Market Update - 17 Dec 2012

• Treasuries fell for a second week, the first back-to-back losses in three months, as the Federal Reserve’s expansion of a bond-buying program spurred speculation inflation will increase.

• Thirty-year yields touched a five-week high after the Federal Open Market Committee announced plans to buy $45 billion of Treasuries a month and took the unprecedented step of linking stimulus measures to unemployment and inflation.

• Losses were tempered by concern a budget standoff in Washington may push the economy into recession. The U.S. sold $66 billion in notes and bonds, and said it will auction $113 billion of notes next week.

• “The Fed’s message was one of higher tolerance for inflation, and they are purchasing less on the long end, which has been bearish for bonds,” said Gary Pollack, head of fixed-income trading at Deutsche Bank AG’s.“Still, the driving force in the market is the uncertainty around the fiscal cliff, and until that’s resolved we won’t stray far from the range.”

• USDMYR opened at 3.0550 as we expect it to range trade around the 3.0600 handle again this week. For those who are not aware, if you have not yet registered to be a voter for the next election, you can still do it by this week. I reckon now that we are in Mid December, the election will very likely be in the end Feb-mid Mar period.

• Spanish bonds advanced for a third week in four as borrowing costs fell at a debt sale and after European leaders signed off on the next aid tranche for Greece, stoking optimism the euro-region debt crisis is being contained. 

• Greece’s 10-year debt rose for a sixth week after the nation said it had reached a deal to buy back some of its sovereign securities. Similar-maturity German bunds fell as European Union leaders approved the payout of 49.1 billion euros ($64.3 billion) of loans for Greece through March and laying the groundwork for a supra-national bank supervisor, damping demand for the safest assets. Spain sold 2.02 billion euros of government debt.

• Japan just had it’s election and there was a landslide win by LDP. With the LDP coalition having won 320 seats which is more than 2/3 of the seats. Constitutional amendments need both houses 2/3 votes. Other laws which have been rejected by the upper house can be overruled by the 2/3 votes in the lower house. That’s where the LDP coalition has power with this election. Also with expected LDP’s aggressive monetary easing stance we expect more JPY weakening to come ahead for medium term.