Www.yieldcurve.com/Mktresearch/LearningCurve/BondFutures.pdf. The Federal Reserve Bank of San Francisco: Economic Research, Educational Resources, Community Development, Consumer and Banking Information. December 10, 2004 What Determines the Credit Spread? John Krainer Although the swings in economic measures during the last recession and recovery were fairly modest, swings in financial markets were quite large. Once financial markets found their footing, after steep losses in 2000-2002, prices on virtually all traded financial claims rose as the economic outlook improved.
This pattern was particularly true in the corporate bond market. The corporate bond market A corporate bond is a debt instrument issued by a legal corporate entity. The U.S. corporate bond market is large, with $6.8 trillion in outstanding corporate and foreign debt (that is, dollar-denominated debt issued in the U.S.) in the fourth quarter of 2003. Corporations differ in their creditworthiness, and these differences are apparent in the pricing of their bonds, as well as in whether a particular firm is able to issue debt through the public markets at all.
Recent behavior of credit spreads Determinants of corporate spreads. The Impact Of An Inverted Yield Curve. The term yield curve refers to the relationship between the short- and long-term interest rates of fixed-income securities issued by the U.S. Treasury. An inverted yield curve occurs when short-term interest rates exceed long-term rates. From an economic perspective, an inverted yield curve is a noteworthy event. Here we explain this rare phenomenon, discuss its impact on consumers and investors, and tell you how to adjust your portfolio to account for it. SEE: Bond Yield Curve Holds Predictive Powers Typically, short-term interest rates are lower than long-term rates, so the yield curve slopes upwards, reflecting higher yields for longer-term investments. What Does an Inverted Yield Curve Suggest? Impact on ConsumersIn addition to its impact on investors, an inverted yield curve also has an impact on consumers. Lines of credit are affected in a similar manner.
SEE: ARMed And Dangerous SEE: Getting To Know The Money Market If you want to be a smart investor, ignore the noise. Recession Coming! The Australian yield curve looks like a banana! The Interest Rate Banana Your Stocks Will Slip On by Nick Hubble on 4 July 2012 The Australian Bureau of Statistics has done it! That’s an odd statement in itself, but how about this next one: the statisticians have saved us all! How? By completely bungling employment data for the last two years, to the tune of 100,000 jobs. Australian house prices jumped a percent last month because of lower mortgage rates. At least the price jump should offset the recent news in The Age that the, ‘Housing shortage [is] all smoke and mirrors’, and the number of vacant homes is just under a million. Before you get too optimistic about lower interest rates saving the Australian economy, consider this: The Australian yield curve looks like a banana.
. - Click to enlarge Or, if you prefer: - Click to enlarge Yield curves are supposed to look more like this one, the German one: - Click to enlarge So what’s bad about a yield curve shaped like a banana? How Interest Rates Signals Time Preferences - Click to enlarge. Is Australia’s inverted yield curve signalling recession? Www.cepr.org/meets/wkcn/1/1716/papers/Bongaerts.pdf. JKP_CDS_1-10.pdf. Www.ccfr.org.cn/cicf2005/paper/20050201065013.PDF.
Too late to avoid post-boom slump, experts say. Qantas-Emirates deal under a cloud. Former Qatas finance chief Peter Gregg ... “I spent 25 years of my career trying to build Qantas up and when I left Qantas it was a very successful company. I have a different view of strategic direction.” Andrew Cleary The proposed Qantas-Emirates alliance could be terminated if a group of former Qantas executives and their financial backers purchase a stake in the Australian carrier and agitate for an alternative strategy. Under the terms of the 10-year agreement, which is before the competition regulator, either party can terminate the alliance should there be a material change in strategy or an “inconsistent investment” under which a third party secures control, a stake of more than 20 per cent, or more than 10 per cent and a board seat. Emirates president Tim Clark backed Alan Joyce’s five-year Qantas restructuring program last week, saying the Qantas chief was dealing with legacy issues left by the former management team.
“I was simply asked what my opinion was and I gave it. Carnegie, Gregg may challenge Joyce’s Qantas plan. It is believed Peter Gregg and Mark Carnegie (pictured) about two months ago held a series of briefings with union groups, including those representing Qantas pilots, engineers and ground workers, in a bid to secure their support for a rival plan for Qantas that could include a more aggressive expansion into Asia.
Photo: Tomasz Machnik Andrew Cleary and James Chessell Former Qantas Airways finance chief Peter Gregg and venture capitalist Mark Carnegie have held discussions with key investors and unions as they consider a rival plan to challenge chief executive Alan Joyce’s strategy for the national carrier. It is understood the pair, who have been linked to a loose consortium including advertising mogul John Singleton, former Qantas chief Geoff Dixon and trucking billionaire Lindsay Fox, would push for the sale of Qantas Frequent Flyer and a partial float of Jetstar to return capital to shareholders if the plan was formalised.
Full takeover not on the cards Gregg, Dixon tightlipped. Australian Govt pledges action on Google tax evasion. News The Australian Government has outlined a series of new legislative initiatives with which it will attempt to protect its corporate tax base and rein in the tax minimisation strategies of corporations such as search giant Google, which expects to pay just $74,000 in corporate income tax for the 2011 calendar year in Australia, despite making an estimated $1 billion in local revenue. The tax practices of corporations such as Google have been under constant scrutiny in Australia and in other jurisdictions over the past several years, due to the habit several such technology giants have of using offshore subsidiaries to avoid paying tax in some countries. For example, in May Google Australia published financial accounts revealing it expected to pay just $74,000 in local tax for the calendar year, off revenues of just $201 million – despite the fact that media analysts consistently peg its Australian revenue at closer to $1 billion.
He went on to state: Click Frenzy shoppers to bag a bargain tonight. Mirroring the US giant online sale Cyber Monday, Australia’s first Click Frenzy will last 24 hours. Photo Phil Carrick Negar Salek Shoppers can expect cut-price deals on laptops, gaming consoles and televisions when the online version of Boxing Day sales, Click Frenzy, launches tonight, technology retailers have told The Australian Financial Review. Dick Smith electronics said it had prepared “groundbreaking” deals on DVD players, televisions and gaming consoles for the event, which has a further 200 retailers taking part and begins at 7pm. “Some of the deals are pretty ground-breaking,” Michael Dykes, head of multi-channels at Dick Smith said.
“There are DVD players that cost less than DVDs and televisions and gaming consoles that will stun people at how much cheaper they are,” he said. ClickFrenzy.com.au will act as a deal aggregator, pulling in deals from participating retailers and re-directing shoppers to the retailers’ website to complete a transaction. IMF risk assessment needs more debate. Australian Financial Review The Australian banking system weathered the last financial crisis well, but we need to ensure that it can also weather the next crisis. That’s why last week’s International Monetary Fund assessment on the risks resulting from the very high concentration of major banks in our banking system and changing the deposit guarantee scheme so that banks bear the cost of bank failures, needs to be debated. Before the crisis, Australia’s big four banks did not indulge in risky sub-prime lending to any significant degree and they were closely supervised.
The national dominance of the big four banks can be a source of financial stability, unlike the many small banks in the United States. To address this, the IMF says the big four banks should carry extra capital, the Australian Prudential Regulatory Authority should devote more resources to stress testing, and the Reserve Bank should set up its own macro-financial stress test model. Meeting focuses on Greek aid. Greece's lenders fail again to clinch debt deal.
Stevens plays down IMF $A move. Big four banks to hold more capital: Stevens. ++ ‘Nike swoosh’ yield curve points to danger in 2014. The peculiar shape of Australia’s yield curve is posing a dilemma for the Reserve Bank of Australia. Photo: Peter Braig Jonathan Shapiro The peculiar shape of Australia’s yield curve, dubbed the “Nike swoosh” by traders after the shoe logo, is posing a dilemma for the Reserve Bank of Australia. As long-term bond rates remain below the cash rate set by the RBA – partly because of strong foreign demand for local bonds – the swoosh of the curve predicts that the economy will get worse before it gets better. No central bank wants its economy to get worse. However, such action runs the risk of creating overly cheap debt, re-igniting speculative bubbles and reducing the income of savers. “The yield curve is a real puzzle,” says UBS interest rate strategist Matthew Johnson. But Johnson says the curve hasn’t done so because foreign buying of Australian bonds continues to suppress long-term rates.
At the time it could be argued that the USD was too strong. Jennifer Hewett | Post-boom paralysis. Further rate cuts may be ahead: RBA. Labor targets digital giants for tax. Google, David Bradbury said, was reported as having paid either $74,176 or $781,471 in tax last year, despite earning an estimated $1 billion-plus in Australia. Photo: Harrison Saragossi Katie Walsh The federal government plans a tax crackdown on multinationals and has taken the extraordinary step of identifying two companies it believes are using complex structures to shift profits to lower-tax countries, US technology giants Google and Apple. Assistant Treasurer David Bradbury said multinationals that failed to pay their fair share of tax were “free riding on the efforts of others” by benefiting from government-funded infrastructure, human capital and institutions.
If unchallenged, they threatened to “erode Australia’s corporate tax base”, he said. “If enormous multinational corporations aren’t paying their fair share of tax on economic activity in Australia, then that’s not fair game,” Mr Bradbury told an Institute of Chartered Accountants tax conference in Sydney. with James Hutchinson. PM, Abbott slam door on GST changes.
Former Liberal leader John Hewson, regarded as the father of the GST, says a focus on short-term politics ahead of long-term economic reform risks years of low growth and rolling recessions. Photo: Andrew Quilty Fleur Anderson, Katie Walsh and Greg Earl Prime Minister Julia Gillard and Opposition Leader Tony Abbott ruled out increasing or broadening the goods and services tax despite signals from the welfare lobby it is willing to consider raising the GST if there are other concessions. The Australian Council of Social Service, National Disability Services and Christian Schools Australia are concerned about financial pressures on government services and want a review of tax revenue. “We need an open and frank discussion of the options,” ACOSS chief executive Cassandra Goldie said. John Hewson – regarded by some as the father of the tax – said the federation was “grinding to a halt” because of an impasse between the states and federal government over tax policy and other issues.
“Fightback! Why Westpac is the best bank. Christopher Joye Groundbreaking research by Commonwealth Bank chief credit strategist Steve Shoobert has unearthed a new financial benchmark that can be used to value Australia’s banks. While this analysis has been missed by Australia’s media, it is causing ripples at the top end of town. This is because it provides investors an alternative prism through which to assess bank profitability, and value their debt and equity. And the new tool implies that “Westpac has the best bank franchise”. Australia’s four major banks have a combined market capitalisation of $300 billion. Under the new banking laws that come into effect on January 1, 2015, called Basel III, the Australian Prudential Regulatory Authority will start discriminating between “good” and “bad” deposits. In short, small sums of sticky money that are covered by taxpayer guarantees and sourced from unsophisticated households with long-standing bank relationships will be classified by APRA as “stable” sources of funding.
QBE to push for more women in key posts.