PP 7767/09/2010(025354)

Economic Highlights
Global
•
MARKET DATELINE

29 March 2010

1 Rising Yields On US Treasury Bills Will Drive Up Borrowing

Costs

2 Greece Needs To Raise €15.5bn After Aid Plan

3 Decline In Japan’s Headline Inflation Rate Moderated In

February

4 Singapore’s Industrial Production Moderated In February

Tracking The World Economy...

Today’s Highlight

Rising Yields On US Treasury Bills Will Drive Up Borrowing Costs

US Treasuries fell, pushing 10-year note yields up the most since December, due partly to a lower-than-average demand
for the US$118bn note auctions. Yields on 10-year notes, the benchmark for everything from mortgages to corporate
bonds, climbed to as high as 3.92% on 25 March, from a low of 3.53% in February and 3.20% on 30 November last
year. The 18 primary dealers of US debt forecast the rate will rise to as high as 4.2% this year.

Some investors blamed it on a waning of investors’ interest and concern over the huge overhang of federal debt, as the
US deficit climbs to a record. Higher yields are the “canary in the mine”, said Former Federal Reserve Chairman Alan
Greenspan’s in a 26 March interview. Others believe investors are switching out from the save haven as risk appetite
increases, on the back of a recovery in the global economy. However, some believe the 10-year yield will fall back to
the mid-3% levels given plenty of headwinds in the US economy, as high unemployment and weak consumer demand
will help keep a lid on economic growth for some time.

Meanwhile, mortgage investors got an unwelcome wake-up call after Treasury yields surged, a jolt that indicated that the
Fed’s exit from the market may not go as smoothly as thought. The rise in Treasury yields pushed yields on Fannie Mae’s
benchmark 30-year bond to 4.45%, from 4.33%. That sent mortgage rates to above 5%. It was an unsettling surge
as the Fed prepares to end its US$1.25trn programme of buying mortgage-backed securities on 31 March, as many in
the market had come to believe the Fed’s exit would have little effect on mortgage bonds. Still, we believe it would
unlikely derail the Fed’s exit plan.

The Euroland Economy

Greece Needs To Raise €15.5bn After Aid Plan

◆ After winning a European Union (EU) aid package last week, Greece still has to raise as much as €15.5bn
(US$21bn) by the end of May, almost as much debt as it sold in the 1Q. Greece faces about €12bn of debt
repayments in April and it must repay €8.5bn of 10-year bonds in May. The EU and International Monetary Fund

Peck Boon Soon

(603) 9280 2163
Please read important disclosures at the end of this report.
bspeck@rhb.com.my

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 29 March 2010

(IMF) pledge to help Greece finance the region’s biggest budget deficit should it run out of options in capital markets.
Still, there is no guarantee that Greece can raise its bonds at reasonable pricing. Even after the bailout pledge,
the yield on 10-year Greek bonds ended last week at 6.19%, still 3.04 percentage points above the rate on
comparable German securities. The gap was 2.39 percentage points at the start of this year and as high as 3.96
percentage points in January.

Asian Economies

Decline In Japan’s Headline Inflation Rate Moderated In February

◆ Japan’s inflation rate fell by a smaller magnitude of 1.1% yoy in February, compared with -1.3% in
January. This was the fourth consecutive month the decline in inflation is narrowing, on account of a smaller decline
in food prices, which fell by 1.4% yoy in February, compared with -1.9% in January. Similarly, the core inflation,
which excludes fresh fruit, fish and vegetables, fell by a smaller magnitude of 1.2% yoy in February, compared
with -1.3% in January, mainly on account of smaller drops in the costs of housing, utilities and medical as well as
prices of household goods and clothing. These were, however, mitigated by slower increases in the costs of
transport & communications and education. Although deflation is showing signs of easing, Japan will likely continue
its monetary policy easing to ensure that economic growth could be sustained in the months ahead.

Singapore’s Industrial Production Moderated In February

◆ Singapore’s industrial production moderated to 19.1% yoy in February, from +39.2% in January, due
partly to shorter working days because of the festive season. This was reflected in a slowdown in the production
of electronic products, which eased to 56.5% yoy in February, from +82.0% in January, on account of weaker
growth in the production of semiconductors, computer peripherals, data storage products, information & communication
and consumer electronic products. These were made worse by a more moderate growth in the production of
biomedical products, which slowed down to 14.8% yoy in February, from +46.6% in January, on account of a
slowdown in the production of pharmaceutical and medical technology products. Mom, industrial production
moderated to 5.9% in February, from +11.0% in January, pointing to a sustained growth in Singapore’s
economy in 1Q 2010, after recording an annualised rate of decline of 2.8% in the 4Q of last year.

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