Important developments today:
Diminishing global interest in corporate bonds. Corporate bond issuance is retreating and borrowing costs rising for the first time in eight weeks, as investors are apparently concerned about a waning pace of economic recovery. Global corporate bond sales declined 52% last week to $48 billion, from $99.8 billion in the previous week, according to data compiled by Bloomberg. This is in stark contrast to the first two weeks of 2010, when surging investor appetite had given the sector its best start to a year since 1998. The extra yield investors demand to own corporate bonds (over U.S. Treasuries) widened to 164 basis points (bps) last week after tightening almost 30 bps over the previous six weeks, according to the Bank of America/Merrill Lynch Global Broad Market Corporate Index. Meanwhile, credit-default swaps on U.S. investment-grade bonds have climbed for eight days in succession, highlighting that investors are growing more concerned about the risk of firm’s defaulting on their debts.
Source: National Association of Realtors
U.S. existing home sales plunge in December. Sales of previously owned homes fell 16.7% in December (m/m) from an annual rate of 6.5 million homes in November to 5.4 million units by the end of the year [see chart]. Home sales had been increasing gradually since mid-2009, particularly as first-time buyers hurried to take advantage of the federal tax credit program which was to have expired at end-November. Some easing in the rate of sales was expected, despite the extension of the federal program, but most market participants had expected the rate of home sales to drop to 5.9 million rather than the sharp drop seen today.
Conditions for obtaining mortgages have effectively tightened over the last months, with fewer than-hoped-for banks and mortgage brokers taking part in programs to reduce monthly costs to homeowners near-or in delinquency. And the Federal Reserve is likely to step back from its aggressive efforts to maintain mortgage rates at record lows, easing up on purchases of Fannie and Freddie securities as well as Treasury notes. Despite these developments, the extension of the federal tax credit program should help to underpin sales once more over coming months.
Among emerging markets...
In Latin America and the Caribbean, Brazil’s inflation is expected to accelerate to 4.6% this year, according to economists surveyed by the central bank, within the 4.5% plus/minus 2 percentage points range targeted by the central bank. The economists surveyed expect the economy to grow by 5.3% in 2010.
In Central and Eastern Europe, Hungary cut its key interest rate to the lowest since May 2006, reducing it 25 basis points to 6%, as policy makers took into account the effects of the deepest recession in 18 years and the weakening of the florint.