Lead Stories

Bondholders at Risk as Oil Rout Squeezes Liquidity
By Nabila Ahmed, Bloomberg
Investors who bought more than $50 billion of bonds sold by U.S. energy companies are at risk of being pushed lower down the ranks of creditors as the firms prepare to issue more debt to preserve liquidity amid plunging oil prices, according to Moody’s Investors Service.
Junk-rated oil companies that funded exploration and production with debt are the most vulnerable to the price of oil, which has fallen by more than half since June, Moody’s analysts led by Alexander Dill wrote in a report today. They are expected to turn to second-lien financing as the value of their energy reserves declines, Moody’s said. Such debt ranks higher than unsecured bonds and its investors would stand in front of existing bondholders in the event of a default.
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Gross Helps Fuel New Fund With His Own Cash; Brokerage Tied to ‘Bond King’ Routed More Than $700 Million to Gross’s New Fund in October and November
By Kirsten Grind and Gregory Zuckerman, WSJ
After Bill Gross abruptly quit Pacific Investment Management Co., the bond-fund giant he co-founded, in September to join a much smaller rival, the big question was how much money would follow him.
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U.S. Mortgage Rates Fall With 30-Year at a 19-Month Low
By Prashant Gopal, Bloomberg
U.S. mortgage rates dropped to the lowest level in more than a year and a half as falling oil prices and concerns about the strength of the euro drove investors to the safety of the U.S. government bonds that guide borrowing costs.
The average rate for a 30-year fixed mortgage tumbled to 3.73 percent from 3.87 percent last week, Freddie Mac (FMCC) said in a statement today. The average 15-year rate declined to 3.05 percent from 3.15 percent, the McLean, Virginia-based mortgage-finance company said.
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China sets stage for trading 10-year government bond futures
By Reuters
SHANGHAI: China Financial Futures Exchange (CFFEX) has issued draft rules for the launch of 10-year government bond futures, a move seen as another step towards interest rate liberalisation.
The futures will be based on long-term government bonds with durations of 6.5 to 10.25 years to their maturity, the CFFEX said in the draft rules published late on Wednesday in its website, www.cffex.com.cn.
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US still the dominant superpower in derivatives trade
Philip Stafford, The Financial Times
Like two cold war superpowers, US derivatives exchanges CME Group and Intercontinental Exchange are turning asset classes and geographies in the world’s markets into their own private duel.
ICE’s launch of a new euro-denominated cocoa contract ahead of its rival marks the latest skirmish in an ongoing battle, which encompasses the flagship crude oil futures contract and emerging fights over credit default swaps clearing in the US, swap futures in Europe and new business in Asia.

Fed Versus the Market: Which Is Right About Inflation?
FOMC deems oil price plunge “transitory” while slide in longer-term Treasury yields suggests something more enduring.
By Randall W. Forsyth, Barrons
Whom are you going to believe? The markets or the Federal Reserve?
Minutes of the Dec. 16-17 meeting of the Federal Open Market Committee released Wednesday suggest the policy-setting panel has greater confidence in its forecasts of inflation than that of the markets. That’s even though the Fed has consistently overestimated the strength of the economy and price pressures.
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Tesco Bonds Slump Amid Downgrade Concern After Revival Plan
By John Glover, Bloomberg
Tesco Plc (TSCO)’s bonds in euros and pounds fell today amid investor concern the U.K.’s largest grocer’s recovery plan won’t be enough to keep its investment-grade rating.
All of the company’s 27 securities fell after the Cheshunt, England- based company said it will cut capital spending by 1 billion pounds ($1.5 billion) a year, stop dividends and move its head office. The retailer, which is seeking to recover from a war between U.K. supermarkets and an accounting scandal that saw profit overstated, will also cut prices on hundreds of branded goods.
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Central Banks

Fed should not be in a hurry to raise rates: Evans
Reuters
The U.S. economy is likely to continue to grow fast enough to generate continued job growth, but the outlook for inflation is “more worrisome,” a top Federal Reserve official said on Wednesday.
“I don’t think we should be in a hurry to raise rates,” said Charles Evans, president of the Chicago Federal Reserve Bank, noting inflation has been running below the Fed’s target for the last six years and is unlikely to reach that target for another three to four years.
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European shares rally on ‘patient’ US Federal Reserve, Tesco
By Reuters
European shares rose on Thursday as a strong Christmas update from Britain’s Tesco boosted retailers and Federal Reserve minutes showed the U.S. central bank was not in a hurry to start raising interest rates.
The FTSEurofirst 300 index of top European shares closed 2.9 percent higher at 1,368.37 points, recouping all the ground lost since the start of the year.
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RBS Sees Germany Paying Almost No Interest on 10-Year Bonds
By David Goodman, Bloomberg
The amount of interest Germany pays when it borrows for 10 years, already the lowest on record, may dwindle to little more than zero, Royal Bank of Scotland Group Plc said.
Analysts at the bank, one of 37 financial institutions that deal directly with Germany’s debt office, are targeting a yield of 0.13 percent on 10-year bunds by the end of this quarter, about 0.38 percentage point lower than the current rate.
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It’s Deja Vu as Carney Holds U.K. Interest Rates
By Jennifer Ryan, Bloomberg
This year is looking a lot like 2014 for Bank of England Governor Mark Carney.
With the outlook dominated by a weak euro-area economy that’s showing few signs of recovery, political risks at home and inflation below the 2 percent target, the Monetary Policy Committee left the benchmark interest rate at 0.5 percent today. Investors see borrowing costs staying at a record low for the rest of the year.
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Currencies

Currency swings pose challenges for Asian groups
Simon Mundy in Seoul, Jeremy Grant in Singapore and Kana Inagaki in Tokyo, The Financial Times
Viewed from the South Korean port of Ulsan, home to the world’s largest shipbuilder Hyundai Heavy Industries, it is jackpot time on the international currency markets.
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Intercontinental Exchange Adds Israeli Shekel, Turkish Lira and Polish Zloty Contracts
Forex Magnates
With emerging-market currencies being some of the most rapidly growing FX products last year, ICE is delving deeper by delivering an increased set of currency pairs to choose from in volatile market conditions. Amid increasing demand for additional products on the foreign exchange market, the InterContinental Exchange has announced that it has added new tradable contracts, including US dollar crosses with the Israeli shekel, the Turkish lira and the Polish zloty.
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Indexes & Index Products

NASDAQ OMX Adds To Indexing Business With $225 Million Acquisition
Forbes
NASDAQ OMX Group, one of the most well-diversified global stock market operators, recently announced the acquisition of American index and analytics provider Dorsey Wright & Associates for $225 million with an intent to expand its exchange-traded fund trading and indexing business. According to NASDAQ management, the acquisition will contribute to the upcoming earnings in late January, and should not impact capital return plans.
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Alternative Funds and Indexes Make Finra’s Short List of Concerns
Chris Dieterich – Barron’s
The Financial Industry Regulatory Authority, a top regulator for brokers, outlined concerns with some of the fund industry’s hottest products in its annual examination priorities framework for 2015.
Alternative funds and indexes both made the list, a heads-up to the industry that Finra is watching specific products and/or sales and distribution practices. The Wall Street Journal’s Karen Damato reported on the list Monday.
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