By Bob Willis
March 3 (Bloomberg) -- Manufacturing in the U.S. shrank at the fastest pace in almost five years and construction spending fell the most since 1994 as the economy moved closer to a recession.
The Institute for Supply Management's factory index dropped to 48.3 in February from 50.7 the previous month, the Tempe, Arizona-based group said today. Fifty is the dividing line between contraction and expansion. At the same time, the Commerce Department reported that spending on building projects slumped 1.7 percent in January, more than anticipated.
The collapse in housing is rippling through the economy as consumers pare spending and factories cut production of cars, furniture and appliances. Traders are betting the Federal Reserve will be forced to reduce its benchmark interest rate by 0.75 percentage point at its March 18 meeting.
``The evidence is piling up that the economy is slipping into at least a mild recession,'' said Scott Anderson, a senior economist at Wells Fargo & Co. in Minneapolis, who forecast the index would drop to 48. ``With the much higher food and energy prices and restricted credit, there are not a lot of avenues for consumers to continue to spend.''
Joseph LaVorgna, chief U.S. economist at Deutsche Bank Securities in New York, today joined the growing number of forecasters saying the U.S. had slipped into a recession.
Recession Calls
Merrill Lynch & Co., Goldman Sachs Group Inc. and Citigroup Inc. are among the banks that had already projected the economy was contracting.
Economists surveyed by Bloomberg News forecast the factory index would fall to 48, according to the median estimate. Spending on construction was projected to decline 0.7 percent.
The figures had little impact on financial markets. The Dow Jones Industrial Average fell 0.1 percent to close at 12,258.9 in New York. Investors anticipated a weaker manufacturing report after the National Association of Purchasing Management-Chicago said last week that business activity weakened.
``Ceaseless talk of a recession continues to dampen the mood of consumers,'' Robert Toll, chief executive officer of homebuilder Toll Brothers Inc., said in a conference call on Feb. 27. ``This drumbeat, coupled with concerns over mortgages, the direction of home prices, and foreclosures, has kept pent-up demand on the sidelines.''
Building Slump
Homebuilding is in a third year of declines as sales weaken and builders halt new projects to lighten inventories. Stricter borrowing rules and lower demand are also restraining commercial developers, creating an even greater drag on growth.
``We are in a recession,'' billionaire investor Warren Buffett said in an interview with CNBC today. ``Across the board I am seeing a significant slowdown.''
The ISM's new orders decreased to 49.1 from 49.5, while a production measure dropped to 50.7 from 55.2. A gauge of supplier deliveries fell to 50.1 from 52.8 in the prior month.
The group's measure of prices paid decreased to 75.5 from 76 in January.
Today's factory survey corroborates other regional business polls in the past two weeks that showed factory activity, which accounts for about 12 percent of gross domestic product, contracted in February.
A Philadelphia Fed gauge showed the deepest contraction in seven years, while the Fed Bank of New York's economic index was the weakest in almost five years.
Orders Slump
Government data also have pointed to a slowdown. Orders for durable goods excluding transportation equipment fell in January for the third time in the last four months, Commerce said last week. Factory production stalled in January, with car output falling, the Fed said Feb. 15.
Declining home construction will drag on growth again this year, costing jobs and undermining the consumer spending that accounts for two-thirds of the economy. As property values decline, Americans feel less wealthy and buy fewer televisions and cars.
Sales at General Motors Corp., Ford Motor Co. and Toyota Motor Corp., the three biggest auto retailers in the U.S., fell in February from a year earlier, according to industry data issued today. General Motors and Ford each announced deeper reductions in production for next quarter.
Demand for cars is at the ``low end'' of the range forecast, said George Pipas, chief sales analyst for Ford, in Dearborn, Michigan, on a conference call last week.
Growth Forecasts
The economy will grow at a 0.5 percent annual rate from January through March, capping the weakest six months since the last economic slump in 2001, according to the median estimate of economists polled by Bloomberg from Jan. 30 to Feb. 7.
The Fed, which has lowered the benchmark rate by 2.25 percentage points since September, is ready to continue cutting borrowing costs if needed, Chairman Ben S. Bernanke told Congress last week.
He warned that risks to the outlook include ``the possibilities that the housing market or the labor market may deteriorate more than is currently anticipated and that credit conditions may tighten substantially further.''
One of the few bright spots is record exports as a weak dollar and growing economies in countries such as China, Brazil and Mexico stoke demand for goods to modernize their infrastructure and production capacity.
The ISM's measure of export orders decreased to 56 from 58.5, showing foreign demand is still growing, though at a slower pace.
``We certainly have seen among some of our customers and even in our own business some benefits from a weaker dollar in terms of increased strength in an export capacity,'' Frank MacInnis, chairman of in Norwalk, Connecticut-based EMCOR Group Inc., a construction and facilities-management company, said in a Bloomberg Television interview last week.
Monday, March 3, 2008
Most U.S. Stocks Gain, Led by Commodity Producers; Banks Drop
By Michael Patterson
March 3 (Bloomberg) -- Most U.S. stocks gained as record oil and gold prices spurred a rally in commodity producers, outweighing declines in technology and financial shares.
Exxon Mobil Corp. and Freeport-McMoRan Copper & Gold Inc. helped the Standard & Poor's 500 Index recover from a decline of 0.8 percent and rise for the first time in four days. Goldman Sachs Group Inc., the largest U.S. securities firm, and Apple Inc., maker of the iPod media player, fell after analysts lowered profit estimates.
The S&P 500 swung between gains and losses at least 37 times as a smaller-than-forecast drop in manufacturing offset a decline in construction spending. The S&P 500 added 0.71 point, or 0.1 percent, to 1,331.34. The Dow Jones Industrial Average slid 7.49, or 0.1 percent, to 12,258.9. The Nasdaq Composite Index lost 12.88, or 0.6 percent, to 2,258.6. On the New York Stock Exchange, 949 stocks rose and 930 fell.
``If you're trying to be optimistic on the market going forward, one potential positive is you're in a situation where energy outperformance can make up for some of the underperformance in financials,'' said Michael Gallipo, who helps manage about $800 million at Citizens Funds in Portsmouth, New Hampshire. ``It seems to be working for right now.''
Commodity producers rose as oil climbed to $102.45 a barrel and gold advanced to as high as $992 an ounce. Energy and metals shares have gained 15 percent since the Federal Reserve started cutting interest rates in August, more than triple the next best group, consumer staples.
Exxon, Freeport
Exxon, the biggest U.S. oil company, added 74 cents to $87.75. ConocoPhillips, the third-largest, increased 73 cents to $83.44. The 36-member S&P 500 Energy Index climbed 0.8 percent and provided the biggest boost to the overall index.
Freeport-McMoRan, the world's second-largest copper producer, climbed $2.59 to $103.45 and led a gauge of raw- materials producers in the S&P 500 to a 1.6 percent gain, the best among 10 industries. Copper futures closed at the highest price ever as global inventories declined and China, the world's biggest user of the metal, boosted imports. Newmont Mining Corp., the second-largest gold mining company, rose $1.21 to $52.38.
General Electric Co., Honeywell International Inc. and Danaher Corp. climbed after Deutsche Bank AG analysts said U.S. industrial companies that generate more than half their revenue from abroad may boost earnings by 5 percent during the first quarter as the dollar weakens. The U.S. currency today touched a record low of $1.5275 per euro.
GE, the second-biggest U.S. company by market value, added 26 cents to $33.40. Honeywell, the largest maker of aircraft controls, increased $1.01 to $58.55. Danaher, the maker of Craftsman tools, added 11 cents to $74.26.
Northrop, Exelon
Northrop Grumman Corp. rose the most since July 2003 after the third-largest U.S. defense contractor and European Aeronautic, Defence & Space Co. beat Boeing Co. for an Air Force tanker order valued at as much as $35 billion. Northrop shares added $3.96, or 5 percent, to $82.57. Boeing lost $2.12 to $80.67. Industrial shares in the S&P 500 climbed 0.6 percent as a group, paring their 2008 decline to 6.9 percent.
Exelon Corp., Entergy Corp. and FPL Group Inc. led a 1.2 percent advance in the S&P 500 Utilities Index after Jefferies & Co. analysts advised clients to buy the shares.
Exelon, the largest U.S. owner of nuclear power plants, added $2.70 to $77.55. Entergy, the second-biggest, increased $2.71 to $105.45. FPL Group, owner of Florida's largest electric utility, gained $1.06 to $61.35.
Supervalu
Supervalu Inc. rose $1.84, or 7 percent, to $28.09 for the top gain in the S&P 500. The second-biggest U.S. supermarket chain forecast profit for next year that exceeded analysts' estimates.
Financial and technology companies were the biggest drag on the market after analysts said the slowing U.S. economy and more subprime-mortgage writedowns will stifle earnings at securities firms and weakening consumer spending will hurt demand at electronics makers and online retailers.
Financial shares in the S&P 500, which are down 13 percent this year, fell for a third day after analysts at Merrill Lynch & Co., Oppenheimer & Co. and Sanford C. Bernstein & Co. cut their profit estimates for brokerages. Earnings at S&P 500 financial companies may fall 28 percent on average in the first quarter, according to analysts' estimates compiled by Bloomberg. That compares with a 3 percent average decline projected for the entire index.
``The capital-markets environment can now officially be called rotten for first-quarter earnings,'' Oppenheimer's Meredith Whitney said in a note to clients as she cut her full- year earnings forecasts for Goldman, Bear Stearns Cos. and Lehman Brothers Holdings Inc.
Goldman, Bear
Goldman, the biggest U.S. securities firm by market value, dropped $4.55 to $165.08. Bear Stearns lost $2.54 to $77.32. Lehman fell $2.38 to $48.61. Citigroup Inc., the largest U.S. bank by assets, retreated 62 cents to $23.09.
American International Group Inc. led losses in 21 of 24 insurance companies in the S&P 500 after billionaire investor Warren Buffett said the insurance business will be less profitable this year. AIG, the world's largest insurer, slumped 17 cents to $46.69.
'Party Is Over'
``It is a certainty that insurance industry profit margins, including ours, will fall significantly in 2008. Prices are down,'' Buffett wrote in his annual letter to shareholders. ``That party is over.''
Buffett's Berkshire Hathaway Inc. said fourth-quarter profit declined 18 percent on falling insurance rates. Operating earnings excluding some items dropped to $1,518 a share, missing the $1,613 average of three analysts' estimates compiled by Bloomberg.
Berkshire's Class A shares lost $3,500, or 2.5 percent, to $136,500.
The S&P 500 Financials Index lost 1.2 percent for the biggest decline among 10 industries.
A gauge of technology companies in the S&P 500 dropped 0.6 percent after Bank of America Corp. cut its profit estimates for Apple and Piper Jaffray & Co. lowered its recommendation on Internet-related companies.
Apple declined $3.29 to $121.73 after Bank of America analyst Scott Craig said weaker consumer spending in the U.S. will slow profit growth.
Google Slumps
Google Inc., owner of the most popular Internet search engine, and EBay Inc., the world's biggest online auctioneer, declined after Piper Jaffray said lower-than-expected revenue from search-related online advertising and weak retail sales growth may prompt analysts to reduce their 2008 earnings estimates.
Google shares dropped $14.16 to $457.02, the lowest in almost a year. EBay slumped 51 cents to $25.85. The S&P 500 Information Technology Index has declined 17 percent this year.
The Institute for Supply Management's manufacturing index fell less than economists expected in February. The Tempe, Arizona-based group's gauge dropped to 48.3 from 50.7 in January. Economists surveyed by Bloomberg News forecast the index would fall to 48. Fifty is the dividing line between contraction and expansion.
Spending on U.S. building projects fell in January by the most in 14 years as the housing slump worsened and construction slowed on hotels and highways. The 1.7 percent decrease, more than twice the fall economists forecast, followed a revised 1.3 percent drop in December that was steeper than initially reported, the Commerce Department said.
Federal Reserve Bank of Philadelphia President Charles Plosser said the central bank's benchmark interest rate, currently at 3 percent, is below the level recommended by ``many'' monetary-policy theories and should be raised when financial markets stabilize. He spoke to a conference in Arlington, Virginia.
The MSCI World Index decreased 2 percent. Europe's Dow Jones Stoxx 600 Index lost 1.4 percent, and the MSCI Asia Pacific Index fell 3.3 percent.
Treasury 10-year notes fell, with yields at the highest level relative to two-year rates in more than 3 1/2 years, on bets Fed cuts in borrowing costs will cause inflation to accelerate.
March 3 (Bloomberg) -- Most U.S. stocks gained as record oil and gold prices spurred a rally in commodity producers, outweighing declines in technology and financial shares.
Exxon Mobil Corp. and Freeport-McMoRan Copper & Gold Inc. helped the Standard & Poor's 500 Index recover from a decline of 0.8 percent and rise for the first time in four days. Goldman Sachs Group Inc., the largest U.S. securities firm, and Apple Inc., maker of the iPod media player, fell after analysts lowered profit estimates.
The S&P 500 swung between gains and losses at least 37 times as a smaller-than-forecast drop in manufacturing offset a decline in construction spending. The S&P 500 added 0.71 point, or 0.1 percent, to 1,331.34. The Dow Jones Industrial Average slid 7.49, or 0.1 percent, to 12,258.9. The Nasdaq Composite Index lost 12.88, or 0.6 percent, to 2,258.6. On the New York Stock Exchange, 949 stocks rose and 930 fell.
``If you're trying to be optimistic on the market going forward, one potential positive is you're in a situation where energy outperformance can make up for some of the underperformance in financials,'' said Michael Gallipo, who helps manage about $800 million at Citizens Funds in Portsmouth, New Hampshire. ``It seems to be working for right now.''
Commodity producers rose as oil climbed to $102.45 a barrel and gold advanced to as high as $992 an ounce. Energy and metals shares have gained 15 percent since the Federal Reserve started cutting interest rates in August, more than triple the next best group, consumer staples.
Exxon, Freeport
Exxon, the biggest U.S. oil company, added 74 cents to $87.75. ConocoPhillips, the third-largest, increased 73 cents to $83.44. The 36-member S&P 500 Energy Index climbed 0.8 percent and provided the biggest boost to the overall index.
Freeport-McMoRan, the world's second-largest copper producer, climbed $2.59 to $103.45 and led a gauge of raw- materials producers in the S&P 500 to a 1.6 percent gain, the best among 10 industries. Copper futures closed at the highest price ever as global inventories declined and China, the world's biggest user of the metal, boosted imports. Newmont Mining Corp., the second-largest gold mining company, rose $1.21 to $52.38.
General Electric Co., Honeywell International Inc. and Danaher Corp. climbed after Deutsche Bank AG analysts said U.S. industrial companies that generate more than half their revenue from abroad may boost earnings by 5 percent during the first quarter as the dollar weakens. The U.S. currency today touched a record low of $1.5275 per euro.
GE, the second-biggest U.S. company by market value, added 26 cents to $33.40. Honeywell, the largest maker of aircraft controls, increased $1.01 to $58.55. Danaher, the maker of Craftsman tools, added 11 cents to $74.26.
Northrop, Exelon
Northrop Grumman Corp. rose the most since July 2003 after the third-largest U.S. defense contractor and European Aeronautic, Defence & Space Co. beat Boeing Co. for an Air Force tanker order valued at as much as $35 billion. Northrop shares added $3.96, or 5 percent, to $82.57. Boeing lost $2.12 to $80.67. Industrial shares in the S&P 500 climbed 0.6 percent as a group, paring their 2008 decline to 6.9 percent.
Exelon Corp., Entergy Corp. and FPL Group Inc. led a 1.2 percent advance in the S&P 500 Utilities Index after Jefferies & Co. analysts advised clients to buy the shares.
Exelon, the largest U.S. owner of nuclear power plants, added $2.70 to $77.55. Entergy, the second-biggest, increased $2.71 to $105.45. FPL Group, owner of Florida's largest electric utility, gained $1.06 to $61.35.
Supervalu
Supervalu Inc. rose $1.84, or 7 percent, to $28.09 for the top gain in the S&P 500. The second-biggest U.S. supermarket chain forecast profit for next year that exceeded analysts' estimates.
Financial and technology companies were the biggest drag on the market after analysts said the slowing U.S. economy and more subprime-mortgage writedowns will stifle earnings at securities firms and weakening consumer spending will hurt demand at electronics makers and online retailers.
Financial shares in the S&P 500, which are down 13 percent this year, fell for a third day after analysts at Merrill Lynch & Co., Oppenheimer & Co. and Sanford C. Bernstein & Co. cut their profit estimates for brokerages. Earnings at S&P 500 financial companies may fall 28 percent on average in the first quarter, according to analysts' estimates compiled by Bloomberg. That compares with a 3 percent average decline projected for the entire index.
``The capital-markets environment can now officially be called rotten for first-quarter earnings,'' Oppenheimer's Meredith Whitney said in a note to clients as she cut her full- year earnings forecasts for Goldman, Bear Stearns Cos. and Lehman Brothers Holdings Inc.
Goldman, Bear
Goldman, the biggest U.S. securities firm by market value, dropped $4.55 to $165.08. Bear Stearns lost $2.54 to $77.32. Lehman fell $2.38 to $48.61. Citigroup Inc., the largest U.S. bank by assets, retreated 62 cents to $23.09.
American International Group Inc. led losses in 21 of 24 insurance companies in the S&P 500 after billionaire investor Warren Buffett said the insurance business will be less profitable this year. AIG, the world's largest insurer, slumped 17 cents to $46.69.
'Party Is Over'
``It is a certainty that insurance industry profit margins, including ours, will fall significantly in 2008. Prices are down,'' Buffett wrote in his annual letter to shareholders. ``That party is over.''
Buffett's Berkshire Hathaway Inc. said fourth-quarter profit declined 18 percent on falling insurance rates. Operating earnings excluding some items dropped to $1,518 a share, missing the $1,613 average of three analysts' estimates compiled by Bloomberg.
Berkshire's Class A shares lost $3,500, or 2.5 percent, to $136,500.
The S&P 500 Financials Index lost 1.2 percent for the biggest decline among 10 industries.
A gauge of technology companies in the S&P 500 dropped 0.6 percent after Bank of America Corp. cut its profit estimates for Apple and Piper Jaffray & Co. lowered its recommendation on Internet-related companies.
Apple declined $3.29 to $121.73 after Bank of America analyst Scott Craig said weaker consumer spending in the U.S. will slow profit growth.
Google Slumps
Google Inc., owner of the most popular Internet search engine, and EBay Inc., the world's biggest online auctioneer, declined after Piper Jaffray said lower-than-expected revenue from search-related online advertising and weak retail sales growth may prompt analysts to reduce their 2008 earnings estimates.
Google shares dropped $14.16 to $457.02, the lowest in almost a year. EBay slumped 51 cents to $25.85. The S&P 500 Information Technology Index has declined 17 percent this year.
The Institute for Supply Management's manufacturing index fell less than economists expected in February. The Tempe, Arizona-based group's gauge dropped to 48.3 from 50.7 in January. Economists surveyed by Bloomberg News forecast the index would fall to 48. Fifty is the dividing line between contraction and expansion.
Spending on U.S. building projects fell in January by the most in 14 years as the housing slump worsened and construction slowed on hotels and highways. The 1.7 percent decrease, more than twice the fall economists forecast, followed a revised 1.3 percent drop in December that was steeper than initially reported, the Commerce Department said.
Federal Reserve Bank of Philadelphia President Charles Plosser said the central bank's benchmark interest rate, currently at 3 percent, is below the level recommended by ``many'' monetary-policy theories and should be raised when financial markets stabilize. He spoke to a conference in Arlington, Virginia.
The MSCI World Index decreased 2 percent. Europe's Dow Jones Stoxx 600 Index lost 1.4 percent, and the MSCI Asia Pacific Index fell 3.3 percent.
Treasury 10-year notes fell, with yields at the highest level relative to two-year rates in more than 3 1/2 years, on bets Fed cuts in borrowing costs will cause inflation to accelerate.
Japanese Stock Futures Climb After Oil, Gold Reach Record Highs
By Patrick Rial
March 4 (Bloomberg) -- Japanese stock futures rose in Chicago after prices for commodities including oil, gold and copper advanced to records, boosting the profit outlook for trading companies such as Mitsui & Co.
Mitsui generates more than half of its earnings from commodities dealing. Citigroup Inc. boosted its iron ore forecast for 2008 by 30 percent yesterday, which could lift Mitsui's net income by 65 billion yen, the brokerage said. U.S.-traded receipts of larger rival Mitsubishi Corp. jumped 2.4 percent from the closing share price in Tokyo yesterday.
Futures also gained after the yen halted its advance against the dollar, alleviating concern that exporters' earnings will be damped by a stronger domestic currency.
Nikkei 225 Stock Average futures expiring in March last traded in Chicago at 13,145, up from 12,990 in Osaka and 13,010 in Singapore. The Bank of New York Japan ADR Index, which tracks the nation's American depositary receipts, was little changed.
``Rising prices for oil and other commodities translate into more profits for trading houses and mining companies,'' Terunobu Kinoshita, president of market advisory firm Kinoshitaterunobu Office, said in an interview with Bloomberg TV. ``However, we can't ignore that this is going to cut into earnings of other companies.''
Yesterday, the Nikkei tumbled 4.5 percent to 12,992.18, and the Topix index dropped 4 percent to 1,271.15, the biggest slide in a month for both gauges.
March 4 (Bloomberg) -- Japanese stock futures rose in Chicago after prices for commodities including oil, gold and copper advanced to records, boosting the profit outlook for trading companies such as Mitsui & Co.
Mitsui generates more than half of its earnings from commodities dealing. Citigroup Inc. boosted its iron ore forecast for 2008 by 30 percent yesterday, which could lift Mitsui's net income by 65 billion yen, the brokerage said. U.S.-traded receipts of larger rival Mitsubishi Corp. jumped 2.4 percent from the closing share price in Tokyo yesterday.
Futures also gained after the yen halted its advance against the dollar, alleviating concern that exporters' earnings will be damped by a stronger domestic currency.
Nikkei 225 Stock Average futures expiring in March last traded in Chicago at 13,145, up from 12,990 in Osaka and 13,010 in Singapore. The Bank of New York Japan ADR Index, which tracks the nation's American depositary receipts, was little changed.
``Rising prices for oil and other commodities translate into more profits for trading houses and mining companies,'' Terunobu Kinoshita, president of market advisory firm Kinoshitaterunobu Office, said in an interview with Bloomberg TV. ``However, we can't ignore that this is going to cut into earnings of other companies.''
Yesterday, the Nikkei tumbled 4.5 percent to 12,992.18, and the Topix index dropped 4 percent to 1,271.15, the biggest slide in a month for both gauges.
Australia Forecasts Record Commodity Sales on China (Update2)
Australia Forecasts Record Commodity Sales on China (Update2)
By Madelene Pearson
March 4 (Bloomberg) -- Commodity exports from Australia, the world's biggest shipper of coal, iron ore and wool, are forecast to gain to a record for a fifth straight year driven by demand for steelmaking raw materials led by China.
Sales may reach A$189.1 billion ($178 billion) in the year ending June 30, 2009, the Canberra-based Australian Bureau of Agricultural and Resource Economics said today in a statement. That compares with a revised A$145.6 billion this fiscal year.
Prices for the nation's top five commodity exports, iron ore, coking and thermal coals, gold and crude oil have risen to records this year, benefiting producers including BHP Billiton Ltd. Robust economic growth is expected in China this year along with strong demand for Australia's resources, the bureau said in a report.
``China is far and away the biggest underlying force'' driving sales, Peter Arden, an analyst at Ord Minnett Ltd., an affiliate of JPMorgan Chase & Co., said by phone from Melbourne. ``The outlook is very, very rosy.''
China's economy expanded 11.4 percent in 2007, the fastest in 13 years, and consumer prices gained 4.8 percent, outstripping the government's 3 percent target. China's demand is driving Australia's 17th year of economic growth as companies spend a record A$57.9 billion developing mines and oil fields.
``Continued strong economic growth, industrialization and urbanization in China are putting pressure on domestic resources,'' the forecaster said in its March quarter report. ``This has the potential to make China a strategically important player in global markets and to provide increased export opportunities for Australia's commodity industries.''
Wheat Rebound
Commodity export earnings are projected to be little changed in real terms at A$187.2 billion in 2009-10, before easing to around A$176 billion by 2012-13, it said.
Wheat production in Australia may almost double to 26 million metric tons in fiscal 2009, the bureau said, as the nation recovers from its worst drought in history. This would be second only to the record 26.1 million tons crop of 2003-2004. Total farm exports will rise 18 percent to A$31.4 billion, it said.
``There is a very good chance of a bumper winter grains crop'' should there be improved rains, bureau executive director Phillip Glyde said in the statement. A record dry spell slashed output of wheat, the top agricultural export, the past two years.
Sales of iron ore, the nation's number one earner, may rise 61 percent in fiscal 2009 to A$32.5 billion. Earnings from coking coal, used in steelmaking, and thermal coal, used in power stations, are tipped to gain 97 percent and 80 percent respectively. Global steel production is projected to grow on average by 4.8 percent a year, the bureau said.
China Steel
``Steel consumption is expected to continue growing most rapidly in China,'' the forecaster said. ``The positive outlook for world steel production will support increased demand for steel inputs, principally iron ore and metallurgical coal, over the medium term.''
Contract prices for iron ore in the year starting April 1 have so far increased by as much as 71 percent, the bureau said. Prices for hard-coking coal in the year starting April 1 may surge to a record $200 a metric ton from $98 a ton this contract year, a Bloomberg survey last month showed. Spot prices for thermal coal and coking coal have also climbed to records this year after flooding at mines in Australia and snowstorms in China.
Key Drivers
``China's construction and infrastructure projects are really the key drivers of demand,'' said Gerard Burg, a minerals and energy economist at National Australia Bank Ltd. ``If China remains firm that means positive conditions for commodities.''
Exports of minerals and energy are forecast to jump 33 percent to A$153.4 billion in fiscal 2009, the bureau said. Earnings from energy commodities are forecast to gain 54 percent to A$66.8 billion on increased volumes and higher prices for coal and oil. The bureau expects the price of West Texas Intermediate crude oil to average $86 a barrel in 2008, 20 percent higher than a year earlier.
Australia's earnings from minerals and metals are forecast to gain 21 percent to A$86.7 billion, the bureau said. Gold prices, which rose to a record yesterday, may average $870 an ounce in 2008, 25 percent higher than the year earlier.
The value of wheat exports may more than double to A$4.7 billion as farmers sow a record area, the bureau said. Earnings from cotton, sugar, wine, beef and most dairy products are also tipped to gain, it said.
By Madelene Pearson
March 4 (Bloomberg) -- Commodity exports from Australia, the world's biggest shipper of coal, iron ore and wool, are forecast to gain to a record for a fifth straight year driven by demand for steelmaking raw materials led by China.
Sales may reach A$189.1 billion ($178 billion) in the year ending June 30, 2009, the Canberra-based Australian Bureau of Agricultural and Resource Economics said today in a statement. That compares with a revised A$145.6 billion this fiscal year.
Prices for the nation's top five commodity exports, iron ore, coking and thermal coals, gold and crude oil have risen to records this year, benefiting producers including BHP Billiton Ltd. Robust economic growth is expected in China this year along with strong demand for Australia's resources, the bureau said in a report.
``China is far and away the biggest underlying force'' driving sales, Peter Arden, an analyst at Ord Minnett Ltd., an affiliate of JPMorgan Chase & Co., said by phone from Melbourne. ``The outlook is very, very rosy.''
China's economy expanded 11.4 percent in 2007, the fastest in 13 years, and consumer prices gained 4.8 percent, outstripping the government's 3 percent target. China's demand is driving Australia's 17th year of economic growth as companies spend a record A$57.9 billion developing mines and oil fields.
``Continued strong economic growth, industrialization and urbanization in China are putting pressure on domestic resources,'' the forecaster said in its March quarter report. ``This has the potential to make China a strategically important player in global markets and to provide increased export opportunities for Australia's commodity industries.''
Wheat Rebound
Commodity export earnings are projected to be little changed in real terms at A$187.2 billion in 2009-10, before easing to around A$176 billion by 2012-13, it said.
Wheat production in Australia may almost double to 26 million metric tons in fiscal 2009, the bureau said, as the nation recovers from its worst drought in history. This would be second only to the record 26.1 million tons crop of 2003-2004. Total farm exports will rise 18 percent to A$31.4 billion, it said.
``There is a very good chance of a bumper winter grains crop'' should there be improved rains, bureau executive director Phillip Glyde said in the statement. A record dry spell slashed output of wheat, the top agricultural export, the past two years.
Sales of iron ore, the nation's number one earner, may rise 61 percent in fiscal 2009 to A$32.5 billion. Earnings from coking coal, used in steelmaking, and thermal coal, used in power stations, are tipped to gain 97 percent and 80 percent respectively. Global steel production is projected to grow on average by 4.8 percent a year, the bureau said.
China Steel
``Steel consumption is expected to continue growing most rapidly in China,'' the forecaster said. ``The positive outlook for world steel production will support increased demand for steel inputs, principally iron ore and metallurgical coal, over the medium term.''
Contract prices for iron ore in the year starting April 1 have so far increased by as much as 71 percent, the bureau said. Prices for hard-coking coal in the year starting April 1 may surge to a record $200 a metric ton from $98 a ton this contract year, a Bloomberg survey last month showed. Spot prices for thermal coal and coking coal have also climbed to records this year after flooding at mines in Australia and snowstorms in China.
Key Drivers
``China's construction and infrastructure projects are really the key drivers of demand,'' said Gerard Burg, a minerals and energy economist at National Australia Bank Ltd. ``If China remains firm that means positive conditions for commodities.''
Exports of minerals and energy are forecast to jump 33 percent to A$153.4 billion in fiscal 2009, the bureau said. Earnings from energy commodities are forecast to gain 54 percent to A$66.8 billion on increased volumes and higher prices for coal and oil. The bureau expects the price of West Texas Intermediate crude oil to average $86 a barrel in 2008, 20 percent higher than a year earlier.
Australia's earnings from minerals and metals are forecast to gain 21 percent to A$86.7 billion, the bureau said. Gold prices, which rose to a record yesterday, may average $870 an ounce in 2008, 25 percent higher than the year earlier.
The value of wheat exports may more than double to A$4.7 billion as farmers sow a record area, the bureau said. Earnings from cotton, sugar, wine, beef and most dairy products are also tipped to gain, it said.
Sunday, March 2, 2008
Hiring May Have Cooled, Factories Slowed: U.S. Economy Preview
By Shobhana Chandra
March 2 (Bloomberg) -- The unemployment rate in the U.S. probably rose in February as hiring slowed, and manufacturing may have contracted for the second time in three months, economists said before reports this week.
The jobless rate rose to 5 percent from 4.9 percent, according to the median estimate of economists surveyed by Bloomberg News before the Labor Department's March 7 report. Payrolls probably expanded by 25,000, short of the roughly 100,000 needed to keep pace with increases in the labor force.
Fewer jobs, rising fuel costs and falling property values are causing consumers to lose confidence and limit spending. The slump in demand is prompting factories to cut production, pushing the economy closer to a recession and making it more likely the Federal Reserve will cut interest rates further.
``Hiring will slow in coming months,'' said Nigel Gault, chief U.S. economist at Global Insight Inc. in Lexington, Massachusetts. ``The parts of the economy that are doing well aren't enough to offset the parts that are doing badly.''
The projected increase in payrolls last month would follow a decline of 17,000 jobs in January, the first decrease in more than four years. The pace of hiring over the past two months would be the worst start for any year since 2003.
Factory payrolls shrank by 25,000 workers, reflecting automakers' efforts to trim costs, economists project the jobs report may show.
`Potential Drag'
``Slowing job creation is yet another potential drag on household spending,'' Fed Chairman Ben S. Bernanke said in semiannual testimony before lawmakers last week. Other risks to the economy include the possibility that housing may deteriorate more than anticipated and that credit conditions may tighten substantially, he said.
Fed funds futures contracts show 72 percent odds the Fed will lower borrowing costs by three-quarters of a point to 2.25 percent by its March 18 meeting. A week ago, the odds were 2 percent. The odds are better than even that the rate will be cut to 2 percent by April 30.
Financial firms are scaling back employment as losses on subprime mortgage-linked products mount. Morgan Stanley, the second-biggest U.S. securities firm, said on Feb. 13 it will cut 1,000 jobs by shrinking its home-mortgage business in America and closing a U.K. unit.
The moves ensure the New York-based company is ``appropriately positioned for the environment going forward,'' Anthony Meola, chief operating officer of Morgan Stanley's U.S. residential business, said in a statement.
Factories Contract
Manufacturers are pulling back as demand weakens, the Institute for Supply Management may report tomorrow. The Tempe, Arizona-based group's factory index fell to 48 in February from 50.7 the prior month, according to the survey median. A reading of 50 is the dividing line between expansion and contraction.
The worst housing slump in a quarter century is filtering through to services, which reflect almost 90 percent of the economy. The median forecast in the Bloomberg survey shows service industries shrank in February for a second month, a slide not seen since the last recession. The Supply Management group's report is due March 5.
Bloomberg Survey
================================================================
Release Period Prior Median
Indicator Date Value Forecast
================================================================
ISM Manu Index 3/3 Feb. 50.7 48.0
Productivity QOQ% 3/5 4Q 1.8% 1.8%
Labor Costs QOQ% 3/5 4Q F 2.1% 2.1%
Factory Orders MOM% 3/5 Jan. 2.3% -2.5%
ISM NonManu Index 3/5 Feb. 44.6 47.5
Initial Claims ,000's 3/6 2-Mar 373 363
Cont. Claims ,000's 3/6 Feb. 24 2807 2820
Pending Homes MOM% 3/6 Jan. -1.5% -1.0%
Nonfarm Payrolls ,000's 3/7 Feb. -17 25
Unemploy Rate % 3/7 Feb. 4.9% 5.0%
Manu Payrolls ,000's 3/7 Feb. -28 -25
Hourly Earnings MOM% 3/7 Feb. 0.2% 0.3%
Hourly Earnings YOY% 3/7 Feb. 3.7% 3.6%
Avg Weekly Hours 3/7 Feb. 33.7 33.7
Cons. Credit $ Blns 3/7 Jan. 4.5 7.0
================================================================
March 2 (Bloomberg) -- The unemployment rate in the U.S. probably rose in February as hiring slowed, and manufacturing may have contracted for the second time in three months, economists said before reports this week.
The jobless rate rose to 5 percent from 4.9 percent, according to the median estimate of economists surveyed by Bloomberg News before the Labor Department's March 7 report. Payrolls probably expanded by 25,000, short of the roughly 100,000 needed to keep pace with increases in the labor force.
Fewer jobs, rising fuel costs and falling property values are causing consumers to lose confidence and limit spending. The slump in demand is prompting factories to cut production, pushing the economy closer to a recession and making it more likely the Federal Reserve will cut interest rates further.
``Hiring will slow in coming months,'' said Nigel Gault, chief U.S. economist at Global Insight Inc. in Lexington, Massachusetts. ``The parts of the economy that are doing well aren't enough to offset the parts that are doing badly.''
The projected increase in payrolls last month would follow a decline of 17,000 jobs in January, the first decrease in more than four years. The pace of hiring over the past two months would be the worst start for any year since 2003.
Factory payrolls shrank by 25,000 workers, reflecting automakers' efforts to trim costs, economists project the jobs report may show.
`Potential Drag'
``Slowing job creation is yet another potential drag on household spending,'' Fed Chairman Ben S. Bernanke said in semiannual testimony before lawmakers last week. Other risks to the economy include the possibility that housing may deteriorate more than anticipated and that credit conditions may tighten substantially, he said.
Fed funds futures contracts show 72 percent odds the Fed will lower borrowing costs by three-quarters of a point to 2.25 percent by its March 18 meeting. A week ago, the odds were 2 percent. The odds are better than even that the rate will be cut to 2 percent by April 30.
Financial firms are scaling back employment as losses on subprime mortgage-linked products mount. Morgan Stanley, the second-biggest U.S. securities firm, said on Feb. 13 it will cut 1,000 jobs by shrinking its home-mortgage business in America and closing a U.K. unit.
The moves ensure the New York-based company is ``appropriately positioned for the environment going forward,'' Anthony Meola, chief operating officer of Morgan Stanley's U.S. residential business, said in a statement.
Factories Contract
Manufacturers are pulling back as demand weakens, the Institute for Supply Management may report tomorrow. The Tempe, Arizona-based group's factory index fell to 48 in February from 50.7 the prior month, according to the survey median. A reading of 50 is the dividing line between expansion and contraction.
The worst housing slump in a quarter century is filtering through to services, which reflect almost 90 percent of the economy. The median forecast in the Bloomberg survey shows service industries shrank in February for a second month, a slide not seen since the last recession. The Supply Management group's report is due March 5.
Bloomberg Survey
================================================================
Release Period Prior Median
Indicator Date Value Forecast
================================================================
ISM Manu Index 3/3 Feb. 50.7 48.0
Productivity QOQ% 3/5 4Q 1.8% 1.8%
Labor Costs QOQ% 3/5 4Q F 2.1% 2.1%
Factory Orders MOM% 3/5 Jan. 2.3% -2.5%
ISM NonManu Index 3/5 Feb. 44.6 47.5
Initial Claims ,000's 3/6 2-Mar 373 363
Cont. Claims ,000's 3/6 Feb. 24 2807 2820
Pending Homes MOM% 3/6 Jan. -1.5% -1.0%
Nonfarm Payrolls ,000's 3/7 Feb. -17 25
Unemploy Rate % 3/7 Feb. 4.9% 5.0%
Manu Payrolls ,000's 3/7 Feb. -28 -25
Hourly Earnings MOM% 3/7 Feb. 0.2% 0.3%
Hourly Earnings YOY% 3/7 Feb. 3.7% 3.6%
Avg Weekly Hours 3/7 Feb. 33.7 33.7
Cons. Credit $ Blns 3/7 Jan. 4.5 7.0
================================================================
Asia Stock Futures Drop as UBS Predicts More Losses for Markets
By Masaki Kondo
March 3 (Bloomberg) -- Asia's stock index futures fell after UBS AG predicted global financial companies may have losses of at least $600 billion from the collapse of U.S. subprime mortgages.
U.S.-traded receipts of Mizuho Financial Group Inc. retreated 4.7 percent from the closing share price in Tokyo on Feb. 29, while Westpac Banking Corp. lost 1.8 percent. Sony Corp. fell 3.6 percent after the yen strengthened against the dollar to a level not seen in more than three years, cutting the value of overseas earnings.
New Zealand's NZX 50 Index, Asia's first benchmark to begin trading, lost 47.54, or 1.3 percent, to 3,535.19 at 11:53 a.m. in Wellington. Australia's S&P/ASX 200 Index futures contract due in March slumped 2.6 percent to 5,420 at 7:59 a.m. in Sydney.
Nikkei 225 Stock Average futures expiring in March closed at 13,305 in Chicago, down from the close of 13,560 in Osaka and 13,580 in Singapore on Feb. 29.
``Japan's stock market will remain bearish as the U.S. economy is slowing'' and the yen is strengthening against the dollar, Mamoru Shimode, an equity strategist at Deutsche Bank AG, said in an interview with Bloomberg Television.
The Bank of New York Asia ADR Index, which tracks American depositary receipts of the region's companies, slid 3 percent.
March 3 (Bloomberg) -- Asia's stock index futures fell after UBS AG predicted global financial companies may have losses of at least $600 billion from the collapse of U.S. subprime mortgages.
U.S.-traded receipts of Mizuho Financial Group Inc. retreated 4.7 percent from the closing share price in Tokyo on Feb. 29, while Westpac Banking Corp. lost 1.8 percent. Sony Corp. fell 3.6 percent after the yen strengthened against the dollar to a level not seen in more than three years, cutting the value of overseas earnings.
New Zealand's NZX 50 Index, Asia's first benchmark to begin trading, lost 47.54, or 1.3 percent, to 3,535.19 at 11:53 a.m. in Wellington. Australia's S&P/ASX 200 Index futures contract due in March slumped 2.6 percent to 5,420 at 7:59 a.m. in Sydney.
Nikkei 225 Stock Average futures expiring in March closed at 13,305 in Chicago, down from the close of 13,560 in Osaka and 13,580 in Singapore on Feb. 29.
``Japan's stock market will remain bearish as the U.S. economy is slowing'' and the yen is strengthening against the dollar, Mamoru Shimode, an equity strategist at Deutsche Bank AG, said in an interview with Bloomberg Television.
The Bank of New York Asia ADR Index, which tracks American depositary receipts of the region's companies, slid 3 percent.
Bush Deficit Widens to Record as Treasuries Deter U.S. Pensions
By Daniel Kruger and Sandra Hernandez
March 3 (Bloomberg) -- Philadelphia's $4 billion pension deficit is causing the city's retirement-fund manager to shun Treasuries at a time when the Bush administration needs him most.
Yields on 30-year U.S. bonds that fell to a record low of 4.10 percent this year are forcing pension funds to favor equities, corporate debt and commodities in an attempt to cover unfunded liabilities and meet return objectives of about 8 percent. Even the federal government's own Pension Benefit Guaranty Corp. said on Feb. 19 that it plans to shift $15 billion to stocks from debt.
``The reality is there's not a lot we can do'' other than buy high-risk securities to close a pension shortfall in a short period, said Chris McDonough, chief investment officer of the Philadelphia Pensions Department. The sixth-largest U.S. city will probably also issue debt, he said.
Fixed-income holdings at 1,100 funds fell to 23 percent in 2006 from 27 percent in 2003, said Dev Clifford, a consultant at financial market research firm Greenwich Associates in Greenwich, Connecticut. Results of a survey covering 2007 will be released this month and likely show that funds own an even smaller percentage of bonds, he said.
Philadelphia's predicament couldn't come at a worse time for George W. Bush, whose administration forecasts a $410 billion budget deficit for this fiscal year ending Sept. 30, approaching the record of $413 billion set in 2004. The figure may eventually reach as much as $800 billion, according to Bill Gross, manager of the world's biggest bond fund at Pacific Investment Management Co. in Newport Beach, California.
Supply Swamp
The budget shortfall will force the Treasury Department to increase its borrowing by 145 percent from $163 billion, according to UBS Securities LLC, swamping the market just as longer-maturity debt turns into a money-loser for investors.
Treasuries due in 30 years, a favorite of the $7.8 trillion pension industry because they allow managers to best match assets and liabilities over time, fell 0.66 last month, after returning 2 percent in January and 10.4 percent in all of 2007, according to Merrill Lynch & Co. index data.
Pension funds hold about $44 billion, or 20 percent, of the $205 billion in Treasuries maturing in 20 years or longer, Greenwich Associates estimates.
``In the long run I don't know if there's going to be too much value'' in Treasuries, said Jeremy Wolfson, who oversees $8.5 billion as chief investment officer at the City of Los Angeles Department of Water and Power Pension Fund. He said the fund will pare its debt holdings to 25 percent from 35 percent and raise its holding of non-U.S. assets such as international stocks to 24 percent from 15 percent over the next four years.
Declining Demand
The yield on the benchmark 4 3/8 percent bond due in February 2038 fell 17 basis points last week to 4.40 percent after Federal Reserve Chairman Ben S. Bernanke told Congress that central bankers are ready to reduce interest rates further to keep the economy from a recession. The U.S. began regular sales of 30-year Treasuries in 1977.
More pension officials are hiring outside managers who favor alternative investments to run their funds, indicating ``the proportion in something like Treasuries would be going down,'' Clifford said.
The $240 billion California Public Employees' Retirement System, the largest U.S. pension plan, agreed at a Feb. 19 board meeting to hold between 0.5 percent and 3 percent of its assets in commodities, spokesman Clark McKinley said. Calpers, facing pressure from state and local governments to boost returns, would reduce its bond holdings to 19 percent from 26 percent.
$731 Billion Short
U.S. states owe an estimated $2.73 trillion in pension and benefit payments to retirees over the next 30 years, according to a December report from the Pew Center on the States. They are short almost 27 percent, or $731 billion, of that amount. The Government Accountability Office said last week that 58 percent of 65 large state and local pension plans were adequately funded in 2006, down from 90 percent in 2000.
Such studies may overstate the health of pensions because they are allowed to include expected returns in determining their funding gap, said Mark Ruloff, director of asset allocation at Arlington, Virginia-based consultant Watson Wyatt Worldwide Inc.
That gives them further motive to ``get rid of Treasuries'' and buy stocks, he said.
Credit Crisis
Declines this year in stocks, hedge funds and other investments make those assets too dangerous, said Chriss Street, treasurer of Orange County, California, which has a $2.3 billion plan that is 71 percent funded. The Standard & Poor's 500 Index is down 9.4 percent this year.
``This is the worst credit crisis in the last 25 to 30 years and that's not going to change,'' said Street, who has recommended the fund buy five-year Treasuries. ``It's a good time to own bonds.''
Falling Treasury yields have made other fixed-income investments more attractive, said Barbara Novick, vice chairman and head of the account management group in New York at Blackrock Inc., which manages $513 billion in fixed-income assets.
Investment-grade corporate bonds yield 2.47 percentage points more than Treasuries on average, up from 0.89 percentage point a year ago, according to Merrill Lynch indexes.
``Yield spreads have widened to such a great extent, this is exactly the time to go into other things,'' Novick said.
March 3 (Bloomberg) -- Philadelphia's $4 billion pension deficit is causing the city's retirement-fund manager to shun Treasuries at a time when the Bush administration needs him most.
Yields on 30-year U.S. bonds that fell to a record low of 4.10 percent this year are forcing pension funds to favor equities, corporate debt and commodities in an attempt to cover unfunded liabilities and meet return objectives of about 8 percent. Even the federal government's own Pension Benefit Guaranty Corp. said on Feb. 19 that it plans to shift $15 billion to stocks from debt.
``The reality is there's not a lot we can do'' other than buy high-risk securities to close a pension shortfall in a short period, said Chris McDonough, chief investment officer of the Philadelphia Pensions Department. The sixth-largest U.S. city will probably also issue debt, he said.
Fixed-income holdings at 1,100 funds fell to 23 percent in 2006 from 27 percent in 2003, said Dev Clifford, a consultant at financial market research firm Greenwich Associates in Greenwich, Connecticut. Results of a survey covering 2007 will be released this month and likely show that funds own an even smaller percentage of bonds, he said.
Philadelphia's predicament couldn't come at a worse time for George W. Bush, whose administration forecasts a $410 billion budget deficit for this fiscal year ending Sept. 30, approaching the record of $413 billion set in 2004. The figure may eventually reach as much as $800 billion, according to Bill Gross, manager of the world's biggest bond fund at Pacific Investment Management Co. in Newport Beach, California.
Supply Swamp
The budget shortfall will force the Treasury Department to increase its borrowing by 145 percent from $163 billion, according to UBS Securities LLC, swamping the market just as longer-maturity debt turns into a money-loser for investors.
Treasuries due in 30 years, a favorite of the $7.8 trillion pension industry because they allow managers to best match assets and liabilities over time, fell 0.66 last month, after returning 2 percent in January and 10.4 percent in all of 2007, according to Merrill Lynch & Co. index data.
Pension funds hold about $44 billion, or 20 percent, of the $205 billion in Treasuries maturing in 20 years or longer, Greenwich Associates estimates.
``In the long run I don't know if there's going to be too much value'' in Treasuries, said Jeremy Wolfson, who oversees $8.5 billion as chief investment officer at the City of Los Angeles Department of Water and Power Pension Fund. He said the fund will pare its debt holdings to 25 percent from 35 percent and raise its holding of non-U.S. assets such as international stocks to 24 percent from 15 percent over the next four years.
Declining Demand
The yield on the benchmark 4 3/8 percent bond due in February 2038 fell 17 basis points last week to 4.40 percent after Federal Reserve Chairman Ben S. Bernanke told Congress that central bankers are ready to reduce interest rates further to keep the economy from a recession. The U.S. began regular sales of 30-year Treasuries in 1977.
More pension officials are hiring outside managers who favor alternative investments to run their funds, indicating ``the proportion in something like Treasuries would be going down,'' Clifford said.
The $240 billion California Public Employees' Retirement System, the largest U.S. pension plan, agreed at a Feb. 19 board meeting to hold between 0.5 percent and 3 percent of its assets in commodities, spokesman Clark McKinley said. Calpers, facing pressure from state and local governments to boost returns, would reduce its bond holdings to 19 percent from 26 percent.
$731 Billion Short
U.S. states owe an estimated $2.73 trillion in pension and benefit payments to retirees over the next 30 years, according to a December report from the Pew Center on the States. They are short almost 27 percent, or $731 billion, of that amount. The Government Accountability Office said last week that 58 percent of 65 large state and local pension plans were adequately funded in 2006, down from 90 percent in 2000.
Such studies may overstate the health of pensions because they are allowed to include expected returns in determining their funding gap, said Mark Ruloff, director of asset allocation at Arlington, Virginia-based consultant Watson Wyatt Worldwide Inc.
That gives them further motive to ``get rid of Treasuries'' and buy stocks, he said.
Credit Crisis
Declines this year in stocks, hedge funds and other investments make those assets too dangerous, said Chriss Street, treasurer of Orange County, California, which has a $2.3 billion plan that is 71 percent funded. The Standard & Poor's 500 Index is down 9.4 percent this year.
``This is the worst credit crisis in the last 25 to 30 years and that's not going to change,'' said Street, who has recommended the fund buy five-year Treasuries. ``It's a good time to own bonds.''
Falling Treasury yields have made other fixed-income investments more attractive, said Barbara Novick, vice chairman and head of the account management group in New York at Blackrock Inc., which manages $513 billion in fixed-income assets.
Investment-grade corporate bonds yield 2.47 percentage points more than Treasuries on average, up from 0.89 percentage point a year ago, according to Merrill Lynch indexes.
``Yield spreads have widened to such a great extent, this is exactly the time to go into other things,'' Novick said.
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