Daily Archives: May 5, 2010

Simone Baribeau

…is still very much up in the air. But Senate banking leadership is one step closer to coming to defining the future shape of the US central bank. The Federal Reserve would no longer be able to use its 13(3) lending authorities to help insolvent companies if the bill and the fresh amendment are passed, according to a statement released by Chris Dodd, Senate banking committee chairman.

UPDATE: The Senate has passed the amendment

The amendment comes on the same day that Charles Plosser, Philadelphia Fed president, reiterated Fed leader’s plea that Congress refrain from removing the central banks supervisory authority over smaller banks. (The bill passed by the House doesn’t limit the Fed’s supervisory authority, but the proposed Senate bill would). Read more

We might not consider the US, UK or Japanese economies as safe havens at the moment, but for bond investors they represent an oasis of calm in a troubled world. US treasury yields – formerly on the rise – have been dropping substantially in the wake of eurozone woes. The 52-week yield auctioned yesterday had an investment rate of 4.27 per cent, compared with 4.94 per cent in the April auction.

Falling yields are also seen in longer-dated issues, such as 5- and 7-year bonds auctioned recently.

Based on pretty much the same opinion polls, how can UKPolling report predict the Conservatives will be 52 seats short of an overall majority, while FiveThirtyEight predict the shortfall will be only 18?

My colleague Alex Barker on the Westminster Blog sums up the arguments very neatly here, and if you want to read the full threads of the political nerds at war, all the links are here on the FiveThirtyEight site. I will just point to the evidence for both sides and then add some observations about the 2010 exit poll, which should give a pretty good prediction of the result at 10pm tomorrow.

Although there are quite a few differences between the models the big difference is that traditional UK predictions on seats are based on a uniform national swing, while the new kids on the block suggest a proportionate loss model is best. Uniform swing assumes that the national percentage point change in votes for a particular party will be replicated in every constituency. Nate Silver at FiveThrityEight argues that it is better to assume Labour loses the same proportion of its vote in each constituency, with the result that the percentage point losses are greater where Labour scored well in 2005.

What evidence exists? Read more

Poor Portugal. By dint of some dubious acronym, they are lumped into the same category as Greece.

First, a sizeable Greek bail-out, which appears more than adequate, sends European equities tumbling. Second, the cost of debt for the Portuguese government shot up today (6-month government bill average yield 2.955 per cent, versus 0.74 per cent at the last auction in March). Third, Moody’s has just placed Portugal on review for downgrade. Read more

A tiff between the Polish finance ministry and the central bank has been resolved today – in the ministry’s favour. The flexible credit line, which was put in place this time last year, cost the country about $50m a year for the right to call upon $20.58bn (at ?). Poland did not intend to use the facility, and indeed they did not use it last year; theirs was the only economy in the EU not to suffer a recession. The central bank has said the country’s $85.2bn currency buffers would be sufficient in case of financial woes. But in light of Greek contagion, market fear seems to outweigh the fundamentals, in which case this extension is prudent.

The central bank of Iceland has voted to lower interest rates by 0.5 percentage points. The deposit rate (current account rate) will be 7 per cent, and the maximum bid rate for 28-day certificates of deposit will be 8.25 per cent. The seven-day collateral lending rate will be 8.5 per cent and the overnight lending rate 10 per cent. See historical chart, right (source).

Icelandic inflation is on the up, with annual rates rising from 10.7 per cent in February to 11.6 per cent in March – almost an entire percentage point increase in just one month. Lower interest rates will make hot money flows – if any – reduce, but will also encourage credit-fuelled domestic spending to rise.