2024-08-27 14:32

BRASILIA, Aug 27 (Reuters) - Brazil's Senate Economic Affairs Committee (CAE) will not hold a confirmation hearing next week for the candidate chosen by President Luiz Inacio Lula da Silva to head the central bank, the committee’s chair said. "It can wait. It won’t happen next week, I guarantee that," Senator Vanderlan Cardoso told Reuters on Monday night. "We need the right moment, when discussions between the Senate and the government are better. Right now, we’re in a slightly delicate moment," Cardoso said. Cardoso emphasized that the government has yet to present any names for the central bank and suggested that the mood might be more favorable for the Senate to quickly approve the nominations after the first round of municipal elections in early October. He also said that the government did not honor an agreement regarding a legislative decree that eases gun ownership rules, contributing to a sense of unease he believes could be resolved once the issue is settled. In practice, the process is likely to take longer than the government initially suggested. Finance Minister Fernando Haddad mentioned in mid-August that the issue was on Lula’s agenda for "the coming weeks." Government members told Reuters, on anonymity, that anticipating the nomination would effectively spotlight the next central bank chief, even though Lula's pick would only take office early next year, thereby diminishing the weight of statements from governor Roberto Campos Neto. Lula, who has criticized Campos Neto multiple times since taking office last year, needs to appoint his substitute, along with the next directors of regulation and institutional relations, who also take office in January 2025. Given the widespread expectation that current central bank monetary policy director Gabriel Galipolo will be chosen to head the central bank, the current vacancy in his role would also need to be filled in this reshuffle. Two other sources with knowledge of the matter told Reuters that the government is rethinking when Lula might unveil his appointments to the central bank's board after senators signaled that it would be better to wait, citing the reduced presence of senators in Brasilia due to the election period. One of the sources said recent disputes between branches of government over the release of parliamentary appropriations could sour the mood for the confirmation hearings. Sign up here. https://www.reuters.com/world/americas/lula-pick-brazil-central-bank-chief-wont-face-senate-hearing-next-week-senator-2024-08-27/

2024-08-27 14:08

WASHINGTON, Aug 27 (Reuters) - U.S. single-family home prices fell in June, leading to the smallest annual increase in nearly a year, as higher mortgage rates pushed buyers to the sidelines and boosted housing supply. House prices dipped 0.1% on a month-on-month basis after being unchanged in May, the Federal Housing Finance Agency said on Tuesday. They increased 5.1% in the 12 months through June, the smallest year-on-year rise since July 2023, after advancing by an upwardly revised 5.9% in May. The rise in annual house prices was previously reported to have been 5.7% in May. Prices were up 0.9% in the second quarter compared to the January-March quarter. They increased 5.7% between the second quarter of 2023 and the April-June quarter this year. "U.S. house prices saw the third consecutive slowdown in quarterly growth," said Anju Vajja, deputy director for FHFA's division of research and statistics. "The slower pace of appreciation as of June end was likely due to higher inventory of homes for sale and elevated mortgage rates." House price inflation is likely to moderate further in the months ahead as new housing supply has surged to levels last seen in early 2008. The existing homes inventory has also risen to the highest level in nearly four years. An outright decline in house prices is, however, unlikely in the absence of significant labor market deterioration. Lower mortgages, with the Federal Reserve expected to begin its interest rate cutting cycle next month, should boost demand and absorb some of the excess inventory. All nine census regions recorded annual house price gains in June, with big increases in the Middle Atlantic, East North Central, New England and East South areas. Prices in the West South Central region trailed with a 2.7% increase. Sign up here. https://www.reuters.com/markets/us/us-house-prices-fall-monthly-basis-june-2024-08-27/

2024-08-27 13:39

Delayed ratings cut blindsided investors in safest tranche of CMBS Failed property sale and delayed appraisals led to overly optimistic valuations Critics worry about timely downgrades for other bonds in similar positions August 27 (Reuters) - A failed attempt to sell a New York City office tower helped cause more than a year-long delay for two credit rating agencies to downgrade a commercial mortgage bond to junk, according to a source familiar with the situation and a review of filings from the agencies. The delayed ratings cut of 1740 Broadway bonds blindsided investors in the safest tranche of the commercial mortgage-backed securities (CMBS). The 26% loss on their $157.5 million investment sent shockwaves across financial markets that rely heavily on ratings as an assessment of credit quality, and marked the first loss on a AAA-rated bond since the 2008 financial crisis. Credit rating agencies S&P and DBRS Morningstar downgraded the top-rated AAA tranche of a commercial mortgage-backed security (CMBS) on 1740 Broadway to below investment grade in August and November 2023, respectively. But it was March of 2022, at least 17 months earlier, when private equity firm Blackstone Group, the owner of the building, turned the keys over to investors after the anchor tenant decided to move out in the aftermath of COVID-19, according to the agency reports. While the loss on the CMBS is known, the Reuters review of the agency reports and interviews with a half dozen mortgage experts, including a person who was involved in the situation, for the first time piece together the sequence of events that led to the delay in ratings downgrades. They show that a failed attempt to sell the property in late 2022 and delayed property appraisals led to the overly optimistic view for months of how much money the building could fetch to repay investors. S&P and DBRS told Reuters they shared the rationale behind their actions on 1740 Broadway and its ratings criteria and methodology, as well as research that highlighted the challenges in the office sub-sector, including price discovery, through published reports. They had no additional comments. A Blackstone spokesperson said the investment firm "worked with relevant parties to reach a resolution." Credit ratings are used across the financial system to assess the risk of defaults, helping financial institutions and investors determine how much capital they need to keep on hand to absorb any losses. Many more bonds worth billions of dollars are in a similar position, and critics said the failure to downgrade in a timely manner is worrying. "Investor losses in 1740 Broadway, even at the AAA tranche, call to mind the ugly specter of 2007's housing crisis and the ratings agencies' participation in that horrific destruction of wealth," said Paul Feinstein, CEO of Audent Global Asset Management, which invests in real estate. SPECIAL SERVICER Blackstone bought 1740 Broadway in 2014 for $605 million. The debt that financed the purchase was packaged into the CMBS the following year. The building’s main tenant was L Brands, which at the time was the owner of Victoria’s Secret and other brands. S&P and DBRS rated the top tranche of the security – the first to be paid interest from the building’s income – as AAA. At the time of the CMBS issuance, DBRS noted in its rating report an issue with how cash from the L-Brands lease was not being saved for a rainy day. But it took into account "strong sponsorship in Blackstone" as a mitigating factor. Trouble started when L Brands said they would move out in March 2022, prompting Blackstone to default on the loan. In a commercial backed mortgage security, distressed properties are turned over to a special servicer, an agent for investors in the bond who must then resolve the property, usually by selling it. Soon after Green Loan Services was appointed as the special servicer in April 2022, it identified a buyer that was offering the full value of the property, something that would have paid back all the bond investors, according to the source familiar with the matter. Over the ensuing months, the discussions between the special servicer and the potential buyer, previously unreported, got advanced enough for them to start drawing paperwork for the sale, the source said. But around the same time, the Federal Reserve was raising interest rates to tackle runaway inflation as the country emerged from the pandemic, hurting property values. More than seven months later, in December 2022, the buyer eventually balked and the deal fell apart, the source said. The lengthy sales talks meant that an independent appraisal for the building was never ordered, ratings agency reports show. An appraisal would have revealed the market value of the property at the time and if it was sufficient to pay down bondholders. Absent that, agencies relied on their models, which projected the value to be more than it was worth. In an April 2022 review, for example, S&P estimated the property was worth $270.4 million, giving it comfort to keep the rating intact. LOW APPRAISAL The appraisal was expected to be ordered, according to S&P, in the second quarter of 2023. In late February 2023, Green Loan was replaced by Midland Loan Services, a unit of PNC (PNC.N) , opens new tab, as the special servicer. The switch put the appraisal on hold again, S&P said in a March 2023 report. DBRS, too, said Midland reported ongoing discussions "to determine the appropriate disposition strategy." Midland and PNC did not respond to requests for comment. An appraisal was finally provided in July 2023, according to a DBRS report. It valued the building at just $175 million, which meant there was not enough money to pay what AAA holders were owed. S&P cut its rating on the bonds to BB+, which is below investment grade. The AAA bonds, which were until then hovering around 90 cents to the dollar, declined to 75 cents and then to 60 cents, said Jeff Berenbaum, head of CMBS strategy at Citigroup. Sign up here. https://www.reuters.com/markets/us/failed-sale-appraisal-delays-behind-first-loss-aaa-bond-since-2008-crisis-2024-08-27/

2024-08-27 12:56

LONDON, Aug 27 (Reuters) - Sterling reached a two-year high against the dollar on Tuesday, and also gained on the euro, supported by bets the Bank of England will cut rates less dramatically than the Federal Reserve while the British economy outperforms the euro zone. The pound rose as high as $1.3246, its highest since March 2022, and was last up 0.25% at $1.3222. The dollar has been under pressure in August as traders become more confident of significant Federal Reserve rate cuts this year, and the pound has been one beneficiary. Markets are now priced for 100 basis points of cuts across the Fed's three remaining meetings this year, compared with around 40 basis points for the BoE - though the BoE did cut rates in August. Bank of England governor Andrew Bailey said on Friday at the Kansas City Fed's annual economic conference in Jackson Hole that further interest rate cuts would not be rushed because it was still too soon to be sure inflation was beaten. In contrast, at the same event a few hours earlier Fed chair Jerome Powell said that "the time had come" for the U.S. interest rate cuts. "There was certainly a more cautious tone to the speech from Bailey in contrast to Fed Chair Powell's speech," said Derek Halpenny, head of research global markets EMEA at MUFG, in a note to clients. Also in the mix is British inflation, which has slowed to around the BoE's 2% target, despite stickiness in services prices. "The faster drop in inflation coupled with the expected caution from the BoE leaves the BoE with the expected most attractive real policy rate across G10 by the middle of next year and this fact will continue to act as a support for the pound," Halpenny said. He added that MUFG would adjust its sterling forecast higher. The pound also gained on the euro, with the common currency last down 0.27% at 84.45 pence, its lowest since Aug. 1. Analysts at UBS said that they thought British domestic economic developments would be supportive for the pound as opposed to "still-subdued European economic data". They have a 83 pence target for the pair by year-end. Sign up here. https://www.reuters.com/markets/currencies/pound-hits-two-year-high-dollar-gains-euro-2024-08-27/

2024-08-27 12:54

KURCHATOV, Russia, Aug 27 (Reuters) - U.N. nuclear agency chief Rafael Grossi said after visiting Russia's Kursk nuclear power plant on Tuesday that there was a risk of a "nuclear incident" and the situation was serious. Russia says the plant has been repeatedly attacked by Ukrainian forces that are just 40 km (25 miles) away after carving out a slice of Russian territory this month. Ukraine has yet to respond to the accusations. Grossi, head of the International Atomic Energy Agency, told a news conference that the plant was extremely fragile because it had no protective dome. He said the site was currently still operating very close to normal conditions, but this meant that the situation regarding its security was even more serious. Sign up here. https://www.reuters.com/world/europe/iaea-chief-grossi-says-there-is-risk-nuclear-incident-russias-kursk-region-2024-08-27/

2024-08-27 12:33

Aug 27 (Reuters) - Nasdaq (NDAQ.O) , opens new tab is seeking the green light from regulators to launch and trade options on a bitcoin index, the exchange operator said on Tuesday. The U.S. Securities and Exchange commission has yet to approve options based on any of the individual exchange-traded funds tied to spot bitcoin prices that made their debut in January, including a Nasdaq application to trade options on BlackRock's (BLK.N) , opens new tab $21.3-billion iShares Bitcoin Trust ETF (IBIT.O) , opens new tab. The proposed index options - listed derivatives offering a quick and inexpensive way to amplify exposure to bitcoin - on a bitcoin index would give institutional investors and traders an alternative way to hedge their exposure to the world's largest cryptocurrency. "It's important for options on bitcoin to be available for this asset class to be fully normalized," said Matt Hougan, chief investment officer of Bitwise, one of the group of asset managers that brought bitcoin ETFs to market this year. "We're missing a part of the liquidity picture that ETF options would provide." Options are listed derivatives that give the holder the right to buy or sell an asset, such as a stock or exchange-traded product, at a predetermined price by a set date. They offer traders a cheap way to amplify their purchasing power, while institutional investors use them to hedge risk. The proposed Nasdaq Bitcoin Index Options would track the CME CF Bitcoin Real-Time Index, developed by CF Benchmarks to track bitcoin futures and options contracts available on the exchange operated by CME Group (CME.O) , opens new tab, Nasdaq said. While waiting for regulators to approve or deny options on the new spot bitcoin ETFs, traders have turned to other products, such as recently-launched leveraged ETFs tied to bitcoin and options on those funds. Exchanges began applying for the spot bitcoin ETF options as soon as it was clear the SEC would approve the underlying ETFs in January. But in recent weeks, they have withdrawn and then refiled those applications in response to SEC comments, said people familiar with the matter. Sign up here. https://www.reuters.com/technology/nasdaq-seeks-sec-approval-bitcoin-index-options-2024-08-27/