with a jobless rate that rose to 9.8 percent in November, the latest period for which figures are available, from 9.6 percent the prior month. The best holiday sales in five years likely had little impact on vacancies, leading only to short-term leases by seasonal retailers, according to Reis

 Europe Crisis Drives Banks to Sell Bonds Before Sovereigns – Deutsche Bank AG and Rabobank Nederland led European lenders selling U.S. bonds yesterday ahead of euro-area countries, beset by the sovereign debt crisis, that need to raise $1.1 trillion this year.  Germany’s biggest bank issued $1 billion of five-year notes in its first dollar-denominated sale since March, while Rabobank sold $2.75 billion of securities, according to data compiled by Bloomberg. European lenders offered $7.25 billion of bonds yesterday, driving corporate sales to $21.2 billion, the most since September 2009, while today saw the year’s first senior bank bonds in euros.  European banks are competing for investors after the region’s crisis drove borrowing costs for its most indebted governments to the highest on record. For financial companies, relative yields on dollar-denominated debt are at the tightest since May, while spreads on bonds in euros are about the widest since July

World Food Prices Rise to Record on Sugar, Meat Costs – World food prices rose to a record in December on higher sugar, grain and oilseed costs, the United Nations said, exceeding levels reached in 2008 that sparked deadly riots from Haiti to Egypt.  An index of 55 food commodities tracked by the Food and Agriculture Organization gained for a sixth month to 214.7 points, above the previous all-time high of 213.5 in June 2008, the Rome-based UN agency said in a monthly report. The gauges for sugar and meat prices advanced to records.  Sugar climbed for a third year in a row in 2010, and corn jumped the most in four years in Chicago. Food prices may rise more unless the world grain crop increases “significantly” in 2011, the FAO said Nov. 17. At least 13 people died last year in Mozambique in protests against plans to lift bread prices.  “There is still, unfortunately, the potential for grain prices to strengthen on the back of a lot of uncertainty,”

Fear `Mindless’ U.S. Deficit Spending, Pimco’s Gross Says… Pacific Investment Management Co.’s Bill Gross said investors should favor emerging market corporate and sovereign debt as “mindless” U.S. deficit spending may result in higher inflation, a weaker dollar and the eventual loss of America’s AAA credit rating.  Buying debt in emerging market countries with higher real interest rates, wider credit spreads and strong balance sheets will offer more return as well as protection from dollar depreciation as U.S policy makers run up record deficits at the expense of economic growth, Gross, the manager of the world’s biggest bond fund, wrote in his monthly investment outlook.  “The problem is that politicians and citizens alike have no clear vision of the costs of a seemingly perpetual trillion dollar annual deficit,” Gross wrote in a note on Pimco’s website today. “As long as the stock market pulsates upward and job growth continues, there is an abiding conviction that all is well and that ‘old normal’ norms have returned. Not likely. There will be pain aplenty.”
 

Fed May Keep Easing at `Full Throttle’ Until Jobless Rate Falls – Federal Reserve officials signaled they’ll probably push ahead with unprecedented stimulus until the recovery strengthens and many of the 15 million unemployed Americans find work.  The jobless rate hasn’t fallen below 9.4 percent since May 2009 and will probably average that figure this year, according to a Bloomberg News survey of economists. Unemployment probably declined to 9.7 percent last month from 9.8 percent in November, according to the average estimate of a Bloomberg poll prior to a Labor Department employment report on Jan. 7.  While growth has picked up since the Fed announced plans on Nov. 3 to buy $600 billion of bonds, policy makers remain focused on their failure to achieve their goals of full employment and an inflation rate of about 2 percent, according to the minutes of their Dec. 14 meeting released yesterday. The recovery’s pace is likely to “remain modest, with unemployment and inflation deviating from the committee’s objectives for some time,” the minutes said.

WaPo Editors Finally Realize The GOP Isn’t Serious About The Debt – For the better part of the past year, the editors of the Washington Post have been generically a-screech with worry over the deficits, and their insistence that the Obama administration needs to get serious about them. Well, today, the editors seem to have finally realized that the alternative is not much better, and that the GOP may actually not be all that serious about taming them either: Are House Republicans serious about dealing with the deficit? You could listen to their rhetoric – or you could read the rules they are poised to adopt at the start of the new Congress. The former promises a new fiscal sobriety. The latter suggests that the new GOP majority is determined to continue the spree of unaffordable tax-cutting.  The ominous signs come in the wording of the new majority’s version of its pay-as-you-go rules, which normally require that new programs or tax initiatives be covered with cuts to other programs or new revenue. In the GOP concept, pay-as-you-go applies only to spending programs. When it comes to tax cuts, it’s all go, no pay. Taxes can be cut, and the national debt increased, without any offsetting savings.  It seems to have caught them by surprise!

Good News On The Jobs Front? It’s unclear how this will correlate to the official unemployment report due out on Friday, but the private sector jobs report from ADP is looking really, really good:(Reuters) – U.S. private employers added 297,000 jobs in December compared with a revised gain of 92,000 in November, a report by a payrolls processor showed on Wednesday. The November figure was originally reported as a gain of 93,000. The reaction from economists is very positive:
 

 EU’s Bailout Bond Three Times Oversubscribed – The European Commission’s bond issue for the bailout fund for Ireland was three times oversubscribed, the European Union’s executive body said Wednesday.  "This morning, the commission started a €5 billion ($6.65 billion) issuance in light of the economic situation in Ireland," EU spokeswoman Amelia Torres said. "There were three times as many requests to take it up as we could satisfy." The bond is a key test of investor support for the region’s new sovereign-bailout mechanism, with proceeds earmarked for the EU’s emergency funding program, the European Financial Stabilisation Fund

At Least 40% of LME Copper Shorts in March Held by One Company, Data Show – One unidentified company held a short position in copper for March delivery on the London Metal Exchange that equaled at least 40 percent of the contract’s open interest, according to bourse data.  The short position, which could be a bet on price declines or a hedge against a long position elsewhere, was dated Dec. 30, according to the exchange. Open interest for March amounts to 42,856 lots (1.1 million metric tons), the most in any copper futures contract. As of the same date, one unnamed firm held 50 percent to 79 percent of LME copper stockpiles, bourse data show.  “The large short position is possibly the dominant stockholder’s hedge,” “I can’t imagine they would leave such a big exposure uncovered.”

 

State plan gives some services to cities, counties – As California faces a budget deficit that could top $28 billion over the next 18 months, Gov. Jerry Brown and other state leaders are poised to shift the responsibility for providing some services from the state to counties and cities. In one of his first meetings as governor, Brown spoke with county leaders Tuesday about significantly restructuring government. He also attempted to allay the fears of some local officials that the state could pass off duties without providing sufficient means to pay for them. "We’re going to shift funding to the local level, we’re going to make sure there’s enough responsibility and discretion to use the money in the wisest possible ways," Brown told reporters after the meeting, adding that he does not believe it will be an easy change. "There will be controversies." Brown did not publicly lay out a specific plan, but said he is considering changing the way foster care, welfare, food stamps, redevelopment, and parole and probation services are provided to the public.

World Bank issues first yuan-denominated bond – The World Bank has issued its first yuan-denominated bond in a move that will help China as it tries to increase the use of its currency in global markets. The Washington-based lender said Tuesday it would raise 500 million yuan (76 million dollars) from the two-year bond issue on Hong Kong’s yuan-denominated bond market. The move will "further deepen the market and permit investors to diversify their currency holdings and expand renminbi exposure", the World Bank said in a statement, using the official name for the Chinese unit. Last month, China said its second yuan-denominated bond issue in Hong Kong had initially raised five billion yuan, with plans for another three billion yuan to be sold.The move followed Beijing’s first yuan-denominated bond issue in Hong Kong in September last year, worth about six billion yuan.

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