Aurelia Butler

TOKYO (Reuters) – Japanese Prime Minister Fumio Kishida ordered his cabinet to compile a fresh relief package to cushion the economic blow from rising fuel and raw material prices, economy minister Daishiro Yamagiwa said on Tuesday.Kishida has said the government will aim to compile the package by the end of April with funding mostly to come from special reserves set aside under the fiscal 2022 budget. More

NEW YORK (Reuters) – The U.S. Treasury yield curve has been flattening with parts of it inverting as investors price in an aggressive rate-hiking plan by the Federal Reserve as it attempts to bring inflation down from 40-year highs.That has investors trying to guess whether it is signaling a recession is nearing. The shape of the yield curve is a key metric investors watch as it impacts other asset prices, feeds through to banks’ returns and has been an indicator of how the economy will fare. Recent moves have reflected investor worries over whether the Fed can tighten monetary policy to tame inflation without hurting economic growth. Investors watch parts of the yield curve as recession indicators, primarily the spread between the yield on three-month Treasury bills and 10-year notes and the U.S. two-year to 10-year curve. However these two have veered in opposite directions, causing some confusion as to how accurate a recession signal they are giving.Other parts of the curve are less-watched, such as the spread between five- and 30-year Treasuries which inverted on Monday and has also inverted prior to some recessions. Here is a quick primer explaining what a steep, flat or inverted yield curve means and how it has in the past predicted recession, and what it might be signaling now.WHAT SHOULD THE CURVE LOOK LIKE? The U.S. Treasury finances federal government budget obligations by issuing various forms of debt. The $23 trillion https://fred.stlouisfed.org/series/MVMTD027MNFRBDAL Treasury market includes Treasury bills with maturities from one month out to one year, notes from two years to 10 years, as well as 20- and 30-year bonds.The yield curve plots the yield of all Treasury securities.Typically, the curve slopes upwards because investors expect more compensation for taking on the risk that rising inflation will lower the expected return from owning longer-dated bonds. That means a 10-year note typically yields more than a two-year note because it has a longer duration. Yields move inversely to prices. A steepening curve typically signals expectations of stronger economic activity, higher inflation, and higher interest rates. A flattening curve can mean the opposite: investors expect rate hikes in the near term and have lost confidence in the economy’s growth outlook.WHAT DOES AN INVERTED CURVE MEAN?The U.S. curve has inverted before each recession since 1955, with a recession following between six and 24 months, according to a 2018 report https://www.frbsf.org/economic-research/publications/economic-letter/2018/march/economic-forecasts-with-yield-curve by researchers at the Federal Reserve Bank of San Francisco. It offered a false signal just once in that time.The last time the 2/10 part of the yield curve inverted was in 2019. The following year, the United States entered a recession – albeit one caused by the global pandemic.WHY IS THE YIELD CURVE INVERTING NOW? Yields of short-term U.S. government debt have been rising quickly this year, reflecting expectations of a series of rate hikes by the U.S. Federal Reserve, while longer-dated government bond yields have moved at a slower pace amid concerns policy tightening may hurt the economy.As a result, the shape of the Treasury yield curve has been generally flattening and in some cases inverting. Flatter by the month – US yield curve https://fingfx.thomsonreuters.com/gfx/mkt/mypmnqkdnvr/Pasted%20image%201648502812707.pngParts of the yield curve, namely five to 10 and three to 10 years, inverted last week. The spread between five- and 30-year U.S. Treasury yields on Monday fell to as low as minus 7 basis points (bps), moving below zero for the first time since February 2006, according to Refinitiv data. The spread has collapsed from a positive 53 bps at the start of this month. The 5/30 year spread inverted prior to the 2008-09 recession and prior to the 2001 recession, but not prior to the pandemic-induced 2020 recession. Yield curve inversions and recessions, 5-yr/30-yr curve https://fingfx.thomsonreuters.com/gfx/mkt/zjpqkdwzxpx/Pasted%20image%201648486055821.pngIn the overnight index swaps (OIS) market, the yield curve between two- and 10-year swap rates inverted for the first time since late 2019 and last stood at minus 4 bps, according to Refinitiv data. Two parts of the curve are particularly closely watched: One is the gap between yields on two- and 10-year Treasury notes, widely seen to predict a recession when it inverts. That spread was at 12.1 basis points from 24 basis points 10 days ago. ARE WE GETTING MIXED SIGNALS? Still, another closely monitored part of the curve has been giving off a different signal: The spread between the yield on three-month Treasury bills and 10-year notes this month has been widening, causing some to doubt a recession is imminent.Yield curve inversions and recessions, 3-mo/10-yr curve https://fingfx.thomsonreuters.com/gfx/mkt/gkplgqdrwvb/Pasted%20image%201648503037022.pngMeanwhile, the two-year/10-year yield curve has technical issues, and not everyone is convinced the flattening curve is telling the true story. They say the Fed’s bond buying program of the last two years has resulted in an undervalued U.S. 10-year yield that will rise when the central bank starts shrinking its balance sheet, steepening the curve.U.S. benchmark 10-year yields pushed above the 2.5% marker to 2.55% Monday, hitting their highest since April 2019. In February they topped the 2% level for the first time since 2019. Yield curve inversions and recessions, 2-yr/10-yr curve https://fingfx.thomsonreuters.com/gfx/mkt/dwvkrqebxpm/Pasted%20image%201648485936956.pngResearchers at the Fed, meanwhile, put out a paper https://www.federalreserve.gov/econres/notes/feds-notes/dont-fear-the-yield-curve-reprise-20220325.htm on March 25 that suggested the predictive power of the spreads between 2 and 10-year Treasuries to signal a coming recession is “probably spurious,” and suggested a better herald of a coming economic slowdown is the spread of Treasuries with maturities of less than 2 years. WHAT DOES THIS MEAN FOR THE REAL WORLD? While rate increases can be a weapon against inflation, they can also slow economic growth by increasing the cost of borrowing for everything from mortgages to car loans.Aside from signals it may flash on the economy, the shape of the yield curve has ramifications for consumers and business. When short-term rates increase, U.S. banks tend to raise their benchmark rates for a wide range of consumer and commercial loans, including small business loans and credit cards, making borrowing more expensive for consumers. Mortgage rates also rise.When the yield curve steepens, banks are able to borrow money at lower interest rates and lend at higher interest rates. Conversely, when the curve is flatter they find their margins squeezed, which may deter lending. More

WASHINGTON (Reuters) -The U.S. Treasury on Monday proposed a new mechanism to comply with and enforce a 15% global corporate minimum tax agreed to last year by 136 countries, partly by denying deductions for taxes paid in jurisdictions with lower rates.The new Undertaxed Profits Rule proposed as part of President Joe Biden’s fiscal 2023 budget plan would replace the current U.S. Base Erosion Anti-Abuse Tax (BEAT) with a new system that would act as a “top-up tax” to ensure that multinational corporations pay an effective tax rate of at least 15%, the Treasury said in budget documents released on Monday.The global minimum tax deal negotiated through the Organization for Economic Cooperation and Development (OECD) is aimed at ending a downward competitive spiral of corporate rates and an erosion of government revenues while denying advantages to tax-haven countries.A key feature of Treasury’s proposed rule is that it would generate additional revenue by denying deductions to companies to the extent that they are paying a tax rate below 15%, a U.S. Treasury official told Reuters.In the event that U.S. subsidiaries of foreign companies use U.S. deductions and credits to lower their effective tax rates below 15%, the proposal includes a domestic tax to capture the difference in the United States, rather than cede it to foreign countries, matching mechanisms imposed by other countries. The official said Treasury was ready to work with Congress on enabling legislation to ensure that the benefits of U.S. tax credits and other incentives for American corporations are preserved.The new plan, which applies to companies with global revenues over $850 million conforms to so-called “model rules” for the global minimum tax agreed to last December.The proposal is the latest in a series of tax changes floated by the Treasury over the past year to negotiate and implement the sweeping global tax deal, which also includes a separate “pillar” that seeks to reallocate international taxing rights on large tech companies and other highly profitable multinationals.The Biden administration had sought to include tax changes to implement the global minimum tax into a sweeping social and climate investment bill, but that legislation stalled in Congress at the end of 2021.Biden’s budget seeks to raise the U.S. corporate tax rate to 28% from 21% and boost the current U.S. overseas minimum rate to 20% from 10.5%, along with higher taxes on wealthy individuals The legislative path forward to meet a 2023 deadline to implement the minimum tax is unclear.By including the new plan in the Treasury “green book” of budget revenue proposals, the Biden administration is showing that it is “still very, very committed to a global consensus on a global minimum tax,” said Manal Corwin, head of KPMG’s Washington national tax practice and a former U.S. Treasury tax official.”From a messaging perspective it’s important, because you see the Treasury at least building into their budget that they’re following the global architecture,” Corwin said. More

LONDON (Reuters) – More than 7,000 finance jobs have moved from London to the European Union as a result of Brexit, down 400 from the total anticipated in December, consultants EY said on Tuesday.While the total is well down on the 12,500 job moves forecast by firms in 2016, when Britain voted to leave the bloc, more could follow, EY said in its latest Brexit Tracker.EY said that new local hires linked to Brexit total 2,900 across Europe, and 2,500 in Britain, where just over a million people work in the financial services sector.Further relocations could result from European Central Bank checks on whether Brexit hubs in the EU opened by banks which used London as their European base have sufficient staff to justify their new licences, EY said.The Bank of England is scrutinising these to avoid banks in London being left with too few senior staff.”Staff and operational moves across European financial markets will continue as firms navigate ongoing geo-political uncertainty, post-pandemic dynamics and regulatory requirements,” Omar Ali, EMEIA financial services leader at EY, said in a statement.Dublin is the most popular destination for staff relocations and new hubs, followed by Luxembourg, Frankfurt and Paris.EY said Paris scored highest in terms of attracting jobs from London, totalling 2,800, followed by Frankfurt at around 1,800, and Dublin with 1,200.The transfer of assets from London to EU hubs remains around 1.3 trillion pounds ($1.7 trillion), EY said, adding that Brexit staff moves are by now part of a broader view of strategic business drivers and operating models.Bankers have said privately that in the longer term, it may not make commercial sense to have big hubs in London and the EU.($1 = 0.7637 pounds) More