Warren Buffett’s Berkshire Hathaway Inc sold a ¥281.8 billion (US$1.89 billion or RM8.11 billion) multi-tranche bond on Thursday in a deal that’s fuelling speculation the legendary investor will increase his exposure to Japanese assets.

The firm priced a seven-part bond deal with tenors spanning three to 30 years in Berkshire’s biggest yen-denominated deal since its debut sale in 2019. All maturities except the three-year tranche offered higher premiums relative to its corresponding yen-note offering in April. 

The billionaire’s fundraising in Japan is being closely watched by equity-market investors because Buffett has used yen funds raised in the bond market to purchase holdings in Japanese companies. His stake increases in five major trading houses helped drive up the Nikkei 225 Stock Average to a record high earlier this year. Should Berkshire’s investment choices widen to other stocks such as banks, insurers and shippers, as some analysts speculate, that may lead to more gains for the Japanese market.

The deal was a key test of investor demand for yen-denominated bonds given a shift in Bank of Japan (BOJ) policy this year away from ultra-easy rates. The wider premiums on Berkshire’s longer-tenor debt reflected investors’ caution about the outlook for interest rates. 

The 10-year part offered a spread of 82 basis points over mid swaps compared with 71 basis points in April, while a 20-year note carried a premium of 91 basis points versus 78 basis points.

The BOJ is widely expected to hold its settings steady when it next sets policy on Oct 31, and some economists pushed back their forecasts for a year-end hike after new Prime Minister Shigeru Ishiba said last week that conditions are inappropriate for such action.

Source: Theedgemarkets

South Korean bonds got a boost, thanks to the country’s surprise inclusion in a global index and growing bets that the central bank will lower interest rates this week.

Futures on South Korea’s 10-year bonds rose as much as 37 ticks, the most since Oct 2, defying a widespread decline in government bonds overnight. Futures on Korea’s three-year debt gained rose slightly, while the Korean won won slipped 0.2%. 

The moves came as the country returned from a public holiday, making Thursday the first time bond traders had a chance to respond to the inclusion of Korean notes in FTSE Russell’s World Government Bond Index, which should ultimately attract foreign inflows of between US$56 billion (RM240 billion) and US$70 billion, according to analysts at Barclays Plc and State Street Corp. 

While Korea’s bonds will only join the benchmark from late 2025, the prospect of fresh capital is lifting the debt market ahead of the Bank of Korea’s (BOK) hotly anticipated meeting on Friday, when it is expected to reduce interest rates. 

There are only “modest downside risks” against Korea’s 10-year government bond yields heading towards 2.75% by the first quarter of next year, said Jennifer Kusuma, a senior Asia rates strategist at at Australia & New Zealand Banking Group Ltd. The incremental increase in foreign debt demand as a result of the index inclusion, should help mitigate against the risk of rising bond supply in 2025, she added.

Yields on Korea’s 10-year notes are hovering around 3.1%, after declining over the last few months, as investors shifted their interest-rate expectations.

Goldman Sachs Group Inc strategist Danny Suwanapruti said the FTSE Russell announcement was likely a surprise to many in the market, after several banks had predicted the index revision probably wouldn’t be announced until next year. He said the move would provide a “slight tailwind” for both Korea’s government bonds and its currency.

The won will appreciate to between 1,320 to 1,330 per dollar on the back of the index inclusion, according to Kiyong Seong, an Asia macro strategist at Societe Generale SA. The currency traded at around 1,349 on Thursday.

FTSE Russell’s decision was a win for South Korea’s government, which had campaigned for inclusion and made changes to the local market, to win the index provider’s approval. The changes included extending trading hours for the currency, and making it easier for foreign investors to settle their trades through Euroclear, a Belgium-based clearing house.

Most economists expect the BOK to cut rates by a quarter-percentage-point on Friday, as signs of cooling in Seoul’s property market give the BOK the breathing room to join a widespread pivot to monetary easing among global central banks. 

Korea’s low yields relative to the US have made the won one of the worst performing currencies in Asia this year, and global funds pulling money from the equity market have contributed to the weakness.

Source: Theedgemarkets

Federal Reserve Bank of Dallas president Lorie Logan said she supports a slower path of interest-rate reductions as the central bank normalises policy away from its highest level in more than 20 years.

Logan said she remains focused on both the inflation and employment sides of the Fed’s dual mandate and outlined several risks in the economic outlook that justify a more measured approach to policy. While she doesn’t vote on monetary policy this year, Logan said she supported lowering borrowing costs at the central bank’s September meeting.

“Following last month’s half-percentage-point cut in the fed funds rate, a more gradual path back to a normal policy stance will likely be appropriate from here to best balance the risks to our dual-mandate goals,” Logan said on Wednesday in prepared remarks for an event in Houston. 

The Federal Open Market Committee (FOMC) last month lowered rates for the first time since the onset of the pandemic, cutting by a larger-than-normal 50 basis points amid signs of weakening in the labour market and as inflation cooled towards the Fed’s 2% target. 

A narrow majority of Fed officials penciled in another half point of cuts this year, implying a quarter-point reduction at each of their two remaining meetings. Seven officials supported just one additional 25-basis-point cut and two projected that no further reductions would be needed.

Logan, who last spoke publicly about the economy and monetary policy in June, lauded the continued drop in price pressures, saying disinflation has been broad based. The labour market, despite some cooling, remains healthy, she added. 

Monetary policy is still restrictive, Logan said, and should continue to weigh on demand for housing and other services.

“Inflation and the labour market are in striking distance of our goals rather than seriously overheated,” Logan said. “Less-restrictive policy will help avoid cooling the labour market by more than is necessary to bring inflation back to target in a sustainable and timely way.”

But she cited various uncertainties in the outlook for each as reason to cut rates at a more measured pace.

Some upside risks to inflation remain, with consumer spending and economic activity still robust, Logan said, and further easing in financial conditions could boost aggregate demand.

“I continue to see a meaningful risk that inflation could get stuck above our 2% goal,” she said.

The Dallas Fed chief also cited measurement issues that make deciphering the labour market more complicated right now. Data revisions, faster immigration, natural disasters and strikes, including a recent action by dock workers on the East and Gulf coasts, all muddy the workforce picture. 

“These risks suggest the FOMC should not rush to reduce the fed funds target to a ‘normal’ or ‘neutral’ level but rather should proceed gradually while monitoring the behavior of financial conditions, consumption, wages and prices,” Logan said.

Neutral uncertainty

Logan repeated that the neutral level of interest rates, where they neither weigh on nor stimulate the economy, may be higher now amid increased investment and potentially higher productivity growth. Moving more slowly would allow policymakers to better feel out where exactly neutral is.

“In this uncertain environment, lowering the policy rate gradually would allow time to judge how restrictive monetary policy may or may not be and reduce the risk of inadvertently boosting inflation by bringing the policy rate below its neutral level,” Logan said.

Other policymakers have similarly argued for moving at a slower pace, and Fed chair Jerome Powell urged against assuming the Fed would continue cutting in such large increments. A labour market report released last week showed strong hiring in September and drove down market bets on a larger cut at the Fed’s next meeting in November. Markets now expect a quarter-point cut, followed by another such move in December.

Source: The edge markets

Poorer households in Germany, particularly single parents and people living alone, are suffering most from rising rental costs, a study showed on Wednesday, amid a looming recession and the country's most severe property market crisis in a generation.

A report by the German Institute for Economic Research (DIW) showed that low-income groups allocate a larger share of their income to rent than wealthier households, with the gap steadily widening.

From 2010 to 2022, asking rents surged by 50% nationally and by up to 70% in large cities, while existing rents grew by 20%. The 20% of households with the lowest incomes spent over a third of their income on rent in 2021, compared to just a fifth for the wealthiest.

Single parents and individuals living alone are particularly vulnerable, spending on average 30% of their income on rent, compared to around 20% for families with children.

The percentage of overburdened households — those spending over 40% of their income on rent — has increased from 5% to 14% over the past 30 years, while social housing stock has declined.

The rise in rents adds to Germans' cost of living crisis which has not eased despite a drop in property demand after a rise in interest rates and building costs.

To address the social housing shortage, the German government in 2021 set a target of building 400,000 apartments annually, but only 294,400 apartments were built last year.

In Berlin, where rents rose by over 40% in 2023 compared to seven years earlier, the city government tried to impose a cap on rent in 2020 which was later overturned by Germany's top court as unconstitutional.

DIW study authors cautioned against broad rent control measures, saying they do not specifically aid low-income groups, instead calling for targeted support for low-income renters and an expansion of social housing.

Source: Theedgemarkets

Taiwan-listed Ennoconn Corp’s bid to acquire Nera Telecommunications (NeraTel) at $0.075 a share is being met with opposition, with the Securities Investors Association (Singapore), or Sias, advising shareholders to reject the offer.

In a statement on Oct 9 evening, Sias’ founder and chief executive David Gerald pointed out that this sentiment was shared by both the appointed independent financial adviser (IFA) SAC Capital – which believed that the price was “not fair and not reasonable” – and NeraTel’s independent directors (IDs).

The word “mandatory” in the offer description does not mean that all shareholders are legally obliged to accept the offer, he added. “Everyone is perfectly entitled to hang on to their shares if they so wish, this being all the more so given the advice of the IFA.”

Furthermore, Ennoconn had emphasised in its offer that it will not revise its price, it does not expect to exercise any rights of compulsory acquisition, and that it intends to retain NeraTel’s listing status.

“SIAS’ recommendation is therefore the same as the IFA and the IDs – shareholders should reject the offer,” said Mr Gerald.

Earlier in September, NeraTel had received an offer from Ennoconn for all the shares in the company it does not own at $0.075 apiece.

This came after Ennoconn entered a share purchase agreement with Asia Systems for the purchase of close to 193.2 million shares in the issued and paid-up ordinary share capital of NeraTel for $0.075 per share. That represents nearly 53.4 per cent of the total number of shares in NeraTel.

As Ennoconn acquired over 50 per cent of NeraTel’s shares, a mandatory unconditional cash offer for the remaining shares it does not own was triggered.

The $0.075 offer price was a 5.1 per cent discount to the volume-weighted average price (VWAP) of the shares traded in the month prior to the offer, and a 3.8 per cent discount to the VWAP of the shares traded in the three-month period prior to the offer. 

Source: Straitstimes