by Calculated Risk on 11/25/2011 01:23:00 PM

Just a headline on Belgium ... I guess S&P noticed the Belgian bond yields are moving up sharply.

Also something we discussed this morning, from Bloomberg: Italian, Spanish Yield Curves Start Looking Greek: Euro Credit

Spain and Italy face paying more to borrow for two years than for a decade, echoing shifts that presaged bailouts in Greece and Portugal and suggesting skepticism about their new governments avoiding contagion.

The Italian 2 year yield is at 7.66%. And the ten year yield is at 7.26%.

But the Spanish curve is not inverted yet. The Spanish 2 year yield is at 6.09%, and the ten year yield is at 6.7%.

by Calculated Risk on 11/25/2011 09:13:00 AM

From the WSJ: Italian Yields Jump After Poor Auction

Italian two-year and five-year government-bond yields soared to euro-era highs Friday as investors began giving up on the euro zone's ability to break the political gridlock that is blocking a more decisive response to the currency bloc's debt crisis ... The Italian treasury sold €8 billion ($10.67 billion) of six-month treasury bills and €2 billion of 24-month zero-coupon bonds. The six-month paper carried an average yield of 6.5%, sharply up from the 3.5% rate paid at its October auction.

The Italian 2 year yield is up to 7.84%. Ouch. The 5 year yield is at 7.8%.

Note: I've added the table of links to European bond yields below the first post.

Update: From Reuters: Moody's cuts Hungary to "junk," government sees attack

Moody's lowered Hungary's sovereign rating by one notch to Ba1, just below investment grade, with a negative outlook, hours after rival Standard & Poor's held fire on a flagged downgrade after Budapest said it would seek international aid. ... It also came after [Prime Minister Viktor] Orban relaunched aid talks this week with the International Monetary Fund, a dramatic reversal after he cut cooperation with the Fund short last year after sweeping a 2010 election on a vow to regain "economic sovereignty."

by Calculated Risk on 11/24/2011 06:47:00 PM

NOTE: I've added a link below the first post for the table of links to European Bond Yields.

More on Europe ...

From the WSJ: ECB Considers Longer Bank Loans

The European Central Bank ... may extend loans to banks at maturities of two or three years, according to people familiar with the matter. The longest maturity at present is 13 months.

This would be for banks - with haircuts on collateral - and not countries.

From the Telegraph: Germany unmoved by French pleas for more ECB action

Ms Merkel instead used a three-way summit with France and Italy in Strasbourg to insist that new treaty powers to intervene and punish sinner states remained the key focus of Europe's rescue efforts. She said: "The countries who don't keep to the stability pact have to be punished – those who contravene it need to be penalised. We need to make sure this doesn't happen again."

Even suggestions that the ECB could extend longer loans to countries over a period of up to three years appeared to be ruled out. Ms Merkel said: "The ECB is independent, the modification of the treaty does not concern the ECB, which is dealing with monetary policy and financial stability. We are worried about a fiscal policy. It's a very different chapter. It has nothing to do with the European bank."

by Calculated Risk on 11/24/2011 03:31:00 PM

A few housekeeping notes for a holiday ...

• For anyone accessing Calculatedriskblog via an iPad, I'm trying out some new software with a customized tablet layout. The layout is from Onswipe. I'll be adding smart phone software soon ...

• Follow on Twitter.

• Receive blog posts via email. Sign up here for free (No subscription information will be sold or otherwise provided to third parties).

• Change to Graphs: If you click on a graph in a post, a larger image will appear (with thumbnails if there are multiple graphs in the post). This is very fast and does not use scripting.

For those looking for all current graphs, just click on "graph galleries" below the first post or in the menu bar.

The graph galleries are grouped by category:
* Employment Graphs
* New Home Sales
* Existing Home Sales
* House Price Graphs
* Mortgage Delinquency Graphs
* Retail Graphs
* GDP Graphs
* Manufacturing Graphs
* Commercial Real Estate
* Transportation Graphs
* Trade Graphs

Enjoy!

• And on European bond yields: Below is a table for several European bond yields (links to Bloomberg).

Check out the Belgian and Portuguese graphs. Ouch.

Greece	2 Year	5 Year	10 Year
Portugal	2 Year	5 Year	10 Year
Ireland	2 Year	5 Year	10 Year
Spain	2 Year	5 Year	10 Year
Italy	2 Year	5 Year	10 Year
Belgium	2 Year	5 Year	10 Year
France	2 Year	5 Year	10 Year
Germany	2 Year	5 Year	10 Year

Thanks to all for reading. Have a great Thanksgiving!

by Calculated Risk on 11/24/2011 10:56:00 AM

From Bloomberg: Germany, France to Propose Treaty Adjustments on Fiscal Rules (ht Brian)

Germany and France said they will make proposals to amend European treaties in coming days to impose greater fiscal discipline on euro-area countries ...

The initiative announced today at a meeting in Strasbourg, France, involving German Chancellor Angela Merkel, French President Nicolas Sarkozy and Italian Prime Minister Mario Monti ...

The planned treaty changes prepared for a Dec. 9 European summit involve “the question of a fiscal union, that is a deepened political cooperation,” Merkel told reporters after the meeting over lunch. “It’s not about a quid pro quo. It’s about overcoming the defects in the euro zone’s construction, step by step.”

Merkel won backing on demanding changes to treaties as a prerequisite to discussing the issuance of common euro bonds.

From Bloomberg: Merkel Rejects Euro Bonds After Failed Auction ‘Wake-Up Call’

German Chancellor Angela Merkel again ruled out joint euro-area borrowing and an expanded role for the European Central Bank in fighting the debt crisis. ... Euro bonds are “not needed and not appropriate,” Merkel said today at a press conference

More from the WSJ: Leaders to Propose EU Treaty Changes

by Calculated Risk on 11/24/2011 09:02:00 AM

• From the Athens News: Papademos says Samaras letter 'satisfactory'

The standoff over Antonis Samaras’ refusal to sign a written commitment that he backs austerity measures seems to have come to an end, after Prime Minister Lucas Papademos told the cabinet on Thursday that international lenders had reacted positively to the letter that the New Democracy leader sent to the country’s lenders yesterday.

"Papademos said the content of the letter was satisfactory. There is an initial positive response to it (from abroad)," a minister who attended the meeting told Reuters on condition of anonymity.

• From the WSJ: Portugal Hit by Downgrade and Strike

Fitch, which matched Moody's Investors Service's move in July to place Portugal in junk territory, lowered its rating one notch, to double-B-plus from triple-B-minus, and warned further downgrades were possible because a recession in the country will increase challenges for the government to comply with its austerity plans. It maintained a negative outlook.

"The country's large fiscal imbalances, high indebtedness across all sectors, and adverse macroeconomic outlook mean the sovereign's credit profile is no longer consistent with an investment-grade rating," Fitch said. "However, Fitch judges the government's commitment to the program to be strong."

• From the Financial Times: France pushes hard on ECB intervention The FT reports that Nicolas Sarkozy, Italy's Mario Monti, and Angela Merkel are meeting in Strasbourg today - and Sarkokzy is expected to push for ECB intervention.

• Something else to watch from the NY Times: Economic Trouble in the West Shows Signs of Catching Up With Asia

Within the last few weeks ... cracks have emerged in the region’s mighty economies, and analysts and policy makers have become more concerned about the painful disruption that could spill into Asia as the situation in Europe continues to deteriorate and the United States’ growth remains subdued.

Exports from Asia have been softening for months as demand in Europe, in particular, has slowed.

• And on German bonds:

From Paul Krugman: The Apocalypse Trade

the big story: German bonds are now being priced as a risky asset — what the FT calls the “apocalypse trade“. The interest rate on bunds, at 2.21% as I write this, is still very low by historical standards. But it’s above the rate on UK bonds (2.17%) and way above the rate on US bonds (1.88%).

The way to see this is that the market is in effect pricing in a real possibility of eurozone collapse.

And from the FT Alphaville: Borrowing costs in the United States of Europe

[L]et’s assume we get a Eurobond as envisaged by President Barroso. What would that yield? Some 4 per cent perhaps. Lower?

Viewed in this context one can understand why investors were reluctant to buy German paper with a 1.98 per cent coupon. Why not wait and pick up double the yield on German-backed Eurobonds.

The glib answer to that question is because it will never happen. Germany will never allow it.

However, this story, which ran on Reuters overnight, suggests that Eurobonds are not completely verboten, especially if Germany could force through treaty changes to enforce budgetary discipline in the eurozone.

by Calculated Risk on 11/23/2011 11:32:00 PM

The Case-Shiller Home Price Indices for September will be released next Tuesday, November 29th. Zillow chief economist Stan Humphries put out a forecast for the Case-Shiller HPI yesterday: Zillow Forecast: September Case-Shiller Composite-20 Expected to Show 3.2% Decline from One Year Ago

Zillow predicts that the 20-City Composite Home Price Index (non-seasonally adjusted, NSA) will decline by 3.2% on a year-over-year basis, while the 10-City Composite Home Price Index (NSA) will show a year-over-year decline of 2.8%. The seasonally adjusted (SA) month-over-month change from August to September will be -0.2% and 0.0% for the 20 and 10-City Composite Home Price Index (SA), respectively.
...
"We expect to see continued home value depreciation as unemployment and negative equity remain high and as the pace of foreclosures, kept artificially low since the robo-signing controversy, increases again."

On an NSA basis, this would leave the 10-city composite about 3.9% above the post bubble low, and the 20-city composite about 3.5% above the post bubble low.

The CoreLogic (used by the Fed) index (NSA) for September was about 3.6% above the post bubble low.

However this would put the seasonally adjusted 20-City composite index at a new post-bubble low (and the 10-city would be just above a new low). Because the seasonal factor has been impacted by the high percentage of foreclosures, most people just report the NSA numbers - and the NSA numbers will probably not be at new lows until early next year.

But there is still a strong seasonal pattern to house prices, and it will be interesting if the SA numbers are at new lows ...

by Calculated Risk on 11/23/2011 06:55:00 PM

Yesterday the Federal Reserve outlined the annual bank supervisory stress tests. The Fed included a stress test scenario for house prices and inflation, so we can calculate the impact on real house prices.

The stress test scenario is outlined here. The stress tests assume the unemployment rate will rise to 13% in 2013, that the Dow Jones Total Stock Market Index will decline by more than 50% from the current level. The scenario also assumes that nominal house prices will fall another 20%+.

Note: The Federal Reserve uses the CoreLogic House Price Index (Blue).

Click on graph for larger image.

This graph shows real house prices through August 2011 (September for CoreLogic), and the Federal Reserves stress test scenario (blue after Q3 2011).

This scenario would take real house prices back to about mid-1984 prices in real terms (adjusted for inflation).

by Calculated Risk on 11/23/2011 03:13:00 PM

Yields are rising quickly ...

From Reuters: Belgian/German spreads hit euro-era highs on political deadlock

The yield premium of Belgian 10-year government bonds over German Bunds hit euro-era highs on Wednesday after a blow to prospects of forming a government left the country vulnerable to a fast-spreading debt crisis.

The highly-indebted country, which has been without a government for 18 months, suffered a further blow on Tuesday when its lead negotiator in forming an administration resigned.

From the WSJ: German Bond Auction Adds to Investor Worries on Euro Zone

A German government debt auction drew some of the weakest demand since the introduction of the euro, signaling diminishing investor appetite for even the safest euro-zone assets amid Europe's worsening debt crisis.

From the Athens News: Samaras addresses letter to creditors

In the latest move in the power game over the written commitment that EU leaders have asked Pasok and New Democracy to cosign, Antonis Samaras on Wednesday sent a letter to the European Union and IMF reiterating his support for the new prime minister and for fiscal adjustment targets.
...
He noted, however, that “certain policies have to be modified”.
...
It was not immediately clear whether the letter would satisfy the EU and IMF ... Earlier on Wednesday, German Chancellor Angela Merkel said that if Samaras did not sign, an 8bn euro bailout payment would not be released.

From Bloomberg: Three-Month Dollar Libor Reaches 0.5%, 1st Time Since July 2010

The London interbank offered rate, or Libor, for three- month dollar loans climbed to 0.50028 percent from 0.495 percent yesterday, data from the British Bankers’ Association showed. That’s the highest level since July 21, 2010.

Below is a table for several European bond yields (links to Bloomberg).

The Italian 10 year bond yield is at 6.97%; the Italian 2 year yield is up to 7.12%!

The Spanish 10 year bond yield has increased to 6.65%; the Spanish 2 year yield is up to 5.86%.

The Belgian 10 year yield is up sharply to 5.48%; the Belgian 2 year yield is 4.94%.

The Irish 10 year yield is at 8.21%. The Portuguese 10 year yield is at 11.3%.

The French 10 year bond yield is at 3.69%.

Greece	2 Year	5 Year	10 Year
Portugal	2 Year	5 Year	10 Year
Ireland	2 Year	5 Year	10 Year
Spain	2 Year	5 Year	10 Year
Italy	2 Year	5 Year	10 Year
Belgium	2 Year	5 Year	10 Year
France	2 Year	5 Year	10 Year
Germany	2 Year	5 Year	10 Year

by Calculated Risk on 11/23/2011 11:25:00 AM

Although there are significant downside risks from the European financial crisis and additional fiscal tightening in early 2012, right now the U.S. data suggests continued sluggish growth ...

• From the Kansas City Fed: Growth in Manufacturing Activity Eased Slightly

The Federal Reserve Bank of Kansas City released the November Manufacturing Survey today. According to Chad Wilkerson, vice president and economist at the Federal Reserve Bank of Kansas City, the survey revealed that growth in Tenth District manufacturing activity eased slightly in November, but expectations for future months remained relatively solid.

“Factory activity in the region grew slightly slower in November than in the previous two months, and price pressures eased a bit,” said Wilkerson. “But capital spending plans were generally solid, and many firms planned to add workers in coming months as well.”
...
The month-over-month composite index was 4 in November, down from 8 in October and 6 in September ... The production and shipments indexes decreased to 0, and the new orders and order backlog indexes were negative. The employment index dropped to its lowest level of the year but remained slightly positive, and the new orders for exports index moderated slightly.

In general the regional manufacturing surveys have indicated sluggish growth in November.

• From Truecare.com: Highest SAAR for New Vehicle Sales Since Cash for Clunkers

For November 2011, new light vehicle sales in the U.S. (including fleet) is expected to be 972,712 units, up 11.5 percent from November 2010 and down 4.7 percent from October 2011 (on an unadjusted basis) ... The November 2011 forecast translates into a Seasonally Adjusted Annualized Rate (SAAR) of 13.3 million new car sales, up from 13.2 million in October 2011 and up from 12.3 million in November 2010.

“We’ve seen six straight months of year over year gains for new vehicle sales, which shows positive momentum for the auto industry, ” said Jesse Toprak, Vice President of Industry Trends and Insights for TrueCar.com. “There is a strong possibility that we could reach a 14 million SAAR next month.“

Earlier:
• Personal Income increased 0.4% in October, Spending increased 0.1%
• Weekly Initial Unemployment Claims at 393,000