We are apprehensive about this afternoon’s long-bond Refunding auction and are anticipating a tail – assuming that the modest intraday concession isn’t enough of an incentive to attract overseas interest, which tends to be small for the 30-year sector. Refunding 30-years have a long history of tailing and the reduced auction size and subdued energy prices recently haven’t altered that trend. The market is moving into overbought territory and foreign bidding has only averaged 9% at 30s (it’s still a key unknown however), and there is a strong tendency for these auctions to struggle – tailing at five of the last six auctions. Volumes this morning are well below-average in the sector for an auction day at 63% of norms, with a below-average marketshare at 6% vs. 7% norm. That said, between the general flattening trend and interest rate differentials vs. comparable sovereigns the overall non-dealer demand should be strong regardless of the through/tail dynamic.
* 30-year Refunding auctions (i.e. new issues) have met lackluster receptions recently; stopping-through only once during the last six Refunding auctions for 1.5 bp in November vs. average tails of 1.8 bp.
* Overseas accounts have been slipping in recent 30-year Refunding auctions taking 9% during the last four vs. 12% at the prior four.
* Investment fund buying has jumped to 53% or $8.4 bn during the last four Refunding auctions vs. 45% or $7.2 bn in the prior four.
* Technicals are bullish with stochastics suggesting lower yields, but they are quickly edging towards overbought territory. For resistance we see the bottom of this week’s yield range at 2.563% with the low yield close at 2.581% as well. Beyond there is the Bollinger bottom at 2.538%. For support, we have the intraday yield peak at 2.621% and then the 40-day moving-average at 2.634%.
Posted in Uncategorized | Comments Off on Long Bond Auction
This will be successive research notes from Stephen Stanley of Amherst Pierpont Securities regarding the claims data released this morning.
Post Number One:
Finally, a little intrigue in the jobless claims data. The number of new filers jumped by 20,000 to 294,000 (on top of a 17K rise last week), the highest reading in over a year. However, before you get excited, I would caution that the odds that the labor market is falling apart and that layoffs are accelerating rapidly are extremely slim. There is little to no indication that labor demand are weakening, so even if I did not have an explanation ready at hand, I would be skeptical. However, in fact, I do have an explanation (and I am kicking myself for not checking on this beforehand and forecasting accordingly). New York City schools were off for spring break in the week of April 25, and as I laid out back in February, when NYC schools had their winter break, every year, when NYC schools are out, there is a blip in claims. The story is that non-teacher school employees (bus drivers, cafeteria workers, etc.) are somehow permitted to file for unemployment when schools are closed for a week or two (your tax dollars at work). Since the timing of the breaks swings around from year to year, the seasonal adjustment process is unable to properly take this special factor into account. In any case, of the 18K increase in initial claims nationally on a not seasonally adjusted basis in the latest week, almost 15K comes from New York, close to doubling the number of new filers in the Empire State from one week to the next. Look for this bulge to unwind next week, and for initial claims to move back to the prevailing range. So, my advice would be to take a page from Kevin Bacon in Animal House: “Remain calm, all is well.”
Post Number Two:
Apparently, there is quite a debate going on among the wonks over the cause of the spike in New York claims this week. I gave my story before, and I am sticking to it. But for those detail-oriented people who want to know more than they ever imagined about New York unemployment law, read on. For everyone else, you can skip to the last paragraph.
In New York state, “non-professional” school employees (teachers’ aides, cafeteria workers, bus drivers, etc.) are permitted to file for claims during school vacation weeks, between terms, etc. This phenomenon has led to a one-week upward blip in claims every spring for the past several years. This year, New York City schools (obviously, the largest school district in the state by far) had a winter break in February and a spring break in the last week of April. The winter break occurred from February 15 through February 19, and the week ended February 27 (i.e. the next week), initial claims in the state of New York jumped from 18K to 34.7K in a single week and then fell to 17K in the following week. Similarly, the NYC schools spring break occurred in the week of April 25-29. Voila, initial claims in NY for the week ended May 7 (again, the following week) jumped for 18.5K to 33K. I would bet my lunch that they will slide back to “normal” next week.
Others have pointed to the Verizon strike. My first reaction was that strikers can’t possibly file for unemployment. After all, that would be ridiculous (even more ridiculous than allowing workers to file for unemployment during one-week school vacations). But again, the state of New York actually allows for that as well. However, workers have to wait for 49 days before filing (don’t ask how they came up with 49 – I have no idea). So, Verizon workers in New York actually can file for benefits (though they wouldn’t actually collect until the beginning of June). Still, the Verizon strike began April 14. Why would workers have held off for several weeks and then suddenly filed en masse in the first week of May? It is possible this happened but not very likely. Moreover, though I tried, I was unable to get a state-by-state breakdown of the 36K Verizon strikers, but I don’t even know if at least 15K of them work in NY (the strikers reside throughout the northern half of the East Coast).
So, I am sticking with the school break argument. But the bottom line is that, in either case, the rise in claims has nothing to do with broader economic fundamentals, and for all but the very curious, that’s all that you need to know.
The Eurozone reported much weaker than expected March IP
The Norges Bank kept rates steady at 0.50%, as expected
Japan reported March current account data
After a nearly 24-hour debate, Brazil’s Senate just this morning voted to continue the impeachment process
Philippine central bank kept rates steady at 4.0%, as expected; Peru’s central bank meets and is expected to keep rates steady at 4.25%
The dollar is mixed against the majors. The Norwegian krone and the Swiss franc are outperforming, while the Aussie and the yen are underperforming. EM currencies are mostly softer in narrow ranges. MXN, KRW, and ZAR are outperforming while SGD, RON, and CNY are underperforming. MSCI Asia Pacific was down 0.3%, despite the Nikkei rising 0.4%. MSCI EM is flat, with Chinese markets basically flat on the day too. Euro Stoxx 600 is up 0.5% near midday, while S&P futures are pointing to a higher open. The 10-year UST yield is up 1 bp at 1.75%. Commodity prices are mostly higher, with oil up 1% and copper up 0.5%.
The Bank of England decision will be out shortly. The quarterly inflation report will be presented at the end of the MPC meeting. At the same time that price pressures are beginning to increase, the UK economy is slowing. The April PMIs uniformly warn that the slowdown has bled into the start of Q2. The last dissent from the BOE was for an immediate hike. A dovish dissent now would be as surprise and lead to an immediate fall in sterling. Governor Carney will hold a press conference afterwards.
The Eurozone reported much weaker than expected March IP. It fell 0.8% m/m vs. median expectations for a flat reading. Weakness was not surprising given the weak reports already seen from Germany and France, but the magnitude is noteworthy. Yet, the ECB is likely on hold until Q3, as its package of measures have yet to really have an opportunity to impact the data yet.
The Norges Bank kept rates steady at 0.50%, as expected. Norway also reported Q1 GDP data at the same time as the Norges Bank decision, with GDP coming in stronger than expected. Overall GDP rose 1.0% q/q vs. 0.1% expected, while mainland GDP rose 0.3% q/q vs. 0.2% expected. Norges Bank is no hurry to move again cutting the deposit rate by 25 bp to 0.50% in March. CPI inflation reported earlier this week is steady in the low 3% area.
Elsewhere, Sweden reported slightly weaker than expected April CPI data. Headline CPI rose 0.8% y/y vs. 0.9% expected, while underlying inflation rose 1.4% y/y vs. 1.5% expected. Here too, the Riksbank is likely on hold for the time being after the larger than expected rate cut back in February to -0.50%.
Japan reported March current account data overnight. The March current account surplus is often larger than the February surplus, but the increase to JPY2.98 trln lifted to it near record highs. It was expected to rise to JPY2.966 trillion. The trade surplus does not drive the current account surplus, investment income does. However, the trade surplus more than doubled (month-over-month) to JPY927 bln.
Japan officials continue to jawbone. This time, it was BOJ Governor Kuroda’s turn. He called the ECB’s negative rate loan program was “extremely bold and unique.” There have been press reports that the BOJ was mulling a similar loan program. He added that Japan interest rates can technically go as low as the ECB’s.
Dollar/yen continues to have trouble breaking above the 109.30-40 area. A clean break above 109.50 is needed to set up a test of the April 28 high near 112. That was the pre-BOJ high, when the central bank then disappointed markets with no additional stimulus measures. The euro remains stuck around $1.14, while cable has been unable to break below $1.44.
During the North American session, the US reports weekly jobless claims and April import price index. Fed speakers include Mester, Rosengren, and George.
After a nearly 24-hour debate, Brazil’s Senate just this morning voted to continue the impeachment process. While only a simple majority was needed in the 81-seat Senate, the vote was an overwhelming 55-22 in favor. President Rousseff must now step down temporarily while Vice President Temer assumes power. The Senate now has 180 days to hold the impeachment trial. The new cabinet will be announced today at 4 PM local time. Many market-friendly names have been floated, so we do not expect any surprises. What next? Brazil assets may see some knee-jerk gains today, but so much good news has been priced in that it’s hard to get bullish at current asset price levels.
Philippine central bank kept rates steady at 4.0%, as expected. It has been on hold since its last 25 bp hike to 4.0% back in September 2014. CPI rose 1.1% y/y in April, well below the 2-4% target range. Given how low inflation is, the bank will have leeway to cut rates if the economy slows this year. For now, with political uncertainty heating up under President-elect Duterte, the central bank is right to emphasize stability and sensible monetary policymaking.
India reports April CPI and March IP. CPI is expected to rise 5.05% y/y vs. 4.83% in March, which was the lowest since September and well within the 2-6% target range. RBI restarted the easing cycle with a 25 bp cut in the repo rate last month to 6.5%. The RBI issued a fairly dovish statement after that cut, hinting that it is looking for further room to ease. If price pressures remain low, another cut at the next RBI meeting June 7 is possible.
Peru’s central bank meets and is expected to keep rates steady at 4.25%. It has been on hold since the last 25 bp hike to 4.25% in February since inflation is moderating, with CPI up 3.9% y/y in April. That’s the lowest since October but still above the 1-3% target range. The latest Bloomberg survey shows median expectations for only one 25 bp hike in Q2 and less than one 25 bp hike in H2.
IG CREDIT: Trading Steady, Takes Back Seat to Heavy Issuance
2016-05-12 10:00:11.263 GMT
By Robert Elson
(Bloomberg) — Secondary IG trading ended with a Trace
count of $17.1b vs $17.4b Tuesday, $17.9b last Wednesday.
* 10-DMA $15.5b; 10-Wednesday moving avg $19.1b
* 144a trading added $2.2b of IG volume vs $2.4b on Tuesday,
$2.6b last Wednesday
* The most active issues:
* JPM 2.70% 2021; client selling 25x buying, together
accounting for 68% of volume
* COF 4.20% 2025; client flows took 100% of volume on just
2 large tickets, a buy and a sale
* MMC 3.50% 2024; client flows took 100% of volume with
just 2 large tickes, a buy and a sale
* KHC 4.375% 2046 was most active 144a issue; client selling
near twice buying
* Bloomberg US IG Corporate Bond Index OAS at 156.0 vs 155.6
* 2016 high/low: 220.8, a new wide since Jan. 2012/150.8
* 2015 high/low: 182.1/129.6
* 2014 high/low: 144.7/102.3
* BofAML IG Master Index at +157 vs +156
* 2016 high/low: +221, the widest level since June
2012/+152
* 2015 high/low: +180/+129
* 2014 high/low: +151/+106, tightest spread since July
2007
* Standard & Poor’s Global Fixed Income Research IG Index at
+202 vs +201
* +262, the new wide going back to 2013, was seen
2/11/2016
* The widest spread recorded was +578 in Dec. 2008
* S&P HY spread at +690 vs +693; +947 seen Feb. 11 was the
widest spread since Oct. 2011
* All time wide was +1,754 in Dec. 2008
* Markit CDX.IG.26 5Y Index at 82.1 vs 80.4
* 73.0, its lowest level since August was seen April 20
* 124.7, a new wide since June 2012 was seen Feb. 11
* 2014 high/low was 76.1/55.0, the low for 2014 and the
lowest level since Oct 2007
* IG issuance totaled $10.8b Wednesday vs $9.975b Tuesday,
$25.6b Monday, the 2nd highest issuance session YTD
* Note: subscribe bar in upper left corner
* May now stands at $75.75b
* YTD IG issuance now $669; YTD sans SSA $549b
* Pipeline – 3 Set to Price, Expect Domestics to Be Added
Posted in Uncategorized | Comments Off on Corporate Bond Stuff
IG CREDIT PIPELINE: 3 Set to Price, Expect Domestics to Be Added 2016-05-12 09:38:55.424 GMT
By Robert Elson (Bloomberg) — Set to price today:
* European Bank for Reconstruction & Development (EBRD) Aaa/AAA, to price $500m Global 3Y FRN, via managers BMO/TD; IPT 3ML +11 area * Australia & New Zealand Banking Group (ANZ) A3/BBB+, to price $bench 144a/Reg-S Subordinated Tier 2 10Y, via ANZ/C/HSBC/JPM; IPT +High-200s * ICBC Finance (ICBCIL) na/A-, to price $bench 144a/Reg-S 3- part deal, via ANZ/BAML/C/GS/HSBC/ICBC/MS/WFS * 3Y, IPT +170 area * 5Y, IPT +180 area * 10Y, IPT +210 area
LATEST UPDATES
* Dell/EMC Baa3/BBB-, to price 6-part 144a/Reg-S deal next week * 3Y, 5Y, 7Y, 10Y, 20Y, 30Y * Managers: Barc/BAML/C/CS/GS/JPM * Reported plans to sell series of 1st Lien notes * Investor calls set for May 11-13 * Statoil (STLNO) Aa3/A+, files debt shelf; last issued USD Nov. 2014 * Kallpa Generacion (KALLPA) Baa3/na/BBB-, mandates managers for investor meetings May 12-18; 144a/Reg-S deal may follow * Ford Motor Credit (F) Baa2/BBB; may have ~$7b+ issuance left this yr (May 10) * Apple (AAPL) Aa1/AA+, may return to market this week * It priced $12b in 9 parts Feb. 16 * Re-opened 3 of the above issues for $3.5b March 17 * Merck & Co (MRK) A1/AA; has not priced a new issue since Feb. 2015, has $1.5b maturing May 18 * General Electric Company (GE) A3/AA-, has yet to issue YTD; parent GE Co has $11.1b maturing this year, including $2.3b this week
* Southern (SO) Baa1/A-; sees $8b issuance this yr (April 27) * Wal-Mart (WMT) Aa2/AA; 2 maturities in April (April 1) * Con Edison (ED) A3/A-; sees $1b-$1.5b l-t issuance (Feb 18) * GE (GE) A1/AA+; $25b debt possible for M&A, buybacks (Jan 29)
Posted in Uncategorized | Comments Off on Credit Pipeline
US Rates Strategy – Swap Spreads: Getting Ready to Go Long
·May typically tends to be a heavy month for issuance of high grade corporate, SSA and GSE paper with Q1 earning season in the rearview mirror and ahead of the summer slowdown. May tends to account for approximately 10% of total annual issuance, coming in just a hair lower than the busiest months of March and September over the last 5 years. We expect May 2016 to exhibit a similar pattern and perhaps even stronger, as issuers pull forward supply ahead of the UK referendum.
· We believe issuance impacts swap spreads in a nonlinear fashion and a more granular analysis shows that large issuance weeks do tend to be accompanied by tightening in swap spreads. Counterintuitively, intermediate swap spreads tend to exhibit a seasonal widening bias in May. The monthly analysis nevertheless masks the intra-month impact of issuance on spreads. Typically, the first half of May is accompanied by tightening in swap spreads, which is subsequently more than reversed in the second half of the month.
·Swap spreads have been tightening over the past week as the market gets ready for a heavy issuance month. We see value in legging into tactical 10yr swap spread wideners around –17bp. Historically, swap spreads have widened 3-4bp in the second half of May as issuance slows down into the Memorial Day holiday.
Priya Misra, Gennadiy Goldberg, Cheng Chen
Posted in Uncategorized | Comments Off on Wider Swap Spreads Ahead
Obama, Bush faced contractions in first year in office
Summers sees significant chance of downturn within three years
Talk about a poisoned chalice. No matter who is elected to the White House in November, the next president will probably face a recession.
The 83-month-old expansion is already the fourth-longest in more than 150 years and starting to show some signs of aging as corporate profits peak and wage pressures build. It also remains vulnerable to a shock because growth has been so feeble, averaging just about 2 percent since the last downturn ended in June 2009.
“If the next president is not going to have a recession, it will be a U.S. record,” said Gad Levanon, chief economist for North America at the Conference Board in New York. “The longest expansion we ever had was 10 years,” beginning in 1991.
The history of cyclical fluctuations suggests that the “odds are significantly better than 50-50 that we will have a recession within the next three years,” according to former Treasury Secretary Lawrence Summers.
Michael Feroli, chief U.S. economist for JPMorgan Chase & Co. in New York, puts the probability of a downturn during that time frame at about two in three.
The U.S. doesn’t look all that well-equipped to handle a contraction should one occur during the next president’s term, former Federal Reserve Vice Chairman Alan Blinder said. Monetary policy is stretched near its limit while fiscal policy is hamstrung by ideological battles.
Previous Decade
This wouldn’t be the first time that a new president was forced to tackle a contraction in gross domestic product. The nation was in the midst of its deepest slump since the Great Depression when Barack Obama took office on January 20, 2009. His predecessor, George W. Bush, started his tenure as president in 2001 with the economy about to be mired in a downturn as well, albeit a much milder one than greeted Obama.
The biggest near-term threat comes from abroad. Former International Monetary Fund official Desmond Lachman said a June 23 vote by the U.K. to leave the European Union, a steeper-than-anticipated Chinese slowdown and a renewed recession in Japan are among potential developments that could upend financial markets and the global economy in the coming months.
“There’s a non-negligible risk that by the time the next president takes office in January you would have the world in a pretty bad place,” said Lachman, who put the odds of that happening at 30 percent to 40 percent.
Investors also might get spooked if billionaire Donald Trump looks likely to win the presidency, considering his staunchly protectionist stance on trade and a seemingly cavalier attitude toward the nation’s debt, added Lachman, now a resident fellow at the American Enterprise Institute in Washington.
Election-Year Jitters
Uncertainty about the election’s outcome may already be infecting the economy at the margin, with companies and consumers in surveys increasingly citing it as a source of concern.
“The views expressed by the various candidates have weighed down” consumer confidence, said Richard Curtin, director of the University of Michigan’s household survey, which saw sentiment slip for a fourth straight month in April.
With growth so slow — it clocked in at a mere 0.5 percent on an annual basis in the first quarter — it wouldn’t take that much to tip the economy into a recession.
“It’s like a bicycle that’s going too slowly. All it takes is a little puff of wind to knock it over,” said Nariman Behravesh, chief economist for consultants IHS Inc. in Lexington, Massachusetts.
The economy still has some things going for it, leading Behravesh to conclude that the odds of a downturn over the next couple of years are at most 25 percent.
“Recoveries don’t die of old age,” he said. “They get killed off. And the three killers that we’ve had in the past don’t seem terribly frightening right now.”
The murderers’ row consists of a steep rise in interest rates engineered by the central bank, a sudden spike in oil prices and the bursting of an asset-price bubble. This time around, Fed policy makers have signaled they’re going to raise rates slowly, the oil market is still awash in excess supply and house prices by some measures remain below their 2007 highs.
“The expansion can continue for several more years,” Robert Gordon, a professor at Northwestern University in Evanston, Illinois, and a member of the committee of economists that determines the timing of recessions, said in an e-mail.
Balance Sheets
Consumers’ balance sheets are in much better shape than they were prior to the last economic contraction. Household debt as a share of disposable income stood at 105 percent in the fourth quarter, well below the 133 percent reached in the final three months of 2007.
Businesses seem more vulnerable. Corporate profits plunged 11.5 percent in the fourth quarter from the year-ago period, the biggest drop since a 31 percent collapse at the end of 2008 during the height of the financial crisis, according to data compiled by the Commerce Department.
History shows that when earnings decline, the economy often follows into a recession as profit-starved companies cut back on hiring and investment.
“More and more employers are struggling with profits,” Levanon said. “That is resulting in some belt tightening.”
While he doesn’t see that pushing the U.S. into a recession, Levanon expects monthly payroll growth to slow to 150,000 to 180,000 over the balance of this year, compared to an average of 229,000 in 2015.
Though much of the weakness in earnings has been concentrated in the energy industry, companies in general have been struggling with rising labor costs as the tightening jobs market puts upward pressure on wages and worker productivity has lagged.
Peter Hooper, chief economist for Deutsche Bank Securities in New York, sees that leading to a possible recession a couple of years out as companies raise prices, inflation starts to accelerate and Fed policy makers have to jack up interest rates more aggressively in response.
“The slower they go in the near-term, the bigger the risk down the road,” he said of the Fed. “Looking out over the next four years, the chances of a two-quarter contraction are probably above 50 percent.”
Posted in Uncategorized | Comments Off on Business Cycle Dynamics
Treasury 10-year sale sees record demand from indirect bidders
Buyers also pounce on debt from Spain, Portugal, companies
Whether you’re a government or a company in Europe, the U.S. or Asia, it’s a great time to sell bonds. Around the world, bidders are snapping up almost anything with a yield.
Auctions of long-term debt by the U.S., Spain and Portugal all drew strong demand Wednesday, with the Treasury sale seeing unprecedented appetite from one class of investors. Japan sold 30-year notes Thursday at a record-low 0.319 percent. Buyers are also clamoring for company bonds, in a week that may be the busiest this year for corporate borrowing in the U.S. and Europe.
The driving force behind the bond binge is the growing universe of negative-yielding securities, which has expanded above $9 trillion since the European Central Bank and Bank of Japan cut interest rates below zero. JPMorgan Chase & Co. predicts that, with the supply of debt falling, conditions in the global bond market will be so favorable in 2016 that record-low yields are probably in store.
“In a yield-starved world, where a significant percentage of global government debt is yielding zero or something less, investors are reaching for yield by extending maturities, buying credit, or some combination thereof,” said Colin Lundgren, head of fixed income in Minneapolis at Columbia Threadneedle Investments, which managed about $470 billion as of Dec. 31.
Risk-Reward
On the one hand, the reach to pad returns shows that central banks’ efforts to push investors into riskier investments have been successful. But the phenomenon also means buyers are increasingly vulnerable to corporate defaults, or to rising interest rates. For the latter, that’s because debt with higher duration, such as obligations with longer maturities, suffers steeper losses when interest rates rise.
The broad global bond market’s effective duration reached an all-time high this month, according to Bank of America Merrill Lynch Indexes. That leaves investors at risk if views on the path of the Federal Reserve change. Traders are essentially counting out another Fed interest-rate increase for the time being — futures don’t fully reflect the next hike until August 2017, according to data compiled by Bloomberg.
“In the very near-term, rightly or wrongly, no one is really afraid of the Fed,” Lundgren said. It’s increasingly important to “do the research and make sure there is value by extending maturities or buying credit. This too shall pass, but maybe not anytime soon.”
Treasuries Frenzy
The demand is buoying government borrowers. Fund managers, global central banks and other institutions piled into an auction of 10-year U.S. debt Wednesday. Those who bought through primary dealers, classified as indirect bidders, picked up a record share of the sale. The benchmark notes were sold at the lowest yield in more than three years, at levels that firms including Goldman Sachs Group Inc. deem expensive.
“There’s clearly a lot of demand any time you can get something with positive yield,” said Kathy Jones, chief fixed-income strategist at Charles Schwab & Co. in New York. “If you’re a buy-and-hold investor, you might as well — every chance you get.”
A pair of European countries took the opportunity to lock in low long-term borrowing costs. Portuguese bonds outperformed most of their euro-area peers on Wednesday after the nation exceeded its target at a sale of 10-year securities.
Ultra-Long Fervor
Spain sold 50-year bonds, joining the trend of governments offering ultra-long European debt, seen in France and Belgium last week. Orders for Spain’s securities surpassed 10.5 billion euros on 3 billion euros of issuance. Italy’s debt agency said in a statement Tuesday that it was evaluating demand for a possible 50-year sale.
Japan had no problem selling 30-year bonds Thursday even after they were called the “most overpriced security on the face of the Earth” by hedge fund executive Adam Fisher.
All Japanese debt maturing in 15 years or less has negative yields. The Asian nation’s money managers bought a net 4.95 trillion yen ($45.5 billion) of U.S. sovereign bonds in March, a record high in data compiled since 2005.
In the U.S., companies with investment-grade ratings sold $7.8 billion of debt Wednesday, bringing total issuance past $41 billion this week. It’s on pace to approach or even exceed the $63 billion raised in the five-day period ended Jan. 15, the busiest week this year. In Europe, American companies including Johnson & Johnson and Kraft Heinz Co. brought multibillion dollar deals in euros, putting corporate debt issuance there within reach of a weekly record.
“There is a lot of cash ready to be put to work,” said David Brown, head of global investment-grade credit at Neuberger Berman, which manages $243 billion. “People aren’t afraid to spend money on these new deals right now.”
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More than four-fifths of America’s metropolitan areas have seen household incomes decline this century, according to new research that exposes the politically charged reality of middle-class decline at the heart of this year’s presidential election.
The research on urban centres that are home to three-quarters of the US population shows that median household incomes, adjusted for the cost of living in the area, grew in just 39 out of 229 metro areas between 1999 and 2014.
The figures, prepared by the non-partisan Pew Research Center and shared with the Financial Times, cast light on the drivers of the economic discontent that have fuelled the rise of Donald Trump, the likely Republican nominee, and Bernie Sanders, the challenger to Democratic frontrunner Hillary Clinton.
Both men’s campaigns have tapped into deep-seated concerns among middle class voters on the right and the left. Pew’s research illuminates one source of that anxiety and raises questions about even some of America’s most celebrated economic success stories.
They reveal a steady erosion of the middle class across the map of America, with 203 out of the 229 metro areas experiencing a decline in the share of their populations that are middle income. At the same time, 172 metro areas saw increases in the share of their population that is upper-income, and 160 saw a rising lower-income share.
“We find the shrinking of the American middle class was a pervasive local phenomenon from 2000 to 2014,” said Rakesh Kochhar at Pew. “In that sense American communities share common ground — they are reflecting the national trend.”
Middle-income Americans are defined by Pew as adults who earn two-thirds to double the national median, adjusted for household size.
The drivers of the middle-class squeeze vary from city to city, but some of the steepest income declines were seen in cities hit by industrial job losses in recent decades. Springfield, Ohio, saw incomes fall 27 per cent over the period, while the Detroit-Warren-Dearborn area of Michigan recorded an 18 per cent drop in incomes. Nationwide the number of manufacturing jobs shrank 29 per cent during the current century.
Oil towns in Texas and other states that experienced fracking booms saw some of the strongest growth in income — but those stories have suffered a major blow more recently with the commodity-price slide.
Even in cities celebrated for their economic reinvention as new centres of the so-called knowledge economy such as Raleigh, North Carolina, and Austin, Texas, the Pew research found median incomes falling and a shrinking middle class.
The area around Denver, Colorado, has attracted more than 600,000 new people since the turn of the century and almost 40 per cent of the population now wield university degrees. But adjusted for inflation the median income for a household of three fell from almost $83,500 in 1999 to just under $76,000 in 2014.
The winners in terms of upward income mobility, measured by changes in the share of the population who were upper, middle and lower income, include oil cities such as Odessa and Midland, Texas, and the prosperous tourist destination of Barnstable Town, Massachusetts.
Pew found that many of the metro areas with relatively low median incomes — below $60,000 — were in the southern half of the US and California. The higher end of the income spectrum — where incomes were greater than $70,000, included areas on both coasts, including Seattle-Tacoma-Bellevue in Washington state and Boston-Cambridge-Newton, in Massachusetts.
The fortunes of Springfield, Ohio, reflect the impact of lost manufacturing jobs, a trend that was under way before the period studied. The area hosts a major truck assembly plant owned by Navistar that recently boosted its investment in the area, but the facility still employs thousands fewer workers than at its employment height, local officials say.
Today the biggest employers included a call-centre, said Springfield mayor Warren Copeland. “We have created as many jobs as we lost, but many of the jobs replacing those are ones that pay less,” he said. Springfield has been recovering since the recession, he added, but the task now is to attract better-paying jobs by retaining college graduates and boosting local education.
Via the WSJ:
By Summer Said
Updated May 12, 2016 4:39 a.m. ET
Iran’s oil production has risen faster than expected, reaching levels not seen since before Western sanctions were tightened in 2011, but a global oversupply of crude is still shrinking, the International Energy Agency said Thursday.
Iran increased daily oil output by 300,000 barrels in April to 3.56 million barrels a day, a level last achieved before sanctions were tightened, the IEA said in its closely watched monthly oil-market report.
Exports reached 2 million barrels a day, a dramatic increase from the 1.4 million barrels seen a month earlier, but the rise may have been due to loadings that spilled over from March, the Paris-based agency said.
Despite the stronger return of Iran’s oil, global oil markets are moving close to balance in the second half of the year as lower prices take their toll on production outside OPEC.
Global oil stocks will diminish to 200,000 barrels a day in the last six months of the year from 1.3 million in the first half, it said. Production outside the Organization of the Petroleum Exporting Countries will decline by 800,000 barrels a day this year, the adviser to industrialized nations said.
It said it remained confident that world daily fuel consumption will increase by 1.2 million barrels in 2016.
OPEC’s April output rose by 330,000 barrels a day in April to 32.76 million barrels per day on higher supplies from Iran, Iraq and the United Arab Emirates, which more than offset outages in Kuwait and Nigeria, the IEA said.
Saudi Arabia’s output was steady in April near 10.2 million barrels a day, it said.
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