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Grzegorz Bielajew, a 22-year-old bricklayer, may help push the Polish central bank to raise borrowing costs to the highest in more than two years before the end of 2011.
Bielajew is one of 400,000 Poles gearing up for the opening of the German labor market, which will give the workers unlimited access to Europe’s largest economy almost a quarter of a century after the fall of the Berlin wall, advancing Poland’s economic integration into the European Union.
The risk for policy makers in Warsaw is that an exodus of workers will make it harder for employers to find staff, pushing up wages for those who stay behind, fueling inflation, according to policy makers and economists.
“We are going to see the first impact on unit labor costs, wages and inflation from the latter part of this year or the beginning of next year,” said Michal Dybula, an economist at BNP Paribas SA in Warsaw who expects the benchmark rate to rise to 4.25 percent by the end of 2011 from 3.75 percent. “That is essentially the moment when policy makers should be factoring this into monetary policy.”
The Narodowy Bank Polski yesterday left borrowing costs unchanged following an increase in January, the first since 2008. Investors expect the benchmark rate to rise 0.75 basis points to 4.5 percent by the end of the year, forward-rate agreements show. Labor-market developments are “an area of special concern” for policy makers, central bank Governor Marek Belka told reporters after the rate decision.
Increased Hiring
Rising demand in Germany, fueled by sales to faster-growing economies including China, boosts orders for Polish companies, which supply components to German exporters. Employers increased hiring by 3.8 percent in January from a year earlier, the fastest annual growth since September 2008.
Germany and Austria open their labor markets for workers from 10 eastern European countries on May 1, when their seven- year permission to restrict jobseekers expires. German unemployment fell to an 18-year low of 7.4 percent in January as companies stepped up hiring to meet foreign demand for goods including cars and machinery.
“We must anticipate some shrinking of the workforce when Germany and Austria open their labor markets in May 2011,” rate setter Jerzy Hausner said on Nov. 23, confirming the comment in an Feb. 25 e-mail. “Capacity utilization in industry is already high and we appear to be on the verge of an investment boom. All these are threats that we must react to preemptively.”
No ‘Clear Signals’
Governor Belka said last week that there is no need for immediate reaction to accelerating inflation as long as there are no “clear signals” of wage pressure.
The average corporate wage in Poland, a country of 38 million people, has risen by 45 percent since its membership in the EU to 3,391 zloty ($1,177), or about a third of Germany’s average monthly salary totally free credit score. The government estimates 3.7 percent wage growth this year.
The decision to refrain from raising borrowing costs yesterday may signal a lack of concern in the central bank that the labor-market opening will stoke inflation, said Kieran Curtis, who helps manage about $2 billion in emerging-market debt at Aviva Investors in London.
“The central bank hasn’t been very proactive,” he said by phone. “If they were going to be very proactive, they might have raised rates” yesterday.
After 2004, when most EU countries opened their labor markets for the citizens of the former communist countries that joined the bloc, as many as 2 million Polish workers migrated west according to the Labor Ministry.
400,000 Poles
The number of Poles now seeking work west of the border may reach 400,000, the authorities in Warsaw estimate. The number may be as high as half a million by 2015, according to BNP Paribas SA.
“The wave of migration from Poland will be weaker this time but unfortunately the effects for the economy will be worse,” said Krystyna Iglicka, a demographer at the International Relations Centre in Warsaw. “Today, the unemployment rate is much lower than six years ago, so people who are now working in Poland will simply leave their jobs.”
Bielajew, who currently makes 20 zloty ($6.75) per hour in the border town of Zgorzelec, decided to take advantage of the opening labor market after he found out that the minimum wage for identical job in eastern Germany is 9.25 euros ($12.75) in adjoining Goerlitz.
“It takes me only 20 minutes to cross the border on foot so I’m not going to waste this opportunity to finance Polish costs of living with a German salary,” he said.
Labor Shortage
Companies in Germany plan to hire as many as 300,000 workers this year, according to a survey of 28,000 firms by the DIHK industry and trade chambers group last month. Machine and electrical companies may add 80,000 jobs, the DIHK said.
About 40 percent of Polish companies expect hiring to become more difficult after May 1, when Germany and Austria lift restrictions on immigrant employment, according to a survey by online job center Pracuj.pl.
“The opening of this job market and the absence of two million Poles who left the country after 2004 may have disastrous impact on economic growth,” Association of Polish Employers, which represents more than 7,000 companies employing about 3 million workers, said on its website.
World stock markets were mixed Friday, as benchmarks in Asia followed Wall Street’s upward lead but shares in Europe stalled.
Oil prices hovered above $86 a barrel as violent protests in the Middle East kept investors on edge about possible crude supply disruptions. In currencies, the dollar rose against the yen and the euro.
European bourses were mixed in early trading. Britain’s FTSE 100 was down 1.3 percent to 6,085.86, while Germany’s DAX was flat at 7,400.64. France’s CAC-40 rose 0.2 percent to 4,158.40.
In New York, Dow Jones industrial futures were up 7 points to 12,295 and S&P 500 futures rose marginally to 1,338.30 ahead of the opening bell.
Japan’s Nikkei 225 stock average rose 6.16 points to close at 10,842.80 _ ending at a 10-month high for the fifth session in a row, thanks in part to a growing appetite among foreign investors for Japanese shares. But a reinvigorated yen dragged down some exporters _ notably Toyota Motor Corp., down 0.6 percent; Hitachi Corp., down 0.4 percent; and Sony, lower by 0.7 percent.
South Korea’s Kospi jumped 1.8 percent to 2,013.32 with tech shares among the day’s best performers, including Samsung Electronics, up 0.6 percent and Hynix Semiconductor Inc. up 1 percent.
Benchmarks in Taiwan, Singapore and New Zealand also advanced.
“I think the lead overnight from the U.S. was pretty positive,” said Tey Tze Ming, a trader at Saxo Capital Markets in Singapore. “There’s more of a feel-good factor than anything else today” moving the markets.
While anti-government strife across the Middle East was having an impact on oil prices and currencies, Ming said equities were “a little slower to respond” to immediate news; the most recent developments _ including a violent crackdown on demonstrators in Bahrain on Thursday _ were not enough to fluster stock investors.
Meanwhile, China shares struggled amid the release of newly calculated data that showed property prices rose in most cities in January despite renewed efforts to cool the overheated market. Major developer China Vanke Co. Ltd. dropped 1.7 percent.
The National Statistics Bureau figures for 70 of the country’s largest cities showed prices declining from a year earlier in only two cities and unchanged in five. Compared with December, 10 cities saw increases of 10 percent or more. The benchmark Shanghai Composite Index dropped 0.9 percent to 2,899.79 while the Shenzhen Composite Index for China’s smaller, second market was down 1 percent at 1,273.42.
India’s benchmark Sensex index was also down.
Australia’s S&P/ASX 200 was flat at 4,936.70. Shares of ANZ Banking Group Ltd., one of Australia’s biggest banks, tumbled 3 percent despite reporting a 27 percent rise in first quarter profits. Investors reacted negatively to lackluster lending figures. In all, three of Australia’s four major banks saw stock prices drop.
In New York on Thursday, stocks finished higher after a strong manufacturing report overshadowed a bigger-than-expected rise in the number of people applying for unemployment benefits. Two stocks rose for every one that fell on the New York Stock Exchange.
The Dow Jones industrial average rose 29.97 points, or 0.3 percent, to 12,318.14. The Dow has been rising steadily and is up 3.6 percent for the month. One big gainer was Coca-Cola Co. _ up 1.8 percent after it announced that it increased its dividend.
The broader Standard & Poor’s 500 index rose 4.11, or 0.3 percent, to 1,340.43. The Nasdaq composite rose 6, or 0.2 percent, to 2,831.58.
Benchmark crude for March delivery was down 23 cents at $86.13 a barrel in electronic trading on the New York Mercantile Exchange. The contract rose $1.37 to settle at $86.36 on Thursday.
In currencies, the dollar fetched 83.36 yen, up from 83.33 yen late Thursday. The euro fell to $1.3584 from $1.3604.
Home construction rose at the fastest rate in 20 months, pushed up by a spike in apartment building. But construction of single-family homes declined, a sign that demand for housing remains weak.
Builders broke ground on new homes and apartments at a seasonally adjusted annual rate of 596,000 units, a 14.6 percent jump from December.
Single-family homes, which make up nearly 70 percent of new construction, fell 1 percent to an annual rate of 417,000 units. Multifamily construction, a more volatile category, skyrocketed 80 percent to an annual rate of 171,000 units.
Last year, builders worked on 587,600 new homes, just barely better than the 554,000 started in 2009. In a healthy economy, builders start about 1 million homes a year. The housing industry is coming off the worst two years for home construction dating back to 1959.
Snowstorms that fell in most parts of the country likely slowed some construction last month. But Michael Gapen, senior U.S. economist with Barclays Capital, said home building is unlikely to see a turnaround until builders can sell off most of the homes sitting idle on the market and there are fewer foreclosures to compete with.
Economists are watching the pace of multifamily construction, which includes housing with five or more units, to see if it continues to rise throughout 2011.
“If the home ownership rate is falling back to normal levels, it’s fair to say we’d see an increase in rentals,” Gapen said. “That’s something we’re all watching but multifamily is very volatile and we will want to wait a few months to see where it goes.”
Millions of foreclosures have forced home prices down and more are expected this year. Tight credit has made mortgage loans tough to come by. And some potential buyers who could qualify for loans are hesitant to enter the market, worried that prices will fall further.
Building permits, an indicator of future construction, fell more than 10 percent in January. Code changes in California, Pennsylvania and New York caused an artificial spike the month before. Builders in those states rushed to file new permits before those changes went into effect in the new year.
The flat-lined housing market is weighing on the overall economic recovery. Each new home built creates, on average, the equivalent of three jobs for a year and generates about $90,000 in taxes, according to the National Association of Home Builders.
Single-family home construction was uneven across the country, falling 12.8 percent in the Northeast and 7.7 percent in the South. It jumped 5.4 percent in the West and 25.5 percent in the Midwest.
The trade association reported Tuesday that its index of builder confidence remained stuck at 16 in February, where it has been for four straight months. A reading of 50 signifies a positive outlook about the future.
The violence in Egypt is already hurting the country’s tourism industry, and in turn, its economy. It’s also raising fears that other Middle Eastern countries will suffer as well.
Many U.S. travelers have canceled trips to Egypt. Some tour operators are avoiding the country, and Delta Air Lines and EgyptAir suspended flights from the U.S. to Cairo. Stock markets in the Middle East fell sharply during the weekend.
Travelers faced the same question as Rob Solow, who is booked on an Egyptian getaway in February with his wife. “Is it going to be an issue where we are going to have to watch our backs the whole time?”
The Yorktown Heights, N.Y., couple aren’t sure if they’ll make the trip. But Solow said he won’t be going to the Middle East in the future: “I just think it’s a troubled part of the world that’s not necessary to visit.”
The timing of the violence and political uncertainty couldn’t be worse _ winter is the high season for visitors. Large tour operators such as Gate 1 Travel and cruise companies including Norwegian Cruise Line have canceled Egyptian stops. Tours elsewhere in the Middle East haven’t been canceled, but travel agents are getting a steady stream of inquiries about the status of planned trips.
“The ones who haven’t booked are holding off and the ones who have are trying to get out of it,” says Blake Fleetwood, owner of several Cook Travel businesses around New York.
Tourism is a major industry in Egypt, a country that struggles with poverty. It accounts for 5 percent to 6 percent of the country’s gross domestic product, according to several estimates. Egypt is also often a starting point for people exploring Jordan and parts of Northern Africa.
Cairo International Airport is the second-largest airport in Africa after Johannesburg, handling roughly 16 million passengers a year. Most of them _ 15 million a year _ are tourists, according to the Egyptian Tourist Authority in New York.
Investors were clearly concerned the turmoil could spread. Dubai’s major stock market index fell more than 4 percent Sunday, while stocks fell nearly 2 percent in Kuwait and 3 percent in Qatar. Saudi Arabia’s main index rose 2.5 percent, but that was a partial recovery from a 6.5 percent drop on Saturday.
Oil prices spiked 4.3 percent on Friday on fears that the Suez Canal might be closed. Roughly 3,500 oil tankers a year plus thousands of other cargo ships travel through the canal on their way from the Red Sea to the Mediterranean. After the 1967 Arab-Israeli war, the canal was shut down for eight years. A closure today would add 6,000 miles to trips as ships detour around Africa’s Cape of Good Hope. Those trips would risk the threat of attack by Somali pirates.
The region’s real economic power player is Dubai, whose airport saw 47.2 million passengers in 2010, according to the Airports Council International. Government-backed Emirates Airlines has also turned Dubai into the region’s cargo hub and FedEx bases it Middle East operations there.
“To affect the (tourism) industry globally, unrest would need to spread to places like Dubai, which is a major port and air hub. This looks very unlikely,” says Ann Wyman, head of emerging market research at investment bank Nomura in London.
Still, Egypt’s problems follow political strife in Lebanon, Yemen, and earlier this month, Tunisia. That has led to a general wariness about the region.
Airlines from Arab states lining the Persian Gulf were still flying in and out of Cairo. Some have had to rearrange their schedules due to the unrest and curfews put in place by Egyptian authorities. The Mideast’s biggest airline, Emirates, advised passengers to “reconsider nonessential travel” but said it was operating on schedule from its Dubai hub.
John Strickland, a London-based aviation consultant, said the turmoil’s effect on the region’s airline industry is yet to be determined. EgyptAir is likely to suffer most, and Gulf carriers could also face trouble, he said. But Strickland said Emirates in particular has shown it can bounce back following challenges including the Sept. 11, 2001, terror attacks.
It is not clear how long tourists and businesses might avoid the Middle East, and therefore, how much of an impact the situation in Egypt will have on other countries in the area. Jordanian economist Hani Horani said: “Foreign tourists look at the Middle East as one entity and they will avoid traveling to an area they consider unstable.”
Tourism accounts for 14 percent of Jordan’s GDP. Horani thinks its trade with its neighbor Egypt “will be negatively affected by the turmoil,” he said.
Tourism in the Middle East has recovered after wars and unrest in the past. Egypt has had a number of terrorist acts aimed at tourists. A 1997 attack killed 62 people, including 58 tourists at ruins in Luxor’s Valley of the Kings. But the violence hasn’t deterred visitors from coming to see the pyramids, cruise the Nile River and tour Cairo’s markets.
Lebanon’s recent political turmoil is likely to scare off Western travelers. But the Lebanese capital, Beirut, has repeatedly proven repeatedly its resilience, emerging from civil war and conflict with Israel to rebuild and live up to its image as the “Switzerland of the Middle East” _ a reference to the snow-capped mountains as well as its banking laws.
“People’s memories are surprisingly short,” says Janet Moore, owner of Distant Horizons, a Long Beach, Calif., travel agency specializing in the Middle East.
For now, though, many Americans are staying away. Moore predicts that 80 percent of her customers who have already booked trips to Egypt will try to cancel. And she doesn’t expect any calls for new bookings during the next six months. Moore expects travel to the rest of the region, including Israel and Lebanon, to be hurt too.
“People will fear that the whole region will be falling apart,” Moore says. “I think the next year is going to be a quiet one.”
Not everybody is so worried. Malaka Hilton owns Admiral Travel International in Sarasota, Fla., specializing in Egypt. The biggest concern for her clients: a government curfew from 6 p.m. to 7 a.m., essentially trapping tourists in hotels.
One of those clients, Robert Kendis, 67, and his wife Hilary, 55, have been planning a three-week trip to Egypt since May. The Cleveland couple is supposed to fly to Cairo Tuesday but Delta has indefinitely suspended flights. If flights resume, the couple is going.
“This is not a civil war. This is a civil protest concerning their government,” says Robert Kendis, an attorney. “It’s not like they are shooting at each other. It’s not like what you would see in Afghanistan or Iraq.”
Investigative documents in the WikiLeaks probe spilled out into the public domain Saturday for the first time, pointing to the Obama administration’s determination to assemble a criminal case no matter how long it takes and how far afield authorities have to go.
Backed by a magistrate judge’s court order from Dec. 14, the newly disclosed documents sent to Twitter Inc. by the U.S. attorney’s office in Alexandria, Va., demand details about the accounts of WikiLeaks founder Julian Assange and Pfc. Bradley Manning, the Army intelligence analyst who’s in custody and suspected of supplying WikiLeaks with classified information.
The others whose Twitter accounts are targeted in the prosecutors’ demand are Birgitta Jonsdottir, an Icelandic parliamentarian and one-time WikiLeaks collaborator; Dutch hacker Rop Gonggrijp; and U.S. programmer Jacob Appelbaum. Gonggrijp and Appelbaum have worked with WikiLeaks in the past.
Justice Department Matt Miller declined comment on the disclosure in the case, which intensified following WikiLeaks’ latest round of revelations with the posting of classified State Department diplomatic cables. The next day, Nov. 29, Attorney General Eric Holder vowed that anyone found to have violated U.S. law in the leaks would be prosecuted.
Assange said the U.S. move amounted to harassment, and he pledged to fight it.
“If the Iranian government was to attempt to coercively obtain this information from journalists and activists of foreign nations, human rights groups around the world would speak out,” he told The Associated Press in an e-mail.
The demand by prosecutors sought information dating to Nov. 1, 2009, several months before an earlier WikiLeaks release.
Manning is in a maximum-security military brig at Quantico, Va., charged with leaking video of a 2007 U.S. Apache helicopter attack in Baghdad that killed a Reuters news photographer and his driver. WikiLeaks posted the video on its website in April of last year.
In a statement about the demand to Twitter for information, WikiLeaks said it has reason to believe Facebook and Google, among other organizations, have received similar court orders. WikiLeaks called on them to unseal any subpoenas they have received.
The subpoena from the U.S. District Court for the Eastern District of Virginia ordered Twitter to hand over private messages, billing information, telephone numbers, connection records and other information about accounts run by Assange and the others.
A copy of the subpoena, sent to the AP by Jonsdottir, said the information sought was “relevant to an ongoing criminal investigation” and ordered Twitter not to disclose its existence to any of the targets.
But a second document, dated Jan. 5, unsealed the court order. Although the reason wasn’t made explicit in the document, WikiLeaks said it had been unsealed “thanks to legal action by Twitter.”
Twitter declined comment on the matter, saying only that its policy is to notify its users, where possible, of government requests for information.
Neither Facebook Inc. nor Google Inc. immediately returned messages Saturday.
The Obama administration volunteered little new information about its criminal investigation against Assange and WikiLeaks after news of its subpoena leaked. Under rules governing grand jury investigations _ in which U no faxing 1 hour payday loans.S. prosecutors present evidence and testimony to selected private citizens behind closed doors to seek their approval to formally file charges _ government lawyers are not allowed to discuss the case until charges are announced publicly.
It was not immediately clear how the data being requested would be useful to investigators. Twitter’s logs could reveal the Internet addresses that Assange and WikiLeaks supporters have used, which could help track their locations as they traveled around the world. The information also might identify others with official access to WikiLeaks’ account on Twitter who so far have escaped scrutiny.
Assange’s lawyer, Mark Stephens, said targeting Twitter showed how desperate U.S. officials were to pin a crime on the WikiLeaks founder.
Stephens told the BBC it was an attempt to “shake the electronic tree in the hope some kind of criminal charge drops out the bottom of it.”
Jonsdottir said in a Twitter message that she had “no intention to hand my information over willingly.” Appelbaum, whose Twitter feed suggested he was traveling in Iceland, said he was apprehensive about returning to the U.S.
“Time to try to enjoy the last of my vacation, I suppose,” he tweeted.
Gonggrijp praised Twitter for notifying him.
“It appears that Twitter, as a matter of policy, does the right thing in wanting to inform their users when one of these comes in,” Gonggrijp said. “Heaven knows how many places have received similar subpoenas and just quietly submitted all they had on me.”
The news of the subpoena follows months of angry back and forth between U.S. officials and WikiLeaks, which has released reams of secret U.S. military documents on the wars in Iraq and Afghanistan and more recently, thousands of classified U.S. diplomatic cables.
U.S. officials say posting the military documents put informers’ lives at risk, and that revealing diplomatic cables has made other countries reluctant to deal with American officials.
WikiLeaks denies that its postings put any lives at risk and says Washington merely is acting out of embarrassment over the revelations contained in the cables.
WikiLeaks and its tech-savvy staff have relied on American Internet and finance companies to raise funds, disseminate material and get their message out.
WikiLeaks’ frequently updated Facebook page, for example, counts 1.5 million fans and its Twitter account has a following of more than 600,000. Until recently, the group raised donations via U.S. companies PayPal Inc., MasterCard Inc., and Visa Inc., and hosted material on Amazon.com’s servers.
But the group’s use of American companies has come under increasing pressure as it continues to reveal U.S. secrets. PayPal and the credit card companies severed their links with site and Amazon.com booted WikiLeaks from its servers last month.
The actions sparked a cyberfight with WikiLeaks sympathizers, who attacked the company’s sites for days.
Assange is currently out on bail in Britain, where he is fighting extradition to Sweden on sex crimes allegations. His next hearing is scheduled for Tuesday.
Ford has toppled General Motors as Canadian auto industry leader for the first time in more than 50 years.
Oakville-based Ford Motor Co. of Canada Ltd. claimed the title Tuesday after reporting that sales of new cars and trucks jumped 19 per cent to 267,974 vehicles in 2010 from the previous year.
General Motors of Canada Ltd. will release its December and year-end results later in the day but analysts say Ford had built an insurmountable lead throughout the year.
For the first time in at least 13 years, Tokyo Electric Power Co. may sell dollar bonds as falling demand cuts the size of yen-denominated offerings.
Demand for notes of Asia’s largest power company has fallen as the central bank’s policy of near-zero interest rates drove the average yield on five-year AA rated utility debt below that of benchmark government notes for the first time in at least five years. Bond sales by Tokyo Electric, or Tepco, have fallen to an average of about 30 billion yen ($359 million) each this year, from 50 billion yen in 2007 and 2008.
“We want to utilize foreign bond sales as a tool for raising funds,” Chief Financial Officer Masaru Takei said in a Dec. 7 interview in Tokyo. “We like to consider markets such as these because large bond sales are possible.”
Sales of yen-denominated debt by international companies taking advantage of the world’s lowest borrowing costs rose 34 percent this year to 1.74 trillion yen, according to data compiled by Bloomberg. That sent the discount to transfer dollar loans into yen through cross-currency interest-rate swaps to 57 basis points, the biggest advantage in developed markets, and spurred a fourfold gain in dollar bond sales by Japanese companies to $17.6 billion, the data show.
Tepco’s last dollar bond sale was in June 1997, when it raised $500 million of 10-year 7.125 percent eurobonds at a yield 26 basis points more than U.S. Treasuries of similar maturity. A new sale would be the first in the U.S. currency by a non-financial company from Japan since 2007, according to data compiled by Bloomberg.
Narrower Spreads
The yield spread for Tepco’s debt versus Japanese government bonds narrowed in the last year, giving investors less incentive to buy new securities. Ten-year notes Tepco sold this year were priced at 7 to 9 basis points more than government notes, down from as much as 13 basis points in 2009.
The average yield on five-year AA utility debt fell to 9 basis points above benchmark debt on Dec. 22, from 17 at the start of this year, after declining to 0.1 basis point below government yields on Nov. 15, according to Bloomberg data.
Companies raised less money this year even as they increased the number of sales to 457, the most since Bloomberg started keeping records in 1999. Bond sales dropped 16 percent to 9.6 trillion yen from last year’s record 11.4 trillion yen as slumping confidence prompted the 1,664 companies in the Topix Index to cut capital spending in the final three months of 2010, according to data compiled by Bloomberg.
Smaller Sales
Gross domestic product will shrink 1.9 percent this quarter as Prime Minister Naoto Kan’s stimulus spending fades, the government-affiliated Economic Planning Association said this month, citing forecasts from economists. The world’s second- largest economy is struggling to end deflation, an extended decline in prices that deters investment by crimping sales revenue and profit margins.
Tepco, rated Aa2 by Moody’s Investors Service and AA by Standard & Poor’s, sold 30 billion yen of 10-year bonds in September priced to yield 7 basis points more than government securities. The company, which supplies power to 28.6 million customers, raised 235 billion yen in eight domestic sales this year, an average 29 billion yen per issue, the smallest since at least 1999, data compiled by Bloomberg show no credit check payday loans. The average size has declined each year since 2007 when it raised 650 billion yen in 12 offerings, or 54 billion yen per issue.
“The spread on utility bonds is at a historic low,” said Yasunobu Katsuki, Mizuho Securities Co.’s chief credit analyst. “There isn’t as much liquidity with respect to utility debt as there used to be.”
Prepared to Pay
Tepco sold 300 million Swiss francs ($313 million) of 2.125 percent notes due in 2017 in March, its first foreign currency bond since the collapse of Lehman Brothers Holdings Inc. in September 2008. They were priced to yield about 14 basis points more than the Swiss swap rate, according to Tepco. The securities have returned 0.8 percent, while the company’s 1.73 percent 2017 yen notes gained 1.9 percent.
Tepco, which has 732 billion yen of debt due next year and 675 billion yen in 2012, is prepared to pay higher rates on overseas debt to raise its profile in global bonds markets, Takei said. “We would like to sell foreign-currency bonds once a year,” he said.
Third-Highest Rating
The company may also turn to bank loans, Takei said. It sold 407 billion yen of new shares in October to fund a 10-year management plan that includes building a new nuclear power station.
The cost to protect the company’s debt from default for five years rose to 42 basis points on Dec. 22 from 34 at the end of last year, after reaching an 11-month high of 58 on Feb. 11. The Markit iTraxx Japan index of default swaps on 50 investment- grade borrowers declined 32 basis points this year to 102. The contracts pay the buyer face value in exchange for the underlying securities or the cash equivalent should a government or company fail to meet its obligations.
Tepco forecasts profit will fall 40 percent to 80 billion yen in the year to March 2011, while revenue will rise 7.4 percent to 5 trillion yen.
Weaker Yen
The company may return to dollar markets at a costly time as analysts forecast the yen will weaken 12 percent next year, according to a Bloomberg survey of 37 strategists. Japan’s currency has depreciated 3.6 percent to 83.16 yen yesterday since it reached a 15-year high of 80.22 in November as the yield advantage offered by Treasuries expanded.
Ten-year Treasuries rose 55 basis points, or 0.55 percent, this month to 3.35 percent yesterday, while Japanese government bonds of similar maturity were at 1.135 percent on Dec. 22, a five-basis-point decline. Japanese financial markets were closed yesterday for a public holiday.
Sales of so-called Samurai bonds, yen-denominated debt by borrowers outside Japan, jumped to 1.74 trillion yen this year from 1.33 trillion yen in 2009, the biggest increase since 2007, according to data compiled by Bloomberg.
The increase in Samurai sales helped cut the five-year yen basis swap to minus 63 basis points on Dec. 1, the widest since March 2009. A negative rate means borrowers swapping dollar debt into yen receive a discount. Borrowers typically use cross- currency basis swaps to exchange floating-rate payments in one currency to another.
U.S. Treasury Secretary Timothy F. Geithner said the Obama administration would oppose any effort to strip the Federal Reserve of its mandate to pursue full employment and warned Republicans against politicizing the central bank.
“It is very important to keep politics out of monetary policy,” Geithner said in an interview airing on Bloomberg Television’s “Political Capital with Al Hunt” this weekend. “You want to be very careful not to take steps that hurt our credibility.”
The Republican congressional leadership, including John Boehner, nominated as the next House speaker, has criticized the Fed’s plan to buy $600 billion in assets, saying it would fuel inflation and asset bubbles. Senator Bob Corker, a Tennessee Republican who serves on the Banking Committee, said he favors confining the Fed’s mandate to promoting price stability.
Geithner, 49, declined to say what compromise the Obama administration would be willing to consider on extending Bush- era tax cuts, while ruling out making permanent the reductions for the wealthiest Americans.
“It is not responsible, and I could not recommend to the president in good conscience, that we go out and borrow $700 billion to make those high-end tax cuts permanent,” Geithner said.
He said he doesn’t think the tax cuts for the middle class will be allowed to expire in December, or that all of the tax cuts, including those for the wealthy, will be extended permanently.
General Motors
On General Motors Co., Geithner said the government would get back “a very substantial part” of its investment and all the money the Obama administration spent on bailing out the automaker. Taxpayers put about $13.4 billion into GM under former President George W. Bush and $36.1 billion under Obama.
GM, which went bankrupt last year after almost a century on the New York Stock Exchange, raised more than $20 billion in an initial public offering Nov. 18.
Asked about Europe, Geithner said a financial rescue of Ireland could mark an end to the continent’s sovereign debt crisis. Officials from the European Union, International Monetary Fund and European Central Bank spent a second day in Dublin yesterday discussing a possible bailout of Irish banks.
“I believe they will achieve that because this government, Ireland has demonstrated that they are willing to do some very, very difficult, very, very hard things to dig their way out of this mess,” Geithner said . “And leaders of Europe have made some very tough political choices.”
China Currency
He said China is allowing its currency to strengthen, and that “we want to make sure they sustain that.”
The Fed’s monetary easing, which Chinese officials have said weakened the dollar, hasn’t hurt U.S. efforts to convince China to let the yuan rise, Geithner said. The yuan has gained about 2.6 percent against the dollar since Sept. 1.
Fed Chairman Ben S. Bernanke defended the monetary stimulus in a speech in Frankfurt yesterday and in a meeting with U.S. senators Nov. 17.
The best way to underpin the dollar and support the global recovery “is through policies that lead to a resumption of robust growth in a context of price stability in the United States,” Bernanke said in his speech.
The asset purchases will be used in a way that’s “measured and responsive to economic conditions,” Bernanke said. Fed officials are “unwaveringly committed to price stability” and don’t seek inflation higher than the level of “2 percent or a bit less” that most policy makers see as consistent with the Fed’s legislative mandate, he said.
Letter to Bernanke
Also this week, 23 people, including former Republican government officials and economists, urged Bernanke to halt the stimulus. Among those who signed the letter: Douglas Holtz- Eakin, a former Congressional Budget Office director; Weekly Standard Editor William Kristol, and Stanford University Professor John Taylor, creator of a monetary-policy formula on interest rates used by the Fed.
The Republican attacks on the Fed have been among the harshest since the central bank rushed to rescue the financial system with support for Bear Stearns Cos. and American International Group Inc. during the financial crisis.
“It is very important that we respect and honor what the Congress did when it set up our independent central bank with a mandate to keep prices low and stable over time and to make sure” it promotes “sustainable economic growth,” said Geithner, who was president of the Federal Reserve Bank of New York before taking over as Treasury secretary last year.
India’s inflation slowed in October to the lowest level in nine months, reducing pressure on the central bank to extend Asia’s fastest round of interest-rate increases this year.
The benchmark wholesale-price index rose 8.58 percent from a year earlier after an 8.62 percent increase in September, according to a commerce ministry statement in New Delhi today. The median forecast of 22 economists in a Bloomberg News survey was for an 8.5 percent gain.
Governor Duvvuri Subbarao, who raised rates on Nov. 2 for the sixth time this year, said the central bank may refrain from boosting them for three months, partly to ward off the risk of inflation-stoking capital inflows from overseas. The Reserve Bank of India also wants to assess the impact of the monetary tightening on consumer demand. The government said on Nov. 12 factory output growth dropped to a 16-month low in September.
“We see an interest-rate pause for now,” Indranil Pan, chief economist at Kotak Mahindra Bank Ltd. in Mumbai, said before the report. “They will resume raising rates next year if inflation does not drop fast enough.”
India’s central bank is aiming to cool inflation to 6 percent by March 31.
Stocks, Rupee
Stocks, bonds and the rupee were little changed after the report. The Bombay Stock Exchange’s Sensitive Index rose 0.1 percent to 20,184.24 as of 12:10 p.m. in Mumbai. The rupee fell 0.7 percent to 45.1 against the dollar on concern that weakening industrial output will moderate capital flows into the nation’s assets. The yield on the 12-year government bond was unchanged at 8.06 percent.
So far this year, the interest-rate differential between India and advanced countries spurred an unprecedented $10 billion inflow into rupee debt, strengthening the currency by 4.2 percent against the dollar since Sept. 1. Overseas funds also invested a record $28.5 billion into Indian stocks since Jan payday loan lenders. 1 on prospects of faster economic expansion in the South Asian nation, driving the stock index to near a record.
Rate Differential
The Reserve Bank’s benchmark repurchase rate is 6.25 percent. By comparison, the U.S. Federal Reserve’s target for overnight interbank loans is zero to 0.25 percent, where it has been since December 2008. The Fed Nov. 3 left unchanged its pledge to keep rates low for an “extended period” and said it will buy an additional $600 billion of Treasuries through June.
The Bank of Japan last month unveiled a 5 trillion-yen ($61 billion) fund that will buy government and corporate debt, as well as invest in real-estate investment trusts and exchange- traded funds to spur growth.
Shubhada Rao, chief economist at Yes Bank in Mumbai, said India’s central bank may pause its rate-increase cycle for an “extended” period as counterparts abroad ease their monetary policies.
“Also, there has been some moderation in industrial output and food inflation has also fallen in recent weeks,” Rao said. “Therefore, we think rates have seen their peak in India.”
India’s industrial output rose 4.4 percent in September after growing 6.9 percent in August, the statistics office said on Nov. 12.
Steel Authority of India Ltd., the nation’s second biggest producer, and rival JSW Steel Ltd., said they cut prices of flat products, used to make cars, by as much as 2 percent for November.
India’s food inflation slowed to a one-year low of 12.3 percent in the week ended Oct. 30. Food prices in India are declining after the country received the heaviest rainfall in three years in the June to September monsoon season, helping spur farm production.