You are here
Ambrose Evans-Pritchard: Global bond rout worsens on U.S. fiscal worries
By Ambrose Evans-Pritchard
The Telegraph, London
Wednesday, December 8, 2010
http://www.telegraph.co.uk/finance/economics/8190059/Global-bond-rout-de...
The yield on 10-year Treasuries -- the benchmark price of money worldwide and the key driver of US mortgage rates -- has rocketed to 3.3 percent, up 35 basis points since President Barack Obama agreed on Monday to compromise with Senate Republicans on tax cuts.
The Treasury selloff has ricocheted through the global system, triggering bond selloffs in Asia, Europe, and Latin America. Japan's finance ministry braced as borrowing costs on seven-year debt jumped by a sixth in one trading session, while German Bunds punched through 3 percent.
The White House deal with Congress will renew the Bush tax cuts for rich and poor alike for two years, as well as adding a further a 2 percent cut in payroll taxes and an extension of unemployment aid.
... Dispatch continues below ...
Sona Drills 85.4g Gold/Ton Over 4 Metres at Elizabeth Gold Deposit, Extending the Mineralization of the Southwest Vein on the Property
Company Press Release, October 27, 2010
VANCOUVER, British Columbia -- Sona Resources Corp. reports on five drillling holes in the third round of assay results from the recently completed drill program at its 100 percent-owned Elizabeth Gold Deposit Property in the Lillooet Mining District of southern British Columbia. Highlights from the diamond drilling include:
-- Hole E10-66 intersected 17.4g gold/ton over 1.54 metres.
-- Hole E10-67 intersected 96.4g gold/ton over 2.5 metres, including one assay interval of 383g of gold/ton over 0.5 metres.
-- Hole E10-69 intersected 85.4g gold/ton over 4.03 metres, including one assay interval of 230g gold/ton over 1 metre.
Four drill holes, E10-66 to E10-69, targeted the southwestern end of the Southwest Vein, and three of the holes have expanded the mineralized zone in that direction. The Southwest Vein gold mineralization has now been intersected over a strike length of 325 metres, with the deepest hole drilled less than 200 metres from surface.
"The assay results from the Southwest Zone quartz vein continue to be extremely positive," says John P. Thompson, Sona's president and CEO. "We are expanding the Southwest Vein, and this high-grade gold mineralization remains wide open down dip and along strike to the southwest."
For the company's full press release, please visit:
http://sonaresources.com/_resources/news/SONA_NR19_2010.pdf
David Bloom, currency chief at HSBC, said it is hard to disentangle whether investors are shunning bonds because they expect US stimulus to boost growth next year, or whether they are losing patience with profligacy in Washington.
"If this is all about growth, that's brilliant. But if yields are rising because people think Amirca's fiscal situation is unsustainable, then its Armaggedon," he said.
"The US can get away with this only because it is the world's reserve currency. This would be totally unacceptable in any other country. We think these problems will start to crystallise for the US in the second half of 2011, once the European debt crisis has stabilised," he said.
The warnings were echoed by Li Daokui, a rate-setter for China's central bank. "The focus of the market is still in Europe, but we must be aware that the US fiscal situation is much worse than in Europe," he said.
The US tax deal adds $1 trillion of stimulus over two years, according to BNP Paribas. America's budget deficit will remain stuck near 10 percent of GDP, not just in 2011 but also in 2012. This will push gross public debt to 110 percent of GDP under the IMF definition, near the brink of a debt compound spiral. The contrast with fiscal tightening in Europe has become starkly evident.
Both Moody's and Fitch warned that the US must map out a credible strategy to control spending. "We have long-term concerns about the US rating outlook and they're not yet being addressed," said Stephen Hess, chief US analyst for Moody's.
Stephen Lewis from Monument Securities said the bond rout is a sign that Washington can no longer take global markets for granted. "We have reached the limits of tolerance for budget deficits. There is a feeling around the world that nobody in Washington is paying any attention to the implications of what they are doing, but there is a very real risk that this will backfire if it causes mortgage rates to keep going up," he said.
"At the same time we've seen a loss of confidence in Fed strategy. There is a feeling that the Fed doesn't care about inflation -- in fact, wants more of it -- and that is certainly not in the interest of bondholders," he said.
The standard rate for 30-year mortgages in US has moved up in tandem with Treasury yields. The rate has been creeping up ever since the US Federal Reserve first signalled plans for a fresh blast of quantitative easing, rising 85 basis points in three months.
The housing squeeze raises serious doubts about the Fed's plan to purchase a further $600bn in Treasuries over coming months, or QE2 as it is known. Fed chair Ben Bernanke stated on Sunday that the explicit purpose of the policy -- which he calls "credit easing" -- is to bring down yields.
"We're not printing money. What we're doing is lowering interest rates by buying Treasury securities. And by lowering interest rates, we hope to stimulate the economy to grow faster," he said.
US data on foreign holdings of Treasuries and agency bonds are published with a delay, but monthly figures show that China sold a net $24 billion in September and Russia sold $10 billion. The concern is that investor flight from US debt will overpower the monthly purchases of $100 billion by the Fed, making it ever harder for Washington to raise the $1.4 trillion needed next year to cover the deficit.
The rise in yields risks becoming a textbook case of a central bank losing control over long-term rates. The danger is that market fears of future bond losses -- whether from inflation or higher default premiums -- will neutralise the stimulus, or lead to stagflation.
Tom Porcelli from RBC Capital Markets said the Fed rates might be nearer 4 percent by now if the Fed had not acted. However, he said, there was no justification for QE2 at a time when the economy is growing at more than 2 percent and core inflation -- though the lowest since the 1960s -- is positive at 1 percent. "Nobody believes that we're slipping into deflation anymore. That phase has passed," he said.
* * *
Join GATA here:
Yukon Mining Investment e-Conference
Wednesday-Thursday, January 19-20, 2011
http://theyukonroom.com/yukon-eblast-static.html
Vancouver Resource Investment Conference
Vancouver Convention Centre West
Vancouver, British Columbia, Canada
Sunday-Monday, January 23-24, 2011
http://cambridgehouse3.com/conference-details/vancouver-resource-investm...
Cheviot Asset Management Sound Money Conference
Guildhall, London
Thursday, January 27, 2011
http://www.cheviot.co.uk/news/video/2010/12/the-cheviot-sound-money-conf...
Phoenix Investment Conference and Silver Summit
Renaissance Glendale Hotel and Spa
Friday-Saturday, February 18-19, 2011
Glendale, Arizona
http://cambridgehouse3.com/conference-details/phoenix-investment-confere...
Support GATA by purchasing a colorful GATA T-shirt:
Or a colorful poster of GATA's full-page ad in The Wall Street Journal on January 31, 2009:
http://gata.org/node/wallstreetjournal
Or a video disc of GATA's 2005 Gold Rush 21 conference in the Yukon:
Help keep GATA going
GATA is a civil rights and educational organization based in the United States and tax-exempt under the U.S. Internal Revenue Code. Its e-mail dispatches are free, and you can subscribe at:
To contribute to GATA, please visit:
Prophecy Drills 71.17 Metres of 0.52% NiEq
(0.310 % Nickel 0.466 g/t PGMs +Au and 0.223% Copper)
from surface at Wellgreen Project in the Yukon
Prophecy Resource Corp. (TSX-V: PCY) reports that it has received additional assays results from its 100-percent-owned Wellgreen PGM Ni-Cu property in the Yukon, Canada. Diamond drill holes WS10-179 to WS10-182 were drilled during the summer of 2010 by Northern Platinum (which merged with Prophecy on September 23, 2010). WS10-183 was drilled by Prophecy in October 2010. Highlights from the newly received assays include 71.17 metres from surface of 0.52 percent NiEq (0.310 percent nickel, 0.466 g/t PGMs + Au, and 0.233 percent copper) and ended in mineralization. For more drill highlights, please visit:
http://prophecyresource.com/news_2010_nov29.php
