Lenders are setting aside more money for loan losses tied to the oil and gas industry, which has been hurt by lower energy prices. Bank profits have also come under pressure from a weakening domestic economy and a slump in the Singapore interbank offered rate — one of the benchmarks for local interest rates — to a one-year low, which has curbed the amount lenders charge for loans.
Low commodity prices, sluggish global demand and the worst drought in more than a century have weighed on output and boosted inflation in Africa’s most-industrialized economy, while policy uncertainty and political turmoil have pushed business confidence to a three-decade low. The nation is at risk of losing its investment-grade credit rating as S&P Global Ratings and Fitch Ratings Ltd., which put South Africa at the lowest investment grade, are due to review their assessments by the end of the year.
The combined debt of Canadian governments, companies and households reached $4.4 trillion in the first quarter, or 288 percent of gross domestic product, exceeding the same gauge for the U.S., the U.K. and Italy, according to the Bank for International Settlements.
The surge in flows echoes a wave of investment in the years right before the financial crisis, when mostly European investors snapped up billions of dollars of mortgage-backed securities before the US housing market imploded.
In 2015 alone, U.S. companies borrowed a record $1.6 trillion in the bond markets, with $258 billion of that going to finance acquisitions by investment-grade companies, Barclays Plc says. According to Morgan Stanley, corporate America is now more leveraged than ever.
But when rates rise this starts a whole new problem that could have severe economic ramification. The impact of higher rates would be twofold; home prices would likely move lower while mortgage payments increase. Even with a rate hike, there would still be a large number of potential buyers that don’t have the capital or equity to meet the down payment requirement.
With rates already so low, the bank has laid out a number of unconventional measures that are in its toolkit if need be, including negative interest rates, asset purchases and forward guidance. It has said there is not a prescribed order for using those tools.
Under a new “yield curve control” framework, the BOJ’s main means for monetary easing would be to deepen negative interest rates from the current minus 0.1 percent, or lower its 10-year bond yield target – now set at around zero percent.
The Swiss National Bank could cut its negative interest rates even more if needed, SNB Chairman Thomas Jordan said on Monday. “We have not yet reached the lower bound. Where it is exactly I cannot say,” he told a question-and-answer session after giving a lecture at an economic conference in Basel.
Saudi Arabia’s $17.5 billion international bond sale, the largest ever from an emerging market, boosted the amount raised through loans and bonds in the six-nation Gulf Cooperation Council to $151 billion, according to data compiled by Bloomberg, eclipsing the full-year record of $142 billion set in 2007.
The sale follows this year’s century bond offerings from Belgium and Ireland, as well as 50-year deals from France, Italy and Spain, as countries take advantage of historically low interest rates to issue ultra-long debt. The 100-year bond sales by Belgium and Ireland were private placements for 100 million euros each.
Gold & Silver
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