Friday, 28 February 2014

Bitcoin Derivatives Sprout as Regulators Play Catch-Up

  Feb 28, 2014 2:02 AM PT

Photographer: Thomas Trutschel/Photothek via Getty Images

A model Bitcoin.
The closing of a major Bitcoin exchange inJapan not only focused attention on the digital currency’s risks, it also rattled a still-newer market that regulators are just starting to monitor: Bitcoin derivatives.
George Samman, a former Wall Street investment adviser who in May helped start a platform for betting on Bitcoin’s price swings, saw trading on his website grow to more than $35 million by Jan. 21. After the shutdown at Mt. Gox, the Tokyo-based exchange for buying Bitcoins, suspended trading -- because it had to find another exchange partner for its customers.
“It is semi-Wild West, but that’s only because it’s new,” Samman said before the Mt. Gox shutdown. Mt. Gox filed for bankrutpcy in the Tokyo District Court, Japanese public broadcasterNHK reported today.
The regulation of Bitcoin, let alone derivatives of it, is an unresolved question in many parts of the world. Even as regulators and investors struggle to grasp Bitcoin’s many uses - - including investment vehicle, payment-processing system and money-laundering tool -- they are now confronted with the additional complexities of an emerging derivatives market where entrepreneurs say current rules don’t apply.
In the U.S., states are wrestling with how digital-currency businesses could be regulated as money transmitters. Russia has said Bitcoin is illegal under current law, while China has stopped financial institutions from dealing in it, even as trading continues.

CFTC Looking

At the top U.S. derivatives regulator, the Commodity Futures Trading Commission, lawyers are considering if and how to oversee derivatives linked to Bitcoin and other digital currencies, according to two people briefed on its work. The agency has been preparing an internal memo that examines CFTC’s authority over digital currencies and how it might exercise those powers to regulate the markets, the people said.
Steve Adamske, CFTC spokesman, declined to comment.
Traders like Samman say a robust Bitcoin derivatives market may someday smooth the volatility that has plagued the digital currency. Over the last year, Bitcoin’s price rose from $20, peaked at $1,147 and dropped to as low as $534.71 on Feb. 25, according to the CoinDesk Bitcoin Price Index. Bitcoin investors who can hedge against the price falling, the traders say, would have less reason to dump the volatile currency in a panic, contributing further to stability.
As U.S. regulators ponder their next move, some entrepreneurs already conducting trades are betting that dealing only in Bitcoin, not U.S. dollars, will protect them from oversight until the rules are clear. The firms, in Ireland, Britain and Singapore -- and one founded by two Russians -- are already serving thousands of U.S. customers.

Varying Rules

Patrick Murck, the general counsel for the Bitcoin Foundation, an advocacy group for the currency, said the rules will vary with the services offered.
“Financial services that use the Bitcoin protocol can and often do fall into existing regulatory categories,” Murck said in an e-mail. “Some uses of the protocol may fairly be considered trading in derivatives and regulated by the CFTC, while others likely will not.”
The digital currency was introduced in 2008 by a programmer or group of programmers under the name Satoshi Nakamoto and has since gained traction with merchants around the world. Bitcoin has no central issuing authority, and uses a public ledger to verify transactions while preserving users’ anonymity.
Because it has properties normally associated with a traditional currency, entrepreneurs have sought to create uses for it that mimic those of the U.S. dollar, the euro and other currencies.

‘Genius Way’

“Bitcoin protocol is a really genius way of sending wealth across the world, very quickly, very cheaply, which has appeal to many people,” said Arthur Hayes, founder of Bitmex, a Bitcoin derivatives trading platform due to start operations in June.
Hayes said by phone today from Hong Kong that he’s weighing where to base his platform, which depends on the regulatory environment. Bitmex will allow users to trade futures and options on Bitcoin against currencies from the Group of 10 nations.
The CFTC could argue that Bitcoin is a commodity under U.S. law and subject to the agency’s rules against manipulation and fraud, according to Salman Banaei, Washington-based senior counsel at Norton Rose Fulbright law firm. He said the agency, which regulates derivatives tied to interest ratesand commodities like oil and wheat, would have “clearer” jurisdiction over futures, swaps and options linked to Bitcoin.

Clear Jurisdiction

“For example, a Bitcoin futures exchange in the United States, or a foreign exchange offering ‘direct access’ to its trading engine to U.S. customers would generally have to register with the CFTC,” said Banaei, who last year left the CFTC, where he helped write regulations.
Senator Tom Carper, a Delaware Democrat who has taken an interest in digital-currency issues, on Jan. 16 called on the CFTC to lift the “fog of uncertainty” over Bitcoin by clarifying its jurisdiction in the area.
Jaron Lukasiewicz, chief executive of Coinsetter LLC, a New York-based Bitcoin exchange, said that his company has suspended plans to offer derivatives due to the uncertainty around the CFTC’s intentions, plus the expense of maintaining a derivatives-broker license.
“We’ll keep pressing forward on it, and we hope that reputable companies will be given the chance to offer this essential addition to the market,” Lukasiewicz, a former investment banker with JPMorgan Chase & Co. (JPM), said in an e-mail.

World Cup

Among the firms offering Bitcoin derivatives is, which lets users bet on various events, such as the price of Bitcoin against the U.S. dollar. Other potential bets have nothing to do with Bitcoin, such as the outcome of the Academy Awards and the World Cup this year in Brazil.
Because all bets are made and settled in Bitcoin, regulations, in the U.S. or otherwise, aren’t relevant to Predictious, according to Flavien Charlon, a software developer who created the site in his free time. He said he hasn’t had any contact with regulators about the site, and that it has about 3,000 users, the “bulk” of them in the U.S.
“For the moment, I don’t think the regulators care what we’re doing,” Charlon said. “But I’m sure over time they’ll look into it.”

U.S. Intervention

The CFTC has shown some interest in regulating predictions venues outside the U.S.
Intrade, an Ireland-based predictions market, asked its U.S. customers to close their accounts in November 2012 after the CFTC sued its parent company, Dublin-based Trade Exchange Network Ltd.
Charlon said he doubted that the CFTC could prevent customers in the U.S. from using Predictious, since the online “wallets” used to hold Bitcoin aren’t attached to a specific country, and because many customers use Internet browsers that obscure their location.
The Bitcoin derivatives market took shape in 2011 when Alex Bragin and another Russian put together a website that now offers Bitcoin futures. Clients can borrow as much as five times their own capital for leveraged investments, and Bragin intends to create an options market as well.

Popular Bets

The most popular derivative on is a futures contract that pays out based on the dollar price of Bitcoin on the largest exchange at the time of settlement, Bragin said. About $30 million worth of the contracts -- a single unit is $10 -- have been sold, he said.
Bragin said there’s no need to deal with regulators now because no rules exist for Bitcoin derivatives that don’t settle in fiat, or government-issued currencies. “Dealing only in Bitcoin saves us from the hassle of dealing with the usual money-related rules and regulation,” Bragin said, echoing the position of Samman at
“There is no law in Bitcoin right now, and we only deal in Bitcoin,” Samman said. “We don’t deal in fiat.”
To contact the reporters on this story: Carter Dougherty in Washington at; Silla Brush in Washington at
To contact the editors responsible for this story: Maura Reynolds at

Euro-Area February Inflation Rate Exceeds Forecasts

  Feb 28, 2014 2:35 AM PT

Photographer: Balint Porneczi/Bloomberg
An employee, left, takes a euro currency note from a customer at a seafood stall in the... Read More
Customers Shop at a Market Stall in Toulouse The euro-area inflation rate exceeded economists’ forecasts in February, easing pressure on the European Central Bank to take action next week to foster the fragile economic recovery.
Consumer prices grew an annual 0.8 percent, the same pace as in the previous two months, the European Union’sstatistics office in Luxembourg said today. That exceeds the median estimate of 0.7 percent in a Bloomberg News survey of 41 economists. The ECB seeks a rate of just under 2 percent over the medium term.
The unemployment rate, which ECB President Mario Draghi has cited as contributing to low inflation, held at 12 percent in January, just off the euro-era record of 12.1 percent last seen in September, Eurostat said in a separate report today.
Today’s inflation report “shows that there is no threat of fully fledged deflation,” Carsten Brzeski, an economist at ING Group NV in Brussels, said by telephone. “The situation has not worsened, which also means right now that there’s no imminent reason for the ECB to act again.”
The euro extended gains against the dollar after today’s report was released, trading at $1.3805 at 11:29 a.m. in Brussels, up 0.7 percent on the day.
Draghi on Feb. 6 put investors on a month’s notice for further economic stimulus, saying the Frankfurt-based central bank needed “to get more information” on the recovery before making any decision. “We are willing and we are ready to act,” Draghi said after the ECB held its benchmark interest rate at a record-low 0.25 percent.

‘Downward Pressure’

Energy prices fell 2.2 percent after a 1.2 percent decline in January, today’s report showed. “In recent times, energy price developments in particular put downward pressure on headline inflation, a phenomenon that has contributed to weaker inflation at the global level,” Draghi said yesterday.
Prices of alcohol, food and tobacco increased 1.5 percent, following a 1.7 percent rise in January, according to Eurostat. The cost of services rose 1.3 percent after a 1.2 percent jump. The core inflation rate, which excludes volatile items such as energy, food, alcohol and tobacco, rose 1 percent, exceeding economists’ estimates.
“The big picture is clearly that price pressures in the currency union are very weak,” Jonathan Loynes, chief European economist at Capital Economics Ltd. in London, said before today’s data were released.

Youth Unemployment

The unemployment rate, which has been stable since October, conceals extreme regional differences, with Spain at 25.8 percent in January and Austria at 4.9 percent. In Germany, the euro zone’s biggest economy, the rate stood at 5 percent, down from 5.1 percent in December.
Joblessness among people under the age of 25 held at 24 percent in January, today’s report showed, with 54.6 percent of young Spaniards out of work.
Draghi said on Feb. 6 that “although unemployment in the euro area is stabilizing, it remains high,” and called on governments to “continue with product and labor-market reforms” that will help to “enhance the euro area’s growth potential and reduce the high unemployment rates in many countries.”
Today’s inflation data are estimates. The statistics office will release final figures for February on March 17. The ECB announces its next rate decisions on March 6.
To contact the reporter on this story: Ian Wishart in Brussels at
To contact the editor responsible for this story: James Hertling at

Thursday, 27 February 2014

Russia Stocks Sink With Ruble Amid Military Tests Near Ukraine

  Feb 27, 2014 1:35 AM PT

The ruble weakened to a record and Russian stocks slumped to a three-week low after Russialaunched military exercises amid deepening tensions in Ukraine.
The currency depreciated 0.2 percent to 42.0944 against Bank Rossii’s target basket of dollars and euros by 1:16 p.m. in Moscow. The benchmark Micex stock index decreased 1 percent to 1,455.20, the lowest level since Feb. 5, after a 0.5 percent gain earlier and taking a three-day decline to 2.4 percent.
Russia is conducting a check of the combat-readiness of central and western military districts as well as a test of air defense, airborne troops and aviation, according to a statement on the Defense Ministry’s website. Tensions flared in the southern Ukrainian region of Crimea as an armed group occupied parliament and government buildings in the capital of the region, replacing the Ukrainian flag with Russia’s tricolor.
“The market is really afraid because it doesn’t understand what’s going on,” Vadim Bit-Avragim, who helps oversee about $4.2 billion at Kapital Asset Management in Moscow, said by phone today. “All investors are pricing in the possibility of Russia’s military intervention in Ukraine.”
The ruble and stocks extended declines as Interfax reported Russia’s fighter jets had been placed on combat alert near the western border, citing the Defense Ministry.
Ukraine’s interim government is seeking to secure as much as $35 billion in financial aid to fend off a possible default after the ouster of Viktor Yanukovych from the presidency last week. More than 80 protesters and police officers have died in the riots.
The ruble depreciated 0.5 percent to 36.1950 per dollar and weakened 0.3 percent to 49.4085 against the euro. The currency has dropped 9.2 percent against the greenback this year, the second-worst performance among 24 emerging-market currencies tracked by Bloomberg, as Federal Reserve stimulus cuts curbed investor appetite for developing-nation currencies.
Russia’s equities have the cheapest valuations among 21 developing countries monitored by Bloomberg, with shares on the Micex trading at 5.3 times projected 12-month earnings, compared with a multiple of 10.2 for the MSCI Emerging Markets Index.
To contact the reporter on this story: Ksenia Galouchko in Moscow at
To contact the editor responsible for this story: Wojciech Moskwa at

Hedge Funds Faith in BOJ Easing Fades as Yen Shorts Cut

  Feb 27, 2014 1:37 AM PT

Photographer: Kiyoshi Ota/Bloomberg
Haruhiko Kuroda, governor of the Bank of Japan (BOJ). “Markets are telling Kuroda,... Read More

Hedge funds are losing confidence in Bank of Japan Governor Haruhiko Kuroda’s ability to keep depreciating the yen to boost growth and banish deflation as they wait for a second round of monetary easing to materialize.
Speculators and other leveraged investors have trimmed bearish wagers on Japan’s currency by more than 60 percent since a peak in December. The yen has strengthened 3.8 percent versus its developed-nation counterparts this year, the biggest advance in Bloomberg Correlation-Weighted Indexes and a turnaround from 2013, when it fell the most in three decades.
Kuroda passed this month on the opportunity to increase the central bank’s 60 trillion yen ($587 billion) to 70 trillion yen of monthly bond purchases, aimed at driving investors’ money offshore. While he’s stopped short of firm promises, the BOJ chief reiterated this month that he “won’t hesitate” to ease policy further to meet the nation’s target of 2 percent inflation by 2015.
“Unless Japan comes up with specific measures to prove it will do whatever is necessary to exit deflation, it’s hard for hedge funds to jump on the weak-yen bandwagon,” Naoki Iwami, the chief investment officer at Tokyo-based hedge fund Whiz Partners Inc., said yesterday in a phone interview. “There’s a big difference in the momentum this year compared to 2013.”

Yen ‘Catalyst’

Iwami expects the yen, which traded at 102.14 per dollar as of 9:31 a.m. in London, to remain at 100 to 105 in the “short term,” saying that a major “catalyst” would be needed for a decline beyond that level.
The yen has strengthened 3.1 percent against the greenback this year, after falling to an almost 5 1/2-year low of 105.44 on Jan. 2 and sliding 18 percent in 2013, the most since 1979. This year’s advance against a basket of the 10 most-traded developed-nation currencies, including the euro, pound and Australian dollar, followed a 17 percent decline in 2013.
Leveraged funds held 37,429 more contracts betting on yen declines than on gains as of Feb. 18, data from the Commodity Futures Trading Commission in Washington show. That’s down from a nine-month high of 101,900 net shorts on Dec. 3 and 107,295 on March 12, which was the most bearish position since July 2007, just before the outbreak of the global financial crisis.

Yen Options

Options traders turned bullish on Japan’s currency over the past three months, risk-reversal rates show. The premium for three-month contracts to sell the yen against the greenback has fallen while costs for those to buy were little changed, data compiled by Bloomberg show. The difference has shifted by 99 basis points to a 72 basis-point advantage in favor of Japan’s currency, from a 26 basis-point disadvantage as of Nov. 21.
“Investors have sold dollar-yen call options to take profit as the spot rate entered a downward correction,” Hiroshi Yoshida, a senior portfolio manager in Tokyo at MassMutual Life Insurance Co., said by phone yesterday.
Japan’s policy makers were confounded in January as the biggest rout in emerging-market assets since 2009 encouraged investors to seek havens including the yen.
The yen has climbed versus all but one of its 31 major counterparts this year, even as 73 percent of economists in a Bloomberg survey forecast the BOJ will expand stimulus by September. Bond purchases by the central bank tend to devalue money by boosting supply.
The central bank will continue to ease policy to meet its inflation target, Kuroda said in a speech in Nagoya, Japan on Dec. 2. Officials see significant scope for boosting its bond-buying program if necessary, people familiar with the matter, who asked not to be identified, said the same month.

‘Fickle’ Speculators

“The bottom line is, the market expectations in terms of the timing of” additional easing “may very well be disappointed,” Sue Trinh, a senior currency strategist at Royal Bank of Canada in Hong Kong, said in a phone interview yesterday. “So we are struggling to see too much upside for dollar-yen in the short term,” she said. “Speculative flow is very fickle and it can turn on a dime on any explosion in risk aversion.”
Japan will wait until July to ease policy, when it can judge the outcome of the April 1 introduction of the first increase in the nation’s sales tax since 1997, Shinichiro Kadota, a foreign-exchange strategist at Barclays Plc in Tokyo, said in an interview yesterday.

‘Less Proactive’

“The BOJ will be less proactive this year and act only if inflation or the economy slows after the sales-tax increase,” Kadota said in an interview yesterday. “We expect the BOJ to add stimulus in July, but any delays will slow the pace of yen depreciation.”
Barclays predicts the yen will weaken about 4 percent to 106 per dollar by mid-year, in line with the median forecast of more than 50 strategists surveyed by Bloomberg.
Kuroda was hired in March, charged with carrying out new Prime Minister Shinzo Abe’s election pledge to flood financial markets with cheap money to make exports more competitive and end 15 years of crippling deflation.
The unprecedented easing aimed to depress local government bond yields and drive domestic investors’ money offshore in search of better returns. The central bank left its stimulus program intact on Feb. 18, while increasing low-interest lending to Japan’s banks.
The yield on Japan’s benchmark 10-year bond fell to 0.585 percent today, the lowest among major economies and down from a one-year high of 0.935 percent in May, a month after the easing program was announced.
The BOJ has been less successful in pushing Japanese money offshore. More than 90 percent of Japanese government bonds are held domestically, according to official data, and local investorssold a net 2.91 trillion yen of foreign debt in January, the second-biggest sale in records back to 2005.
“Markets are telling Kuroda, surprise us again just you like did last year,” Masashi Murata, a currency strategist in Tokyo at U.S. broker Brown Brothers Harriman & Co., said by phone on Feb. 25. “The BOJ is running out of options.”
To contact the reporters on this story: Mariko Ishikawa in Tokyo at; Masaki Kondo in Singapore at; Kevin Buckland in Tokyo
To contact the editors responsible for this story: Garfield Reynolds at;Paul Armstrong at

Wednesday, 26 February 2014

Pound Holds Two-Day Advance Against Dollar After Economy Expands

  Feb 26, 2014 1:51 AM PT

The pound held a two-day advance versus the dollar after a report showed the U.K. economy grew in the fourth quarter, matching economist estimates.
Sterling was little changed against the euro. U.K. gross domestic product expanded 0.7 percent in the three months through December, after growing 0.8 percent in the third quarter, the Office for National Statistics said. Bank of England Chief Economist Spencer Dalesaid policy makers have no plans to increase interest rates soon. U.K. government bonds were also little changed.
U.K. Recruitment Seen Improving Across Every Region“We would need a massive economic disappointment or strong dovish signal from the Bank of England to really bring down sterling, so any dips will be bought into,” said Valentin Marinov, head of European Group-of-10 currency strategy at Citigroup Inc. in London. “The fundamentals remain supportive.”
The pound was little changed at $1.6688 as of 9:48 a.m. London time after rising to $1.6727 yesterday, the highest since Feb. 19. Sterling was at 82.39 pence per euro.
Dale told Radio Ulster that he doesn’t know when U.K. borrowing costs might rise and that increases will be gradual.
“When interest rates do go up, it’s more likely than not to be a very gradual series of increases,” fellow policy maker David Miles said in a BBC television interview. “It may be that sometime next year may be the right time” to raise rates “but it’s difficult to predict,” he said.
The pound has gained 13 percent in the past year, the best performer among 10 developed-nation currencies tracked by Bloomberg Correlation-Weighted Indexes. The euro appreciated 6.8 percent and the dollar rose 0.9 percent.
The benchmark 10-year gilt yielded 2.75 percent. The price of the 2.25 percent bond due September 2023 was at 95.855.
U.K. government bonds returned 2.1 percent this year through yesterday, according to Bloomberg World Bond Indexes. German securities earned 2 percent and U.S. Treasuries gained 1.8 percent.
To contact the reporter on this story: Eshe Nelson in London at
To contact the editor responsible for this story: Paul Dobson at

Crisis Gauge Rises to Record High as Swaps Avoided

  Feb 25, 2014 11:42 PM PT

China’s credit-market gauges are triggering alarm bells, as banks grow cautious in lending to each other while investors prefer the safest government bonds.
Photographer: Brent Lewin/Bloomberg / Pedestrians are silhouetted as they walk past the Guangzhou Library in Guangzhou. The... Read More
The spread between the two-year sovereign yield and the similar-maturity interest-rate swap, a gauge of financial stress, reached 121 basis points on Feb. 19, the widest in Bloomberg data going back to 2007. Two days later, the cost to lock in the three-month Shanghai interbank offered rate for one year reached an eight-month high of 94 basis points over similar contracts based onrepurchase agreements, which are considered safer because they involvegovernment securities as collateral.
Billionaire investors George Soros and Bill Gross have drawn parallels between the situation in China now and that in the U.S. before the 2008 financial crisis, when traders gauged lending appetite by monitoring the difference between the London Interbank Borrowing Rate and the overnight indexed swap. Premier Li Keqiang’sefforts to curb leverage in the world’s second-largest economy by driving up borrowing costs need to be handled carefully to avoid wrecking confidence in the financial system, according to Nomura Holdings Inc.
“What I do see are increasing parallels between China and the U.S. in the run-up to the global financial crisis,” said Patrick Perret-Green, a London-based strategist at Australia & New Zealand Banking Group Ltd. “Shibor-repo is similar to Libor-OIS. Shadow banking is subprime. Credit spreads are widening as they did in 2007. Money growth is softening as tightening bites.”

Widening Spreads

In July, 2007, U.S. banks began to hoard cash when defaults on subprime mortgages led two Bear Stearns hedge funds to seek bankruptcy protection, pushing up borrowing costs. The gap between the three-month Libor in dollars and the OIS rate soared to a record 364 basis points in October 2008.
Shadow banking in China, which includes trust companies and wealth-management products of lenders, is more closely linked to the real economy than in western countries, Finance Minister Lou Jiwei said in an interview in Sydney on Feb. 22. Possible defaults in some WMPs don’t reflect a “big problem” and yuan weakness is within a normal range, he said.
While China’s bond risk has risen this year, it has fallen for four weeks. Credit-default swaps reached 105 basis points on Jan. 24 in New York, the highest since Aug. 30, CMA prices show. They closed at 90.5 yesterday, up from 80 on Dec. 31.

Currency Volatility

The yuan was little changed at 6.1263 per dollar in Shanghai as of 3:37 p.m. in Shanghai today after falling 0.46 percent yesterday, the most since Nov. 1, 2010. Nomura’s managing director of currency research said yesterday the central bank may double the size of the currency’s trading band versus the dollar within weeks.
“The drop in the cash bond yield was due to investors downgrading their forecasts of 2014 growth,” said Tim Condon, head of Asian research at ING Groep NV in Singapore. “Some of the credit-spread widening also could be a flight to safety by investors unnerved by the increased foreign-exchange volatility.”
The yield on two-year government bonds declined 26 basis points this month to 3.56 percent yesterday. The spread to the swap averaged a record 110 basis points this month and was at 95 basis points yesterday. In February 2013, it averaged 25.
“There is a big flight to quality,” said Wee-Khoon Chong, Singapore-based head of rates strategy Asia ex-Japan at Nomura. “In times of stress, you sell credits, sell longer-dated bonds into shorter ones and you are going to the government bond market. If the default situation gets out of control, yields are going to fall a lot.”
He forecast the central bank will cut reserve-requirement ratios for lenders to 19 percent this year from 20 percent as higher borrowing costs cool economic growth.

PBOC Tightening

Expansion in the world’s second-biggest economy slowed in the fourth quarter to 7.7 percent from 7.8 percent in the previous three months as the central bank drove up money-market rates to curb shadow-banking excesses.
The People’s Bank of China signaled on Feb. 8 that money-market volatility will persist and borrowing costs will rise, while saying it will enhance monitoring of local government financing vehicles, industries with overcapacity and property developers to prevent default risks from spreading.
It drained 100 billion yuan ($16.3 billion) from the financial system this week, following a withdrawal of 558 billion yuan in the previous two weeks. Money supply growth, measured by funds readily accessible for spending, fell to 1.2 percent in January, the lowest in data going back to 1996.
“A consistent rally in sovereign debt will be more likely if we start seeing more defaults in shadow banking or credit products, which will lead to flight-to-quality flows and also likely PBOC easing,” said Bin Gao, head of Asian rates at Bank of America Merrill Lynch in Hong Kong.

Trust Products

About 5.3 trillion yuan of trust products will come due this year, up from 3.5 trillion yuan in 2013, Haitong Securities Co. estimated last month. Assets in all trusts surged 46 percent in 2013 to a record 10.9 trillion yuan, the China Trustee Association said in a Feb. 13 statement.
China averted its first trust default in at least a decade in January as investors in a 3 billion yuan high-yield product sold by China Credit Trust Co. to fund a coal miner that collapsed were bailed out days before it came due. A similar product created by Jilin Province Trust Co. is also missing payments, Shanghai Securities News reported.

Default Concern

In a sign of default concern, the premium for five-year AA rated corporate notes over the sovereign widened to 337 basis points on Feb. 12, the most in two years. At least a third of China’s 200,000 steel-trading firms will collapse because of the credit crisis, the official Xinhua news agency said Feb. 7, citing industry estimates.
The slowdown may fuel bank bad loans, which surged 28.5 billion yuan in the final quarter of 2013 to 592 billion yuan, the highest since September 2008, according to China Banking Regulatory Commission data. The economy will probably expand 7.5 percent this year, the slowest since 1990, according to the median estimate in a Bloomberg survey.
Credit-default swaps on Bank of China rose 32 basis points to 153 this year while those on Industrial & Commercial Bank of China Ltd. climbed the same amount to 165, CMA prices show.

Global Investors

Increased money-market turmoil and the outlook for slowing growth are serving as catalysts for a rally in government bonds as banks increase buying, according to Yii Hui Wong, a Singapore-based strategist at BNP Paribas SA. The rise in the short-end will spread to five-year notes, she forecast.
Demand for sovereign notes is also supported by global investors as China opens up its domesticcapital markets and foreign funds look for a harbor from a sell-off in emerging markets sparked by the Federal Reserve’s reduction in stimulus.
“Offshore investors take a longer-term view, and they don’t feel that the government can’t handle the situation because it’s still a very controlled economy,” Wong said. “If the central government wants to do something, then it can. Government bonds at these levels are very attractive.”
To contact the reporter on this story: Kyoungwha Kim in Singapore at
To contact the editors responsible for this story: Sandy Hendry at shendry@bloomberg.netJames Regan at

Tuesday, 25 February 2014

U.S. Stocks Fluctuate Near Record After Housing Data

  Feb 25, 2014 11:01 AM PT

U.S. stocks fluctuated near a record high after data showed slower growth in home prices and a drop in consumer confidence, while Macy’s Inc. and Home Depot Inc. reported higher-than-estimated earnings.
Macy’s and Home Depot rose at least 3.1 percent. Tesla Motors Inc. climbed 16 percent as Morgan Stanley more than doubled its projected price for the stock. Office Depot Inc. slumped 11 percent after reporting an unexpected loss. Tenet Healthcare Corp. declined 11 percent as its forecast missed analysts’ estimates.
The S&P 500 (SPX) gained 0.1 percent to 1,848.59 at 1:59 p.m. in New York, poised for the highest close ever. Earlier, the U.S. equity benchmark lost 0.4 percent. The Dow Jones Industrial Averageadvanced 14.05 points, or 0.1 percent, to 16,221.19. Trading in S&P 500 stocks was 7 percent below the 30-day average during this time of the day.
“We’re kind of teetering with the new all-time high,” Ryan Detrick, senior technical strategist at Schaeffer’s Investment Research in Cincinnati, said by phone. “People are taking a step here and watching to see if we can get there again.”
Investors are taking advantage of record stock prices to book gains. About $1.7 billion was taken out of U.S. equity exchange-traded funds yesterday, bringing total withdrawals to almost $6 billion in February, data compiled by Bloomberg show. A record $139 billion was added to the ETFs in 2013 as the S&P 500 jumped 30 percent for the best annual gain since 1997.

Bull Market

The S&P 500 has rallied more than 6 percent since Feb. 3 as investors speculated that severe winter weather explains the weakness in reports such as housing and hiring. Fed Chair Janet Yellen said this month that the economy has strengthened enough to withstand stimulus cuts, adding that only a notable change to the outlook would prompt the central bank to slow the pace of tapering.
“The market has done extremely well in February,” Doug Cote, chief market strategist at ING U.S. Investment Management in New York, in a telephone interview. His firm oversees about $200 billion. “2014 is more of a recognition that we’re in a global economic expansion and no longer a recovery.”
Three rounds of stimulus have helped push the S&P 500 173 percent higher from a 12-year low in 2009, including a 3.8 percent gain this month.

Housing, Consumer

Home prices in the U.S. climbed at a slower pace in the year through December, indicating the market is entering a new stage that will help sustain further progress. The S&P/Case-Shiller index of property values in 20 cities rose 13.4 percent from December 2012 after increasing 13.7 percent in the year ended in November, the group said today in New York. It was the first deceleration since June.
A Conference Board report showed a measure of confidence among U.S. consumers fell to 78.1 in February from 79.4 the prior month. The median forecast in a Bloomberg survey of economists called for a reading of 80.
The Chicago Board Options Exchange Volatility Index fell 1.3 percent today to 14.05. The gauge of S&P 500 options known as the VIX is up 2.4 percent this year.
Macy’s climbed 5.2 percent to $55.81. The second-largest U.S. department-store company topped fourth-quarter profit estimates after recording a smaller-than-projected charge for a cost-cutting program.

Home Depot

Home Depot advanced 3.1 percent to $80.32. The largest U.S. home-improvement chain has postedsix straight years of meeting or exceeding projections as the U.S. housing rebound spurs spending on renovations. The company also raised its quarterly dividend by 21 percent to 47 cents a share.
Tesla climbed 16 percent to $253.01. Morgan Stanley analyst Adam Jonas raised his price target on the electric car maker to $320. Tesla last week posted results that beat analyst estimates and said it is gearing up for further growth with plans to raise Model S sedan production 56 percent this year and to build a battery plant.
LinkedIn Corp. increased 5.8 percent to $211.06. The professional social-networking company is establishing a Chinese-language website that will restrict some content to adhere to state censorship rules, moving to expand in a country where U.S. technology companies have clashed with the government.

Zulily Jumps

Zulily Inc. (ZU) jumped 40 percent to $59.89 after saying it expects first-quarter sales of $225 million to $235 million. The forecast exceeded the $223 million average estimate by analysts. The online retailer also reported fourth-quarter earnings of 10 cents a share, exceeding the 4 cent-average of analysts surveyed by Bloomberg.
InterMune Inc. soared 150 percent to $34.93 after its drug pirfenidone for a fatal lung disease met goals of a study expected to support U.S. approval.
Office Depot dropped 11 percent to $4.75 after reporting an unexpected loss of 3 cents a share in the fourth quarter. Analysts on average had predicted a profit of 3 cents per share.
Staples Inc. dropped 2.7 percent to $13.03.
Tenet lost 11 percent to $43.21. Earnings before interest, taxes, depreciation and amortization may be $1.8 billion to $1.9 billion this year, the company said in a statement. Analysts anticipated $1.96 billion, the average of 18 estimates compiled by Bloomberg.
RealPage Inc. plunged 23 percent to $15.90. The property-services company reported fourth-quarter earnings of 16 cents a share, missing the 17-cent median of analyst estimates compiled by Bloomberg. RealPage also acquired the assets of Bookt LLC, which owns the vacation-rental booking website InstaManager.
To contact the reporters on this story: Lu Wang in New York at; Callie Bost in New York at
To contact the editor responsible for this story: Lynn Thomasson at