GE Capital

GE Capital

GE Capital
Current Dynamics
U.S. swap rates are slightly lower so far in February after falling in January as mixed U.S. economic data outcomes and rising political uncertainty increased concerns over the sustainability of economic recovery.  Investor demand for newly auctioned U.S. Treasury securities remains solid, however, concern over the federal deficit is contributing intermittently to some upward yield pressure.                                                                                               
  • On February 8, one, three and six-month U.S. Libor set at 0.22844%, 0.25000% and 0.38625% respectively.  According to the futures market, three-month Libor is expected to end 2010, 2011 and 2012 at 0.93%, 2.29% and 3.40% respectively.  One and three-month Libor are a respective 436 and 457 bps lower than their October 10 '08 crisis peak following government support to the financial system.  
  • On January 27, the FOMC statement said "The Committee will maintain the target range for the federal funds rate at 0 to 1/4 percent and continues to anticipate that economic conditions, including low rates of resource utilization, subdued inflation trends, and stable inflation expectations, are likely to warrant exceptionally low levels of the federal funds rate for an extended period."  According to the statement, Thomas Hoenig, the K.C. Fed President who became a voting FOMC member this year "believed that economic and financial conditions had changed sufficiently that the expectation of exceptionally low levels of the federal funds rate for an extended period was no longer warranted."
  • Recent U.S. data releases showed that in January, more jobs were lost, the unemployment rate declined to a 5-month low of 9.7% and consumer confidence increased modestly.  In Q4, real GDP increased at a 5.7% annual rate, the most in about 6 years as increased production significantly slowed the pace of inventory reductions.  In December, existing homes sales fell nearly 17%, new home sales fell almost 8%, the CPI rose fractionally by 0.1%, capacity utilization increased for a sixth straight month and retail sales fell 0.3%.  In November, increases in business inventories did not keep pace with sales. 
  • U.S. Treasury debt issuance is increasing substantially.  Fiscal '09, which ended September 30, had a record U.S. federal budget deficit of $1.42 trillion, or 10% of GDP - the largest since 1945.  On February 1, the President's new fiscal '11 budget proposal estimated a record $1.6 tn fiscal '10 budget deficit followed by a $1.3 tn deficit in fiscal '11.
Fed Policy - January 15
The Federal Reserve continues to use traditional and nontraditional tools to counter the strains from reduced credit formation, unemployment and economic uncertainty, however, policy makers are confronting new challenges as the economy emerges from recession and imbalances grow.
U.S. LIBOR's Path - August 18
Libor has fallen to record low levels as the Federal Reserve's accommodative policies have successfully impacted the money markets.  One and three-month Libor are expected to begin increasing later this year.  
U.S. Forecast - July 23
Consensus forecasts anticipate U.S. economic growth gradually improving over the next 3 quarters.