Treasury notes rose as Federal Reserve policy makers said a global slowdown and a stronger dollar posed potential risks to the U.S. economic outlook.
Traders see a 32 percent chance the central bank will raise the benchmark rate target by July 2015, fed funds futures data compiled by Bloomberg showed, down from 59 percent on Sept. 18, a day after Fed policy makers met. A number of participants said growth “might be slower than they expected if foreign economic growth came in weaker than anticipated,” according to minutes of the Sept. 16-17 Federal meeting. The 30-year bond fell before the U.S. sells $13 billion of the debt tomorrow.
“The market seems to be keying off of some of the risks highlighted, the number of uncertainties for the global economy,” said Christopher Sullivan, who oversees $2.3 billion as chief investment officer at United Nations Federal Credit Union in New York. “Policy could remain somewhat more accommodative.”
The yield on the five-year note dropped four basis points, or 0.04 percentage point, to 1.56 percent, touching the lowest level since Aug. 19, at 3:22 p.m. in New York, according to Bloomberg Bond Trader prices. The 1.75 percent securities maturing in September 2019 added 1/4, or $2.50 per $1,000 face amount, to 100 7/8. The yield on the 10-year note fell one basis point to 2.33 percent, after reaching 2.38 percent earlier. Thirty-year bond yields added two basis points to 3.07 percent, after touching 3.04 percent, the lowest level since May 2013.
Auction Results
Treasuries fell earlier as the U.S. sale of $21 billion in 10-year notes drew the weakest demand in more than a year.
The 10-year debt yielded 2.381 percent at the auction, compared with a forecast of 2.359 percent in a Bloomberg News survey of seven of the Federal Reserve’s 22 primary dealers. The bid-to-cover ratio, which gauges demand by comparing total bids with the amount of securities offered, was 2.52, versus an average of 2.71 at the past 10 sales. “It was a weak auction,” said David Coard, head of fixed-income trading in New York at Williams Capital Group, a brokerage for institutional investors. “Maybe investors thought the rally was a little bit overdone.”
The sale of 10-year notes was rated a “2” by five of the Fed’s primary dealers. The characterization is based on a scale of one through five, with one being a failed auction and five judging the results as outstanding.
’Too Rich’
“These levels are apparently too rich for new purchases,” United Nations Federal Credit Union’s Sullivan said. “It richened up too quickly.” Indirect bidders, an investor class that includes foreign central banks, purchased 44.4 percent of the notes, compared with an average of 45.8 percent for the past 10 sales.
Direct bidders, non-primary-dealer investors that place their bids directly with the Treasury, purchased 6.1 percent of the notes, the lowest since August 2012 and compared with an average of 16.7 percent at the past 10 auctions. Ten-year notes have gained 8.4 percent this year, compared with a 4.6 percent return in the broader U.S. Treasuries market, according to Bank of America Merrill Lynch indexes. The benchmark notes lost 7.8 percent in 2013, versus a 3.4 percent decline by Treasuries overall.
Today’s offering is the second of three note and bond sales this week totaling $61 billion. The U.S. sold $27 billion of three-year debt yesterday at a yield of 0.994 percent and will auction $13 billion of 30-year bonds tomorrow.
The sales will raise $29 billion of new cash, as maturing securities held by the public total $32 billion, according to the U.S. Treasury.
Fed Policy
The FOMC last month retained a pledge to keep interest rates at almost zero for a “considerable time” after it concludes an asset purchase program that’s due to end after its October meeting. The Fed had raised their median estimate for the key rate to 1.375 percent by the end of next year, compared with a June forecast of 1.125 percent. The rate has been in a range of zero to 0.25 percent since December 2008.
The 10-year note yield will rise to 2.74 percent by Dec. 31, according to a Bloomberg survey of economists, with the most recent forecasts given the heaviest weightings.
Dudley Sees Froth, IMF Sees Froth, Bond Investors Don’t
What’s an investor to do when everyone from the U.S. Federal Reserve to the International Monetary Fund say they see bubbles developing in markets? The answer, apparently, is to keep buying.
In a global economy that looks increasingly perilous, many central banks are showing a greater appetite to step up stimulus measures that have benefited riskier assets since the financial crisis -- the same assets that may lose the most should benchmark interest rates in the U.S. sharply rise.
Analysts at Wall Street firms from Bank of America Corp. to Morgan Stanley (MS) say they see opportunities in speculative-grade debt as investors gain confidence that yields will stay low for longer. “We believe the loan market could prove a bright spot within the leveraged finance world in 2015,” Bank of America analysts led by Michael Contopoulos wrote in a report on high-yield debt dated Oct. 7. “We continue to believe that yields and spreads are likely to end the year lower than current levels, and further recommend adding risk at current levels.”
Fed Bank of New York President William Dudley said yesterday the leveraged-loan market was “a bit frothy.” The remarks came a few hours after the IMF said stocks may be reaching “frothy” levels while cutting its outlook for global growth next year. Germany’s industrial production fell in August more than economists forecast, the latest sign of deterioration in Europe’s largest economy.
Bank Warnings
The concern that economic growth will slow and continue to suppress inflation is sparking renewed demand for bonds and fixed-income assets even with yields at about record lows and underwriting standards in credit markets slipping. Junk bonds in the U.S. have returned 0.67 percent this month, after losing 2.1 percent in September, Bank of America Merrill Lynch indexes show.
Dudley said the Fed is continuing to monitor the market for high-risk leveraged loans after warning banks last year on credit standards. “We are following up with those banks to see how closely they are following the guidance,” Dudley said yesterday in a speech in Troy, New York. “We think the market is a bit frothy.”
Going Long
Investors are even more enthusiastic about long-dated Treasuries, which have returned 19 percent this year, including reinvested interest, Bank of America Merrill Lynch index data show. That compares with a 6.3 percent gain in the Standard & Poor’s 500 Index. Notes maturing in 15 years or more have gained 2.7 percent this month alone, as 30-year Treasury yields fell to 3.05 percent yesterday, the lowest since May 2013.
“The one market seemingly everyone ‘knows’ is a bubble is the Treasury market,” Brean Capital LLC’s Peter Tchir wrote in a note today, adding that he sees greater risk in high-yield bonds and stocks.
Economists are slowly capitulating on their calls for higher yields, with a Bloomberg survey showing that the consensus now is for benchmark 10-year Treasury yields to rise to 2.74 percent by year-end, from 2.36 percent currently. At the start of the year, they forecast a yield of 3.44 percent. The demand for both long-term and riskier debt shows just how dismissive investors are of the prospect of rising rates, as well as potential bond bubbles that may be brewing. Warning about market froth is one thing. Finding alternatives to frothy markets is another.
Las Vegas Balks at Stadium Debt Amid Taxpayers Backlash
Las Vegas’s rejection of bonds for a soccer stadium to lure Sin City’s first big-league team underscores growing skepticism among local officials nationwide about using taxpayer money for sports venues.
In states and cities across the country, the parks have failed to deliver on developers’ promises of new restaurants and apartments to justify tax breaks and other incentives, causing Atlanta, Chicago and now Las Vegas to reconsider using public money for the facilities. The stance is jeopardizing the casino center’s shot at landing a Major League Soccer expansion club.
The heat and a history of gambling, while legal, have kept major-league teams out of Las Vegas even as the metro population topped 2 million. Last week, its city council told developers to remove public funds from a financing plan for the $200 million facility. They had factored in $50 million in revenue-backed or general-obligation debt to pay for the venue.
“Cities are becoming rightly more skeptical about the economic benefits of this,” said Howard Cure, head of municipal research in New York at Evercore Wealth Management LLC, which handles $5.4 billion. “If the goal is that the sports stadium is going to drive other development, that’s pretty risky to commit public dollars to something so speculative.”
Wrigley Refusal
More than five years after the recession, localities nationwide are weighing stadium deals as they balance limited financial resources with the rising cost of services and worker obligations such as pensions.
Chicago Mayor Rahm Emanuel last year refused to issue bonds toward a proposed $500 million renovation of Wrigley Field, home to Major League Baseball’s Cubs for a century. In November, Atlanta Mayor Kasim Reed wouldn’t pay to build a stadium for MLB’s Braves, prompting the team to make a deal with nearby Cobb County, which agreed to pay $300 million of the facility’s $672 million cost. The new site is set to open for the 2017 season.
“It’s much more politically sensitive to put aside tens of millions or hundreds of millions of dollars to finance a stadium that a team owned by a very wealthy individual is going to play in,” Andrew Zimbalist, a sports economist at Smith College in Northampton, Massachusetts, said by telephone. “There are simply not the resources around today that there were 15 or 20 years ago.”
Newark’s Tab
Municipalities have borne the burden for sports projects that fell short of projections.
Newark, the New Jersey city where more than a quarter of residents live in poverty, is paying $1 million a year on bonds for a ballpark that’s lost its main tenant. Minnesota officials last year had to find revenue for a domed stadium under construction for the National Football League’s Minnesota Vikings after an initial tax source came up short.
Taxpayers nationwide spent about $10 billion more than planned to build the 121 major-league stadiums in use through the 2010 season, according to data from Judith Grant Long, an urban-planning professor at Harvard University. The cost of land, infrastructure and lost property taxes adds about $89 million to the average $170 million of subsidies for each venue, the data show.
Council Confers
Las Vegas-based Findlay Sports & Entertainment LLC and the Cordish Companies, a Baltimore-based developer, had already cut the proposed public debt for the planned MLS venue from as much as $115 million after residents and elected officials objected.
On Oct. 1, Las Vegas City Council members endorsed the stadium in a 6-1 vote, with the condition that Findlay and Cordish rework their plan to avoid a public subsidy.
The issue dominated five hours of the council’s agenda. Dozens of union members wearing neon yellow and orange T-shirts filled the chambers in support of the project, which they said would bring jobs to a metropolitan area whose 7.7 percent unemployment rate in August exceeded the 6.3 percent national average. The levels, from Labor Department data, don’t adjust for seasonality.
The developers propose a 19,000- to 24,000-seat stadium in downtown Symphony Park, according to a presentation to the council.
Construction would be contingent on Las Vegas striking a deal with MLS. League Commissioner Don Garber has said MLS will expand to 24 teams from 19 by 2020, with franchises in New York and Orlando set to join in 2015. Miami and Atlanta and a team yet to be chosen are to be added by 2020. Sin City is in the mix for the 24th spot.
Cooling Features
The league’s 34-game regular season runs from March through October, a blistering time in the desert. The open-air arena would have a retractable cover over the field and heat-mitigating features, according to the presentation. The turf would have special cooling features and seats would be shaded.
Opponents focused not on the stadium, but on financing it with public funds. “Subsidized sports palaces are always a bad deal for taxpayers,” Jason Weinman, treasurer of the Libertarian Party of Clark County, told the council. “There are billion-dollar palaces all over the Strip, and downtown for that matter, and the city didn’t think it was necessary to spend taxpayers’ money.”
Supporters touted the stadium as a way to foster more family-friendly entertainment that would develop the downtown area.
Vegas Home
“This will really create that sense of community that makes people want to live here and call Las Vegas home,” Justin Findlay, managing partner at Findlay Sports & Entertainment, which was founded to bring an MLS team and soccer stadium to Las Vegas, told the council.
The council will revisit the deal in December, by which time its backers will have to find a way to fund the project with private capital or risk watching it die. According to council members, the developers have said that the project needs public financing to proceed. “We were pleased with the city council’s 6-1 vote in favor of building a stadium and bringing Major League Soccer to the city of Las Vegas’s growing downtown,” Zed Smith, Cordish’s chief operating officer, said in an e-mailed statement. “Everyone is working hard to finalize a deal.”
Cary Duckworth, a spokesman for Findlay, didn’t have a comment.
‘Dream Deferred’
Las Vegas’s economy and housing market are still recovering from the blow of the recession that ended in 2009. Fitch Ratings in March revised the city’s debt outlook to stable from negative, and affirmed its AA score, the third-highest level. The city had $615 million in bond debt as of June 30, 2013, according to its annual fiscal report. It pays about $35 million a year in debt service, out of an annual budget of $750 million, the report says.
Councilwoman Lois Tarkanian said Oct. 1 that she and her constituents were enthusiastic about the stadium plan while opposing the use of public funds.
“The people I represent are very, very for having a stadium and having a pro team, but I’m convinced that the residents of my ward do not want public monies used,” she said. “I hope it’s a dream deferred, not dead.”
source: Bloomberg
Traders see a 32 percent chance the central bank will raise the benchmark rate target by July 2015, fed funds futures data compiled by Bloomberg showed, down from 59 percent on Sept. 18, a day after Fed policy makers met. A number of participants said growth “might be slower than they expected if foreign economic growth came in weaker than anticipated,” according to minutes of the Sept. 16-17 Federal meeting. The 30-year bond fell before the U.S. sells $13 billion of the debt tomorrow.
“The market seems to be keying off of some of the risks highlighted, the number of uncertainties for the global economy,” said Christopher Sullivan, who oversees $2.3 billion as chief investment officer at United Nations Federal Credit Union in New York. “Policy could remain somewhat more accommodative.”
The yield on the five-year note dropped four basis points, or 0.04 percentage point, to 1.56 percent, touching the lowest level since Aug. 19, at 3:22 p.m. in New York, according to Bloomberg Bond Trader prices. The 1.75 percent securities maturing in September 2019 added 1/4, or $2.50 per $1,000 face amount, to 100 7/8. The yield on the 10-year note fell one basis point to 2.33 percent, after reaching 2.38 percent earlier. Thirty-year bond yields added two basis points to 3.07 percent, after touching 3.04 percent, the lowest level since May 2013.
Auction Results
Treasuries fell earlier as the U.S. sale of $21 billion in 10-year notes drew the weakest demand in more than a year.
The 10-year debt yielded 2.381 percent at the auction, compared with a forecast of 2.359 percent in a Bloomberg News survey of seven of the Federal Reserve’s 22 primary dealers. The bid-to-cover ratio, which gauges demand by comparing total bids with the amount of securities offered, was 2.52, versus an average of 2.71 at the past 10 sales. “It was a weak auction,” said David Coard, head of fixed-income trading in New York at Williams Capital Group, a brokerage for institutional investors. “Maybe investors thought the rally was a little bit overdone.”
The sale of 10-year notes was rated a “2” by five of the Fed’s primary dealers. The characterization is based on a scale of one through five, with one being a failed auction and five judging the results as outstanding.
’Too Rich’
“These levels are apparently too rich for new purchases,” United Nations Federal Credit Union’s Sullivan said. “It richened up too quickly.” Indirect bidders, an investor class that includes foreign central banks, purchased 44.4 percent of the notes, compared with an average of 45.8 percent for the past 10 sales.
Direct bidders, non-primary-dealer investors that place their bids directly with the Treasury, purchased 6.1 percent of the notes, the lowest since August 2012 and compared with an average of 16.7 percent at the past 10 auctions. Ten-year notes have gained 8.4 percent this year, compared with a 4.6 percent return in the broader U.S. Treasuries market, according to Bank of America Merrill Lynch indexes. The benchmark notes lost 7.8 percent in 2013, versus a 3.4 percent decline by Treasuries overall.
Today’s offering is the second of three note and bond sales this week totaling $61 billion. The U.S. sold $27 billion of three-year debt yesterday at a yield of 0.994 percent and will auction $13 billion of 30-year bonds tomorrow.
The sales will raise $29 billion of new cash, as maturing securities held by the public total $32 billion, according to the U.S. Treasury.
Fed Policy
The FOMC last month retained a pledge to keep interest rates at almost zero for a “considerable time” after it concludes an asset purchase program that’s due to end after its October meeting. The Fed had raised their median estimate for the key rate to 1.375 percent by the end of next year, compared with a June forecast of 1.125 percent. The rate has been in a range of zero to 0.25 percent since December 2008.
The 10-year note yield will rise to 2.74 percent by Dec. 31, according to a Bloomberg survey of economists, with the most recent forecasts given the heaviest weightings.
Dudley Sees Froth, IMF Sees Froth, Bond Investors Don’t
What’s an investor to do when everyone from the U.S. Federal Reserve to the International Monetary Fund say they see bubbles developing in markets? The answer, apparently, is to keep buying.
In a global economy that looks increasingly perilous, many central banks are showing a greater appetite to step up stimulus measures that have benefited riskier assets since the financial crisis -- the same assets that may lose the most should benchmark interest rates in the U.S. sharply rise.
Analysts at Wall Street firms from Bank of America Corp. to Morgan Stanley (MS) say they see opportunities in speculative-grade debt as investors gain confidence that yields will stay low for longer. “We believe the loan market could prove a bright spot within the leveraged finance world in 2015,” Bank of America analysts led by Michael Contopoulos wrote in a report on high-yield debt dated Oct. 7. “We continue to believe that yields and spreads are likely to end the year lower than current levels, and further recommend adding risk at current levels.”
Fed Bank of New York President William Dudley said yesterday the leveraged-loan market was “a bit frothy.” The remarks came a few hours after the IMF said stocks may be reaching “frothy” levels while cutting its outlook for global growth next year. Germany’s industrial production fell in August more than economists forecast, the latest sign of deterioration in Europe’s largest economy.
Bank Warnings
The concern that economic growth will slow and continue to suppress inflation is sparking renewed demand for bonds and fixed-income assets even with yields at about record lows and underwriting standards in credit markets slipping. Junk bonds in the U.S. have returned 0.67 percent this month, after losing 2.1 percent in September, Bank of America Merrill Lynch indexes show.
Dudley said the Fed is continuing to monitor the market for high-risk leveraged loans after warning banks last year on credit standards. “We are following up with those banks to see how closely they are following the guidance,” Dudley said yesterday in a speech in Troy, New York. “We think the market is a bit frothy.”
Going Long
Investors are even more enthusiastic about long-dated Treasuries, which have returned 19 percent this year, including reinvested interest, Bank of America Merrill Lynch index data show. That compares with a 6.3 percent gain in the Standard & Poor’s 500 Index. Notes maturing in 15 years or more have gained 2.7 percent this month alone, as 30-year Treasury yields fell to 3.05 percent yesterday, the lowest since May 2013.
“The one market seemingly everyone ‘knows’ is a bubble is the Treasury market,” Brean Capital LLC’s Peter Tchir wrote in a note today, adding that he sees greater risk in high-yield bonds and stocks.
Economists are slowly capitulating on their calls for higher yields, with a Bloomberg survey showing that the consensus now is for benchmark 10-year Treasury yields to rise to 2.74 percent by year-end, from 2.36 percent currently. At the start of the year, they forecast a yield of 3.44 percent. The demand for both long-term and riskier debt shows just how dismissive investors are of the prospect of rising rates, as well as potential bond bubbles that may be brewing. Warning about market froth is one thing. Finding alternatives to frothy markets is another.
Las Vegas Balks at Stadium Debt Amid Taxpayers Backlash
Las Vegas’s rejection of bonds for a soccer stadium to lure Sin City’s first big-league team underscores growing skepticism among local officials nationwide about using taxpayer money for sports venues.
In states and cities across the country, the parks have failed to deliver on developers’ promises of new restaurants and apartments to justify tax breaks and other incentives, causing Atlanta, Chicago and now Las Vegas to reconsider using public money for the facilities. The stance is jeopardizing the casino center’s shot at landing a Major League Soccer expansion club.
The heat and a history of gambling, while legal, have kept major-league teams out of Las Vegas even as the metro population topped 2 million. Last week, its city council told developers to remove public funds from a financing plan for the $200 million facility. They had factored in $50 million in revenue-backed or general-obligation debt to pay for the venue.
“Cities are becoming rightly more skeptical about the economic benefits of this,” said Howard Cure, head of municipal research in New York at Evercore Wealth Management LLC, which handles $5.4 billion. “If the goal is that the sports stadium is going to drive other development, that’s pretty risky to commit public dollars to something so speculative.”
Wrigley Refusal
More than five years after the recession, localities nationwide are weighing stadium deals as they balance limited financial resources with the rising cost of services and worker obligations such as pensions.
Chicago Mayor Rahm Emanuel last year refused to issue bonds toward a proposed $500 million renovation of Wrigley Field, home to Major League Baseball’s Cubs for a century. In November, Atlanta Mayor Kasim Reed wouldn’t pay to build a stadium for MLB’s Braves, prompting the team to make a deal with nearby Cobb County, which agreed to pay $300 million of the facility’s $672 million cost. The new site is set to open for the 2017 season.
“It’s much more politically sensitive to put aside tens of millions or hundreds of millions of dollars to finance a stadium that a team owned by a very wealthy individual is going to play in,” Andrew Zimbalist, a sports economist at Smith College in Northampton, Massachusetts, said by telephone. “There are simply not the resources around today that there were 15 or 20 years ago.”
Newark’s Tab
Municipalities have borne the burden for sports projects that fell short of projections.
Newark, the New Jersey city where more than a quarter of residents live in poverty, is paying $1 million a year on bonds for a ballpark that’s lost its main tenant. Minnesota officials last year had to find revenue for a domed stadium under construction for the National Football League’s Minnesota Vikings after an initial tax source came up short.
Taxpayers nationwide spent about $10 billion more than planned to build the 121 major-league stadiums in use through the 2010 season, according to data from Judith Grant Long, an urban-planning professor at Harvard University. The cost of land, infrastructure and lost property taxes adds about $89 million to the average $170 million of subsidies for each venue, the data show.
Council Confers
Las Vegas-based Findlay Sports & Entertainment LLC and the Cordish Companies, a Baltimore-based developer, had already cut the proposed public debt for the planned MLS venue from as much as $115 million after residents and elected officials objected.
On Oct. 1, Las Vegas City Council members endorsed the stadium in a 6-1 vote, with the condition that Findlay and Cordish rework their plan to avoid a public subsidy.
The issue dominated five hours of the council’s agenda. Dozens of union members wearing neon yellow and orange T-shirts filled the chambers in support of the project, which they said would bring jobs to a metropolitan area whose 7.7 percent unemployment rate in August exceeded the 6.3 percent national average. The levels, from Labor Department data, don’t adjust for seasonality.
The developers propose a 19,000- to 24,000-seat stadium in downtown Symphony Park, according to a presentation to the council.
Construction would be contingent on Las Vegas striking a deal with MLS. League Commissioner Don Garber has said MLS will expand to 24 teams from 19 by 2020, with franchises in New York and Orlando set to join in 2015. Miami and Atlanta and a team yet to be chosen are to be added by 2020. Sin City is in the mix for the 24th spot.
Cooling Features
The league’s 34-game regular season runs from March through October, a blistering time in the desert. The open-air arena would have a retractable cover over the field and heat-mitigating features, according to the presentation. The turf would have special cooling features and seats would be shaded.
Opponents focused not on the stadium, but on financing it with public funds. “Subsidized sports palaces are always a bad deal for taxpayers,” Jason Weinman, treasurer of the Libertarian Party of Clark County, told the council. “There are billion-dollar palaces all over the Strip, and downtown for that matter, and the city didn’t think it was necessary to spend taxpayers’ money.”
Supporters touted the stadium as a way to foster more family-friendly entertainment that would develop the downtown area.
Vegas Home
“This will really create that sense of community that makes people want to live here and call Las Vegas home,” Justin Findlay, managing partner at Findlay Sports & Entertainment, which was founded to bring an MLS team and soccer stadium to Las Vegas, told the council.
The council will revisit the deal in December, by which time its backers will have to find a way to fund the project with private capital or risk watching it die. According to council members, the developers have said that the project needs public financing to proceed. “We were pleased with the city council’s 6-1 vote in favor of building a stadium and bringing Major League Soccer to the city of Las Vegas’s growing downtown,” Zed Smith, Cordish’s chief operating officer, said in an e-mailed statement. “Everyone is working hard to finalize a deal.”
Cary Duckworth, a spokesman for Findlay, didn’t have a comment.
‘Dream Deferred’
Las Vegas’s economy and housing market are still recovering from the blow of the recession that ended in 2009. Fitch Ratings in March revised the city’s debt outlook to stable from negative, and affirmed its AA score, the third-highest level. The city had $615 million in bond debt as of June 30, 2013, according to its annual fiscal report. It pays about $35 million a year in debt service, out of an annual budget of $750 million, the report says.
Councilwoman Lois Tarkanian said Oct. 1 that she and her constituents were enthusiastic about the stadium plan while opposing the use of public funds.
“The people I represent are very, very for having a stadium and having a pro team, but I’m convinced that the residents of my ward do not want public monies used,” she said. “I hope it’s a dream deferred, not dead.”
source: Bloomberg