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Monday, November 16, 2009


Municipal bond sales to reach 7-month high
State and local governments plan to sell $12 billion in fixed-rate bonds this week. The sales include Build America Bonds, for which the government pays more than a third of the interest expense. Michael Mundaca, the Obama administration's nominee to be the Treasury's assistant secretary for tax policy, wants the BAB program extended. "The future of the BAB program is the most important question facing the municipal bond market today," said John Dillon, a fixed-income strategist at Morgan Stanley Smith Barney. "The landscape could be permanently altered by an extension and/or expansion of the program." Bloomberg (11/16)

Moody's: Corporate defaults to peak this month, then ease off
Moody's Investors Service is becoming a bit more optimistic on the subject of corporate-debt defaults. Moody's warned in January that as much as 16.4% of U.S. companies carrying junk ratings could default during the next 12 months. The credit rating agency upgraded its prediction, expecting defaults to peak at 13.6% this month, then decline to 4.4% a year from now. The Wall Street Journal (16 Nov.)

Japanese, Chinese officials warn of asset bubbles
Bank of Japan Governor Masaaki Shirakawa joined China Banking Regulatory Commission Chairman Liu Mingkang to warn that the loose money policy of the U.S. Federal Reserve could fuel an asset bubble. Shirakawa warned of "new, real and insurmountable risks to the recovery of the global economy" because of the Fed's policy. "The continuous depreciation in the dollar, and the U.S. government's indication that, in order to resume growth and maintain public confidence, it basically won't raise interest rates for the coming 12 to 18 months, has led to massive dollar arbitrage speculation," Liu said. Bloomberg (16 Nov.)

Asian leaders reject Obama's push for stronger Chinese currency
Despite a visit from U.S. President Barack Obama, the Asia-Pacific Economic Cooperation ignored efforts to present a united front to support a strengthened Chinese yuan. A closing statement at the group's meeting avoids mentioning the impact of exchange rates on trade. "The challenge Obama is facing is that the influence of the U.S. is rapidly waning and that he has little credibility" on trade issues, said Marc Faber, a fund manager at Marc Faber in Hong Kong. "Obama talked about free trade, but recently the U.S. slapped tariffs on Chinese-made tire imports." BusinessWeek (15 Nov.)

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