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Editor in Asia Leaves Bloomberg News Citing Censorship | A Lightning War for Liberty
Editor in Asia Leaves Bloomberg News Citing Censorship | A Lightning War for Liberty.
Last November, I highlighted how Bloomberg News seemed to be censoring stories about corruption in China in order to preserve sales of its extremely expensive Bloomberg LP terminals in the region. The article was titled: How Bloomberg “News” Censors the News.
It appears the drama has continued into 2014, with the New York Times reporting that Ben Richardson, an editor in Asia at Bloomberg News, announced that he had resigned in protest. From the NY Times:
Ben Richardson, an editor at large in Asia at Bloomberg News, announced his resignation on Monday, citing the company’s handling of an investigative report in China late last year.
He is the third reporter or editor to leave the organization since several news organizations reported last November that Bloomberg had declined to publish an investigative article that explored financial ties between one of the wealthiest men in China and the families of top Chinese leaders.
“I left Bloomberg because of the way the story was mishandled, and because of how the company made misleading statements in the global press” afterward, he said in an email to the media news site Romenesko. He also wrote that Bloomberg employees faced legal action if they spoke out publicly.
That’s some “free press” we’ve got going here.
Last week Peter T. Grauer, the chairman of Bloomberg L.P., said in Hong Kong that the company should have reconsidered articles outside of business news, because they jeopardized the huge sales potential for Bloomberg’s financial data terminals in the Chinese market. He did not specify any articles in particular. Mr. Grauer’s comments “illustrate the frame of mind of senior management from the business side,” Mr. Richardson said in his email.
With media outlets like these, who needs propaganda…
Full article here.
In Liberty,
Michael Krieger
Nick Hodge – Peak Oil: It’s Baaaack – PRN.fm – PRN.fm
Nick Hodge – Peak Oil: It’s Baaaack – PRN.fm – PRN.fm.
Nick Hodge – Peak Oil: It’s Baaaack
Over the past few months, I’ve been sharing my concerns about shale oil.
Namely, that it’s more comparable to a Ponzi scheme than any sort of boom.
I’ve articulated the reasons for my thesis, including fast decline rates, the amount of new rigs and wells needed, and a cost of production that’s been higher than the price of sale for some time now.
I’ve also shared recent evidence that this theory is proving correct, from horrid earnings reports — citing the reasons I just mentioned — for oil majors across the board to the fact that mainstream media outlets are starting to put the dots together, running stories like:
“Big Oil Companies Struggle to Justify Soaring Project Costs” —Wall Street Journal
“Dream of U.S. Oil Independence Slams Against Shale Costs” — Bloomberg
“Why America’s Shale Boom Could End Sooner Than You Think” —Forbes
“What Happens When The Shale Boom Ends?” — Christian Science Monitor
After my last article on the subject, I got an email from a sophisticated investor-friend of mine worth hundreds of millions of dollars — some even say a billion. His subject line was: “Awesome Article on Shale.” Here’s what he had to say:
Nick Hodge – Peak Oil: It's Baaaack – PRN.fm – PRN.fm
Nick Hodge – Peak Oil: It’s Baaaack – PRN.fm – PRN.fm.
Nick Hodge – Peak Oil: It’s Baaaack
Over the past few months, I’ve been sharing my concerns about shale oil.
Namely, that it’s more comparable to a Ponzi scheme than any sort of boom.
I’ve articulated the reasons for my thesis, including fast decline rates, the amount of new rigs and wells needed, and a cost of production that’s been higher than the price of sale for some time now.
I’ve also shared recent evidence that this theory is proving correct, from horrid earnings reports — citing the reasons I just mentioned — for oil majors across the board to the fact that mainstream media outlets are starting to put the dots together, running stories like:
“Big Oil Companies Struggle to Justify Soaring Project Costs” —Wall Street Journal
“Dream of U.S. Oil Independence Slams Against Shale Costs” — Bloomberg
“Why America’s Shale Boom Could End Sooner Than You Think” —Forbes
“What Happens When The Shale Boom Ends?” — Christian Science Monitor
After my last article on the subject, I got an email from a sophisticated investor-friend of mine worth hundreds of millions of dollars — some even say a billion. His subject line was: “Awesome Article on Shale.” Here’s what he had to say:
Junk Yield Premiums Soar on China’s Looming First Default – Bloomberg
Junk Yield Premiums Soar on China’s Looming First Default – Bloomberg.
The extra cost to borrow for China’s riskiest companies is at the highest in 20 months as soaring interest rates heighten concern the nation will experience its first onshore bond default.
The yield gap on five-year AA- notes over AAA debt jumped 27 basis points last month to 224, the most since June 2012, Chinabond indexes show. Ratings of AA- or below are equivalent to non-investment grades globally, according to Haitong Securities Co., the nation’s second-biggest brokerage. The similar spread in the U.S. is 403 basis points, Bank of America Merrill Lynch data show.
The failure of coal companies to meet payment deadlines for trust products has increased concern over debt defaults, with the equivalent of $53 billion of bonds sold by renewable energy, construction materials, metals and mining companies due in 2014. A report on Jan. 30 signaled China’s factories are contracting for the first time since August amid signs of financial stress including mounting losses and bailouts.
“China’s bond market will definitely see its first default this year,” said Xu Hanfei, a bond analyst inShanghai at Guotai Junan Securities Co., the nation’s third-biggest brokerage. “The economy is slowing while the government seems still confident about growth, which means the authorities probably won’t announce any measures to avert the slowdown. This is the worst scenario.”
Financial Panic
A further $21 billion of securities in those three sectors mature in 2015, the Bloomberg data show, with companies including Baoshan Iron & Steel Co., China Minmetals Corp. and Wuhan Iron & Steel Co. among the most indebted. Bonds of steel and coal companies are under added pressure considering the government’s campaign to reduce smog, and industry overcapacity, according to Moody’s Investors Service, which has a negative outlook on both.
LDK Solar Co. is looking at ways to restructure obligations on its offshore yuan debt after missing payments on its dollar debt last year. Zhuhai Zhongfu Enterprise Co. (000659), a manufacturer of beverage packaging, said on Jan. 28 its 2015 debentures may be suspended from trade after its estimated net loss was as much as 450 million yuan ($74.2 million) in 2013. The yield on the 5.28 percent notes has climbed 217.5 basis points this year to 18.76 percent, exchange data show.
Steel, Shipping
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 Premier Li Keqiang drove up money-market rates to encourage companies and local governments to deleverage.
China’s central bank signaled in a Feb. 8 report that volatility in money-market interest rates will persist and borrowing costs will rise, further underscoring the risk of defaults which could weigh on confidence and drag down growth.
China Credit Trust Co. reached an agreement last month to repay bailed-out investors in a high-yield product whose threatened failure spurred concern bad debts will rise in the nation’s $1.7 trillion trust industry.
The gap between top-rated and lower-rated bonds in China may widen further this year as news about possible defaults shakes the market, according to Cheng Qingsheng, an analyst at Evergrowing Bank Co.
“There should be a default in China’s onshore bonds this year,” Shanghai-based Cheng said. “Privately issued bonds have higher default risks than publicly traded bonds.” A first default may happen in the steel, coal, shipping or photovoltaic power industries, Cheng said.
Default Swaps
As default concerns escalate, the cost of insuring the nation’s debt against non-payment is rising. China’s credit-default swaps have increased 13 basis points this year to 93 as of Feb. 7. The yuanfell to 6.0646 per dollar on Feb. 7, the lowest level this year. It was little changed at 6.0605 as of 10:32 a.m. in Shanghai.
There have been no defaults in China’s publicly traded domestic debt market since the central bank started regulating it in 1997, according to Moody’s.
Local governments have helped some companies avert missing payment deadlines, according to Yao Wei, the Hong Kong-based China economist at Societe Generale SA. CHTC Helon Co., a fiber maker which used to be called Shandong Helon Co., repaid 400 million yuan of notes in April 2012 even as it failed to make loan repayments.
Shanghai Chaori Solar Energy Science & Technology Co. (002506), which averted default on an interest payment last year and had just 618.7 million yuan cash as of September, will pay 898 million yuan of debt in March, according to Guotai Junan. The solar-panel maker’s debt-to-asset ratio was 90.1 percent at the end of the third quarter, according to a company financial report released Oct. 27.
High Cost
Other companies are receiving help from related entities. Changzhou Wintafone Chemical Co., a maker of herbicides and insecticides based in the eastern province of Jiangsu, said last month it’s stopped production and can’t repay notes due in March. Changzhou Qinghong Chemical Co., the note’s guarantor, repaid 36.9 million yuan on its behalf on Jan. 17.
A first default may be avoided if local governments continue to step in, said Beijing-based Yang Feng, a bond analyst at Citic Securities Co., the nation’s biggest brokerage.
“The cost of a default on a bond would be very high,” said Yang. “If a company in Shanghai defaults, it would be difficult for every company in the city to raise money.”
Turning Cautious
The yield on AA- rated five-year corporate bonds climbed 13 basis points last month to 8.38 percent. The rate on the benchmark five-year government bond dropped 24 basis points to 4.22 percent over the same period.
The average yield on high-yield Dim Sum bonds, or yuan-denominated notes sold in Hong Kong, has climbed 14 basis points this month to 5.66 percent on Feb. 6, the highest since October, according to an index compiled by HSBC Holdings Plc. Yields averaged 5.52 percent on Dec. 31.
U.S. dollar-denominated 13.25 percent notes sold by Glorious Property Holdings Ltd. (845) in February last year and due in 2018 were yielding 19.61 percent on Feb. 7, Bloomberg-compiled prices show. The company’s chief executive officer and chief financial officer resigned last week, less than one month after shareholders rejected an offer by Chinese billionaire Zhang Zhirong to take the developer private.
“Investors have turned cautious on high-yield bonds,” said Guotai Junan’s Xu, who forecasts China’s economy will grow 7 percent this year. “Since China’s onshore bond market hasn’t had a default, the market may not have priced in all the risk it should have.”
Sinovel, Nanjing
Sinovel Wind Group Co. (601558), said on Jan. 29 its bonds due 2016 may be suspended from trade because it may report a second year of losses. The yield on the 6.2 percent notes has jumped 329 basis points in 2014 to 15.01 percent as of today. Similarly, Nanjing Iron & Steel Co. (600282), partly owned by Chinese billionaire Guo Guangchang, said last month its 2018 bonds may stop trading because it too could report a second year of losses. The yield on those notes has soared 208 basis points this year to 10.72 percent, exchange data show.
“It would be best if the government will allow defaults,” Zhang Ming, a senior research fellow at the government-backed Chinese Academy of Social Sciences in Beijing, said in a Jan. 22 interview. “The bubbles are gradually inflating, and sooner and later there will be a collapse. The best scenario is that you allow defaults in some places when you are ready so that some risks can be released. The later the default, the more damaging.”
To contact Bloomberg News staff for this story: Judy Chen in Shanghai atxchen45@bloomberg.net
To contact the editors responsible for this story: Katrina Nicholas at knicholas2@bloomberg.net; Sandy Hendry at shendry@bloomberg.net
Russia Ruble Collapse Escalates To Record Low | Zero Hedge
Russia Ruble Collapse Escalates To Record Low | Zero Hedge.
With all eyes on Russia over the next month as the Sochi Winter Olympics ramps up, we are sure having the market’s attention on a collapsing currency is not what Putin had in mind before he dropped $50 billion to make it snow. While the Ruble remains just above record lows against the USD, Bloomberg reports that it has dropped to a record low against the central bank’s dollar-euro basket. Russia’s finance minister proclaimed today (Erdogan style?) that Bank Rossii should not raise rates (which has been unchanged at 5.5% for the last 15 months). Russian CDS is widening (193bps at 4 month highs) but not cratering like other EM currencies but MICEX (stocks) have had their longest losing streak since April.
As Bloomberg adds,
The ruble depreciated 1.2 percent to 40.9632 versus the central bank’s dollar-euro basket by 6:01 p.m. in Moscow. A weaker ruble encourages Russians to withdraw and convert local- currency deposits, Sberbank’s main source of funding, while hurting retailers by making imports more expensive in ruble-denominated prices.
“Investors are scared of the ruble devaluation,” Sergey Vakhrameev, an analyst in Moscow at AnkorInvest LLC, which manages about $30 million in assets, said by phone. “During strong devaluations, stock markets fall, investors become scared of indexes in countries where the devaluation isn’t controlled.”
Of course, this will only make the bank run problems worse…
Is It Hot in Here or Is It Just Me Telling You It’s Hot in Here? – Bloomberg
Is It Hot in Here or Is It Just Me Telling You It’s Hot in Here? – Bloomberg.
As the mercury drops in the eastern U.S. this week, expect snow, icy driving conditions and ludicrous statements about global warming from Donald Trump andRush Limbaugh.
These statements are caricatures of debate, and obscure the real and persistent way that weather actually does make climate change confusing.
Many people apparently have weather on the brain when the topic turns to climate change. The ease with which we confuse the two offers a window into how the human mind works: Asked about a complex issue, people often will provide an answer about a related, easier topic. It’s an example of “attribute substitution,” a mental process defined by behavioral economists Daniel Kahneman and Shane Frederick in 2002, the same year Kahneman won the Nobel Prize in economics.
This particular phenomenon, in which people instinctively allow weather to influence their judgments about climate change, has been called the local warming effect.
A new study in a leading peer-reviewed journal, Nature Climate Change, asks why the local warming effect should be so influential. The researchers conducted several experiments to try to overcome participants’ reliance on cues from weather. The work was led by Lisa Zaval of Columbia University’s Center for Research on Environmental Decisions.

NOAA reported yesterday that “most regions across the globe were warmer than average.”…Read More
They tested to see whether survey questions containing the phrase “global warming” caused people to believe or be concerned about science any more than questions with “climate change” did. They didn’t, and the researchers concluded that the local weather effect isn’t driven by buzzwords.
In another test, they gave participants information explaining that local weather and global climate change are different things, adapting NASA material to say, for example, “climate is what you expect, like a hot summer, and weather is what you get, like a hot day with thunderstorms.” Explaining this difference to research subjects didn’t kill the local weather effect.
A third approach investigated the effect of “priming,” or providing subtle topic cues. Researchers gave subjects hotness or coldness cues before answering questions about climate change. Study participants were asked to make four-word sentences from five-word groups, such as:
potatoes she the roasted it
Or:
the shivers man old of
People who were given “hot” priming sentences tended to believe and be concerned about climate change science more than those given “cold” or neutral sentences.
A further test, which involved asking people about yesterday’s temperature, led the researchers to conclude that the previous day’s temperature didn’t have as large an effect as it today’s. Recent sensation — “the immediacy of experience with temperature” — influences thoughts about climate change most. Humans evolved big, reasoning brains that still have trouble competing with the five senses.
That weather can guide people’s thinking so strongly, and that this bias is so difficult to overcome, is indicative of a larger problem not limited to climate change. “The local warming effect is an important real-world demonstration of how opinion on important issues can be constructed in response to a direct enquiry, rather than retrieved from memory,” the authors write.
In other words, when asked to say what they think about climate change, many people don’t retrieve and open their mental file on climate; they make up a new one, drawing on a seemingly related and easier topic, the temperature outside. After all, as Bob Dylan put it, you don’t need a weatherman to know which way the wind blows.
“Priming” studies are common in behavioral research. Scientists still don’t know as much about it as one might like. If streets and news media were filled with images of people sweating and thirsty in a desert, it wouldn’t lead to a rational federal climate policy. But just why it wouldn’t isn’t well understood.
As Zaval explained over email: “Unfortunately, we just don’t know how long the effects of temperature cues might last — concern for climate change sometimes seems to be as transient as the weather.”
The Fate of a City | KUNSTLER
The Fate of a City | KUNSTLER.
I was born and raised in New York City, on the east side of Manhattan (with a brief intermezzo in the long Island Suburbs (1954 – 1957) though I have lived upstate, two hundred miles north of the city, for decades since. I go back from time to time to see publishers and get some cosmopolitan thrills. One spring morning a couple of years back, toward the end of Mayor Bloomberg’s reign, I was walking across Central Park from my hotel on West 75th Street to the Metropolitan Museum of Art when I had an epiphany.
Which was that Central Park, and indeed much of the city, had never been in such good condition in my lifetime. The heart of New York had gone through a phenomenal restoration. When I was a child in the 1960s, districts like Tribeca, Soho, and the Bowery were the realms of winos and cockroaches. The brutes who worked in the meatpacking district had never seen a supermodel. Brooklyn was as remote and benighted as Nicolae Ceausescu’s Romania. The Central Park Zoo was like a set from Riot in Cellblock D, and the park itself was desecrated with the aging detritus of Robert Moses’s awful experiments in chain-link fencing as a decorative motif. Then, of course, came the grafitti-plagued 1970s summed up by the infamous newspaper headline [President] Ford to City: Drop Dead.
Now, the park was sparkling. The sheep’s meadow was lovingly re-sodded, many of Frederick Law Olmsted’s original structures, the dairy, the bow bridge, the Bethesda Fountain, were restored. Million dollar condos were selling on the Bowery. Where trucks once unloaded flyblown cattle carcasses was now the hangout of movie and fashion celebrities. Brooklyn was a New Jerusalem of the lively arts. And my parents could never have afforded the 2BR/2bath apartment (with working fireplace) that I grew up in on East 68th Street.
The catch to all this was that the glorious rebirth of New York City was entirely due to the financialization of the economy. Untold billions had streamed into this special little corner of the USA since the 1980s, into the bank accounts of countless vampire squidlets engaged in the asset-stripping of the rest of the nation. So, in case you were wondering, all the wealth of places like Detroit, Akron, Peoria, Waukegan, Chattanooga, Omaha, Hartford, and scores of other towns that had been gutted and retrofitted for suburban chain-store imperialism, or served up to the racketeers of “Eds and Meds,” or just left for dead — all that action had been converted, abracadabra, into the renovation of a few square miles near the Atlantic Ocean.
Nobody in the lamebrain New York based media really understands this dynamic, nor do they have a clue what will happen next, which is that the wealth-extraction process is now complete and that New York City has moved over the top of the arc of rebirth and is now headed down a steep, nauseating slope of breakdown and deterioration, starting with the reign of soon-to-be hapless Bill de Blasio.
Mayor Bloomberg was celebrated for, among other things, stimulating a new generation of skyscraper building. There is theory which states that an empire puts up its greatest monumental buildings just before it collapses. I think it is truthful. This is what you are now going to see in New York, especially as regards the empire of Wall Street finance, which is all set to blow up. The many new skyscrapers recently constructed for the fabled “one percent”— the Frank Gehry condos and the Robert A.M. Stern hedge fund aeries — are already obsolete. The buyers don’t know it. In the new era of capital scarcity that we are entering, these giant buildings cannot be maintained (and, believe me, such structures require incessant, meticulous, and expensive upkeep). Splitting up the ownership of mega-structures into condominiums under a homeowners’ association (HOA) is an experiment that has never been tried before and now we are going to watch it fail spectacularly. All those towering monuments to the beneficent genius of Michael Bloomberg will very quickly transform from assets to liabilities.
This is only one feature of a breakdown in mega-cities that will astonish those who think the trend of hypergrowth is bound to just continue indefinitely. It will probably be unfair to blame poor Mr. de Blasio (though he surely can make the process worse), even as it would be erroneous to credit Michael Bloomberg for what financialization of the economy accomplished in one small part of America.
Bond Tab for Biggest Economies Seen at $7.43 Trillion in ’14 – Bloomberg
Bond Tab for Biggest Economies Seen at $7.43 Trillion in ’14 – Bloomberg.
The world’s biggest economies will need to refinance $7.43 trillion of sovereign debt in 2014 as bond yields begin to climb from record lows, threatening to raise borrowing costs while nations struggle to bring down elevated budget deficits.
The amount of bills, notes and bonds coming due for the Group of Seven nations plus Brazil, Russia, India and China is little changed from 2013 after dropping from $7.6 trillion in 2012, according to data compiled by Bloomberg. At $3.1 trillion, representing a 6 percent increase, the U.S. faces the largest tab. Russia, Japan and Germany will see refinancing needs drop, while those of Italy, France, Britain, China and India increase.
While budget deficits in developed nations have fallen to 4.1 percent of their economies from a peak of 7.8 percent in 2009, they remain about double the average in the decade before the credit crisis began. The cost for governments to borrow may rise further after average yields last year rose the most since 2006, as the global economy shows signs of improving and the Federal Reserve pares its unprecedented bond buying.
“Refinancing needs remain elevated in many developed nations, particularly the U.S.,” Luca Jellinek, the London-based head of European rates strategy at Credit Agricole SA, said in a Dec. 30 telephone interview. “The key here is demand rather than supply. If demand drops as growth picks up, and we expect it will, that could put pressure on borrowing costs.”

A man is silhouetted against the sun as he walks his bicycle down a flight of stairs in…Read More
Debt as a proportion of the economies of the 34 members of the Organization for Economic Cooperation and Development will rise to 72.6 percent this year from 70.9 percent last year and 39 percent in 2007, according to the group’s forecasts.
Deficit Spending
The amount of government debt obligations contained in a benchmark Bank of America Merrill Lynch index has more than doubled to $25.8 trillion since the end of 2007 as countries from the U.S. to Japan financed increased spending to counter the worst economic crisis since the Great Depression.
After interest-rate cuts around the world and the Fed’s bond purchases pushed down average yields on government notes to an all-time low of 1.29 percent in May, borrowing costs have since jumped, according to the Bank of America Merrill Lynch Global Broad Market Sovereign Plus Index.
Yields climbed to 1.84 percent by the end of December, making the 0.41 percentage point increase in 2013 the biggest in seven years, the data show. That represents an extra $4.1 billion in annual interest on every $1 trillion borrowed.
Bond buyers are demanding more compensation as the Fed plans to scale back its own monthly debt purchases in January to $75 billion from $85 billion and the U.S.-led recovery prompts investors to seek assets with higher returns such as equities.
Risk Premium
Government debt lost an average 0.36 percent worldwide last year, the first decline since 1999.
Based on 41 economists surveyed by Bloomberg on Dec. 19, the Fed will reduce its buying by $10 billion in each of the next seven meetings before ending its stimulus in December.
The U.S., the world’s largest economy, will expand 2.6 percent this year after 1.7 percent growth in 2013 and accelerate 3 percent in 2015, which would be the fastest in a decade, according to economists surveyed by Bloomberg. With Europe and Japan also forecast to grow, the three economies will all expand for the first time since 2010.
“With the Fed pulling back on bond purchases and growth picking up, bond investors will demand higher yields to justify investment,” Mohit Kumar, a money manager at GLG Partners, a hedge-fund unit of Man Group Plc, said by telephone from London. “We need to price in higher risk premium in an environment where rates and market volatility are likely to increase.”
Debtor Nations
Even as faster growth helps increase tax revenue, higher refinancing costs may squeeze governments that are still contending with fiscal deficits. Spending will outstrip revenue in the world’s largest economies by 3.3 percent of their gross domestic product this year, versus an average of 1.75 percent in the 10 years through 2007, data compiled by Bloomberg show.
In the U.S., the world’s largest debtor nation with $11.8 trillion of marketable debt obligations, the amount due this year will increase by about $187 billion, data compiled by Bloomberg show. France, faced with an economy that has barely grown in two years, will see the amount of debt securities due this year rise by 15 percent to $410 billion.
China will lead emerging-market economies with the amount of maturing bonds increasing by 12 percent to $143 billion.
Japan will have $2.38 trillion of bonds and bills to refinance this year, 9 percent less than in 2013, while the amount of German debt maturing this year will decrease by about 5.3 percent to $268 billion.
Public Debt
Including interest payments, the amount of debt that needs to be refinanced by the G-7 countries plus the BRIC nations this year increases by about $712 billion to $8.1 trillion, according to data compiled by Bloomberg.
“There has been a shift of a significant amount of debt” into the public sector during the crisis, saidNicholas Gartside, London-based international chief investment officer for fixed-income at J.P. Morgan Asset Management, which oversees $1.5 trillion. “Despite some improvement on the debt front, there is still a lot of deleveraging to go. The process is still ongoing and will continue for many years.”
Forecasters are overestimating the likelihood government debt costs will increase because the global economic recovery remains fragile and disinflation is starting to emerge, according toSteven Major, head of global fixed-income research at HSBC Holdings Plc, Europe’s largest bank.
The world economy will to expand 2.83 percent this year, according to forecasts compiled by Bloomberg, slower than the average 3.43 percent during the five-year span between the end of the dot-com bust in 2002 and the start of the credit crisis.
Consumer Prices
Slowing inflation also preserves the purchasing power of fixed-rate interest payments, which may support demand for bonds. Consumer prices in the U.S. will rise less than 2 percent in 2014 for a second straight year, which has only happened one other time in the last half century, data compiled by Bloomberg and the Bureau of Labor Statistics show.
In the 18 nations that share the euro, the inflation rate will be 1.2 percent, the lowest in five years.
“Growth may have picked up but it’s still pretty weak compared to previous cycles,” Major said in a telephone interview on Dec. 31. “Inflation is falling in many developed countries. Central banks should be worried about disinflation rather than inflation. It’s hard for me to imagine that bond yields will rise much against this backdrop.”
Some nations are starting to rein in spending, which may help contain borrowing costs. Government bond sales in the euro area, excluding issuance used to refinance maturing debt, will decline to 215 billion euros ($293 billion), the least since 2009, Morgan Stanley predicted.
Bond Sales
Germany said in December that it plans to curb bond and bill sales this year by 17 percent to 205 billion euros as tax revenue rises and Chancellor Angela Merkel seeks to end net new borrowing by 2015. In the U.S., the budget deficit will drop to to 3.4 percent of the economy this year, versus 10 percent five years ago, economist forecasts compiled by Bloomberg show.
Demand at U.S. government debt auctions remained stronger than before the financial crisis as investors bid for 2.87 times the amount sold last year, the fourth-highest ratio on record and surpassed only in the the prior three years.
Buying of Japanese debt was underpinned by the Bank of Japan’s commitment to buy 7 trillion yen ($71 billion) a month of bonds, a pace that would equal more than 50 percent of the 155 trillion yen in notes that Japan plans to sell this year.
Yield Forecasts
“Investors should not and will not be concerned about the supply picture,” said Major, who predicts that yields on the benchmark U.S. 10-year note will decrease to 2.1 percent by year-end from 2.99 percent last week.
His estimate conflicts with the majority of forecasters in a Bloomberg survey who say U.S. borrowing costs will increase. They anticipate yields on the 10-year notes, which rose 1.27 percentage points last year to 3.03 percent, the highest since 2011, will climb to 3.38 percent on average. No one in the survey projected yields falling below 2.5 percent. The yield was at 2.98 percent as of 9:56 a.m. London time.
Borrowing costs in all the G-7 nations are all poised to increase in 2014, based on the estimates. Yields on German bunds will increase to 2.28 percent by year-end, while those for similar-maturity U.K. gilts will end the year at 3.36 percent. That would be the highest for both nations since 2011.
Among the BRIC nations, only bond yields in India and China are poised to drop, the data show.
With global growth picking up, investors such as Standard Life Investments predict government bonds will underperform this year and are holding a greater proportion of equities than their benchmarks used to measure performance.
“We are not enthusiastic about government bonds,” Frances Hudson, a strategist at Standard Life in Edinburgh, which oversees $294 billion, said in an telephone interview on Jan. 2. “It’s reasonable to expect bond yields to rise from record lows as recovery gains momentum.”
Following is a table of projected bond and bill redemptions and interest payments in dollars for 2014 for the Group of Seven countries, Brazil, China, India and Russia using data compiled by Bloomberg as of Dec. 30:
To contact the reporter on this story: Anchalee Worrachate in London ataworrachate@bloomberg.net