U.S. Yield Curve Steepest Since February on Tax-Cut Extension

From Bloomberg:
Dec. 18 (Bloomberg) -- The extra yield Treasury investors demand to hold 10-year notes over 2-year securities touched the widest since February on speculation an extension of tax cuts will spur growth and increase deficits.

The benchmark 10-year yield rose this week to the highest level in seven months as retail sales advanced in November more than economists forecast and the Federal Reserve said the recovery is continuing. The U.S. economy grew at a faster pace in the third quarter, a report is forecast to show next week.

“The market will be subject to selling,” said Brian Edmonds, head of interest rates in New York at Cantor Fitzgerald LP, one of the 18 primary dealers that trade directly with the Fed. “It’s hard to think of anything good for bonds coming out of the tax-cut extension. Something has got to give.”

Questions to think about:
Why would the tax extension cause bond yields to increase? What impact do you think this should have on the USD? Try to trace through the impact through the money ( bonds), goods and services, and forex markets.

Why would better than expected retail sales figures cause bond yields to rise?

What impact will this have on the public debt: GDP profile in the US?

EMBA group assignment

The objective of the assignment is for you to apply and link some of the macro you learned in class to your business.  Work in your assigned groups.  The assignment is due by COB on 30 December 2010.  Click on title to link to file for full details.  Have fun!

China liquidity outstrips Fed

Interesting article from Bloomberg. Based on what we discussed in class about intervention in the forex markets, why do you think liquidity (money supply for our purposes) growth is so rapid in China? Is it the same reason as why the Fed in the US is injecting so much liquidity into the system?

The 2 trillion baht question

Most of us in Thailand celebrate New Year's two or three times a year: the international one in January; the Chinese one in February; the Thai one in April.  But some in Thailand also get to celebrate the Fiscal New Year in October.  For them, the fiscal or budget season is also a time of celebration and gift-giving, a time to dispense  favors and largesse.  Our government budet passed a milestone this yea.  The annual budget exceeds two trillion baht for the first time ever.  Two trillion is a lot of baht.  It is about 20% of GDP.  It is enough to build another 17 Suvarnabhumi airports.  Ten years ago, the budget was only 910 billion baht.  It has more than doubled.  Where has all the increased spending gone?....

Click on link in title for full article.  First published in Bangkok Post, 14 July 2010.

Caught between a rock and a hard baht

Thailand is experiencing a flood of inflows.  Not just of water, but of funds.  As a result of these inflows, the baht has appreciated by over 12% this year.  We usually try to comfort ourselves with the thought that our appreciation is "in line" with the region.  But in this case, we have appreciated by more than everyone else.  What to do?  There are no easy options.  Each option has its drawbacks....

To read full article, click on title.  First published in Bangkok Post, 9 November 2010.

Dawei project in Myanmar

Huge industrial project in Myanmar to be done by Thais.

From the International Herald Tribune today:

"...But the Dawei Development Project, as it is known, could have as much of an impact on Myanmar’s future as the decades-old political chess games between the military and its opponents — and perhaps more.

The deal, signed Nov. 2, calls for what would be by far the largest industrial area in Myanmar, which is also known as Burma. In an impoverished, relatively cloistered country where malnourishment is widespread, the factories and refineries could provide jobs on an unprecedented scale, not unlike the special economic zones that China and Vietnam set up in recent decades..."

Click on title to full link. Worth a read.

Nice Op-Ed piece on Ireland

Good piece by Wolfgang Munchau,a Financial Times (FT) columnist who writes regularly on eurozone issues. You may need to register to get (free but temporary) access but it is worth doing. FT does a good job and is well worth reading.