Daily Archives: December 10, 2009

Simone Baribeau

The Obama administration today released the long-awaited permanent modification data for the Making Home Affordable loan modification programme. Those who were expecting low rates of permanent modifications weren’t disappointed.

Only 31,382 of the 728,000 loans being modified in the trial phase – less than 5 per cent – have been made permanent. Read more >>

Simone Baribeau

The Bank of Canada today released its semi-annual financial system review, finding that the Canadian financial system’s vulnerability to adverse shocks decreased modestly since its last report in June.

But the country – whose banks weathered the financial crisis without any infusion of government money – has not radically changed its conservative outlook. “Over the medium term, vulnerabilities associated with global financial and economic imbalances and household indebtedness will emerge as the most prominent risks to the Canadian financial system,” the report said. Read more >>

Yesterday there was dampened interest in a $21bn issue of 10-year bonds. Today, as we await the outcome of the $13bn 30-year auction, there seems to be ever less interest in these longer-dated bonds: the spread between 2- and 30- year bond yields is at its highest for 17 years. Presumably investors are worried about inflation as the government deficit reaches a record $1,400bn. If this is the start of a trend, the US government will find it increasingly expensive to fund its debt-financed stimulus and bail-out packages.

Denmark’s central bank has cut the lending rate from 1.25 per cent to 1.20 per cent and reduced the current account rate by the same amount, to 0.85 per cent. The bank has also cut rates on certificates of deposit from 1.00 per cent to 0.95 per cent, while the discount rate remains the same, at 1 per cent. The bank said the reduction was “a consequence of purchases of foreign exchange in the market”. The spread between ultra-low euro money-market rates and those on the Danish krone have tended to strengthen the currency.

By James Lamont, South Asia bureau chief

A three month deadline for blueprints to overhaul India’s financial services industry is highly ambitious. Yet that is what Duvvuri Subbarao, India’s central bank governor, has given the boards of the country’s commercial banks to devise strategies to bank millions of unbanked people. Read more >>

In an effort to maintain a liquid currency, the Swiss National Bank will invite non-bank financial institutions in Switzerland and Liechtenstein to participate in the repo market from 2010. Initial candidates are likely to be insurance companies with significant treasury activities in Swiss francs, and managers of Swiss franc money market funds. “In this way we plan to further promote the secured money market and increase the stability and crisis resistance of the financial system,” said Thomas Jordan, member of the SNB governing board.

A number of other significant announcements emerged in Zurich today, Read more >>

  • US to extend Tarp stimulus to 2010 – FT
  • Unusual step: ECB president Trichet casts vote for broad Fed – FT Money Supply
  • ECB: Greece has one year to sort public finances – FT

 Read more >>

Switzerland’s central bank said it will stop purchases of corporate bonds as it joins other countries in starting to withdraw emergency measures.

The Swiss National Bank, which announced plans to buy bonds in March, also held the three-month Libor target at 0.25 percent, as expected. The bank said it will continue to “act decisively to prevent any excessive appreciation” in the Swiss franc.

Iceland’s central bank has cut its benchmark seven-day collateral lending rate one percentage point to 10 per cent, and lowered its deposit rate (current account rate) by 0.5 per cent to 8.5 per cent. The overnight lending rate will be lowered by 1.5 percentage points to 11.5 per cent and the Central Bank will continue to issue 28-day certificates of deposit with a maximum bid rate of 9.75 per cent, which is 0.5 percentage points lower than before. Read more >>

Ralph Atkins

There is a flipside to the diverging unemployment trends in US (up, sharply) and eurozone (up, relatively modestly) about which we have blogged frequently on Money Supply. The European Central Bank’s monthly bulletin today highlights how productivity trends have also diverged – see the chart on the left. While the US has maintained productivity growth rates in the pre-crisis range, eurozone productivity has fallen.

There is one obvious explanation. Government-sponsored short time working schemes in Europe have enabled companies to keep on staff, even though production has fallen steeply. But the ECB says the story of US/eurozone divergence holds true whether productivity is measured per person employed or per hour worked, and argues that the eurozone has been weaker at investing in productivity enhancing technologies. Read more >>