Posts Tagged ‘U.S. Treasury’

New US-led sanctions target Iran-Taliban ties

October 23, 2018

The US Treasury and allies in the Gulf took aim at Iran’s support for the Taliban Tuesday with new sanctions against nine individuals from both countries.

The Riyadh-based Terrorist Financing Targeting Center (TFTC) said the sanctions aimed to “expose and disrupt Taliban actors and their Iranian sponsors that seek to undermine the security of the Afghan Government.”

The list included two Iranian Revolutionary Guard officials identified as Mohammad Ebrahim Owhadi and Esma’il Razavi.

© AFP/File | Two Iranian Revolutionary Guard officials have been included in a sanctions list developed by the Riyadh-based Terrorist Financing Targeting Center

According to a TFTC statement the two involved in providing training, financial and logistical support to the Taliban.

It said Owhadi arranged a deal in 2017 with a top Taliban official in Aghanistan’s Herat Province in which the Revolutionary Guard would provide military and financial support to the Taliban in return for them attacking government forces in Herat.

Razavi provided similar support to other Taliban groups across the Iran-Afghanistan border, the statement said.

Also named were the Taliban’s deputy shadow governor for Herat, Abdullah Samad Faroqui; Mohammad Daoud Muzzamil. who holds the same position in Helmand province, Naim Barich, who manages Taliban-Iran relations, and three other senior Taliban officials.

The blacklist also included Abdul Aziz, accused of paying the Taliban for protection for his narcotics trafficking and gemstones businesses.

“Iran’s provision of military training, financing, and weapons to the Taliban is yet another example of Tehran’s blatant regional meddling and support for terrorism,” said US Treasury Secretary Steven Mnuchin.

“The United States and our partners will not tolerate the Iranian regime exploiting Afghanistan to further their destabilizing behavior,” he said in the statement.

The sanctions were announced during Terrorist Financing Targeting Center meeting in Riyadh.

Some of those mentioned were already on US and UN sanctions lists.

The Targeting Center was launched in May 2017 and includes the United States, Saudi Arabia, Bahrain, Kuwait, Oman, Qatar, and the United Arab Emirates.



China: U.S. Treasury Spells Out New Rules on Foreign Deals Involving U.S. Technology

October 10, 2018

Regulations provide first window into Trump administration’s interpretation of new Cfius law targeting Chinese investment

Treasury’s new rules are more expansive than some had advocated and are likely to bring an unprecedented number of transactions under Cfius review.
Treasury’s new rules are more expansive than some had advocated and are likely to bring an unprecedented number of transactions under Cfius review. Photo: paul j. richards/Agence France-Presse/Getty Images

Treasury officials Wednesday issued new rules requiring all foreign investors in certain deals involving critical U.S. technology to submit to national security reviews or face fines as high as the value of their proposed transactions.

The new regulations, which implement a recently passed law to tighten foreign investment reviews, are more expansive than some had advocated and are likely to bring an unprecedented number of transactions into the purview of the Committee on Foreign Investment in the U.S., known as Cfius.

The Treasury-led interagency committee will now require foreign investors to alert it to all deals giving them access to critical technology across 27 industries—including semiconductors, telecommunications and defense—that the committee believes could threaten U.S. national security and technological superiority, according to Cfius officials.

Previously, Cfius focused more narrowly on deals where foreigners took controlling stakes in U.S. businesses, and filing for reviews was optional. Investors were historically incentivized to file and seek Cfius approval because, if they didn’t, the committee might choose to review their deal anyway and recommend the president block or unwind it, creating substantial risk.

In recent years, however, lawmakers and officials came to believe that many deals involving important U.S. technology were flying under the committee’s radar, creating national security risks. They have been particularly concerned about a spate of Chinese technology deals in Silicon Valley.

The new rules expand Cfius’s current mandate to noncontrolling U.S. business investments giving foreign persons access to material nonpublic technical information, membership or observer rights on the board of directors of that business, or any involvement—-other than through the voting of shares—in making major decisions for that business regarding critical technology, Treasury officials said. “Critical technology” refers to items on U.S. export controls lists, which are also being updated.

In August, President Trump signed the Cfius measure into law as part of a broader annual defense-authorization bill. Led by Sen. John Cornyn (R., Texas) and Rep. Robert Pittenger (R., N.C.), the Cfius initiative received broad, bipartisan support, but some businesses and free marketeers in Congress worked to keep the measure’s scope as narrow as possible because they worried it could unnecessarily stifle foreign investment, which the U.S. has long welcomed as a source of economic growth and jobs.

Lawyers representing deal makers before Cfius have said that, while the measure’s passage represented a sharply different approach to foreign investment, the true scope of the new rules and how they would practically affect businesses would be revealed only in the lengthy regulation-writing process left to the executive branch.

For example, the legislation specified that investors would now also be required to file abbreviated notices for reviews of noncontrolling investments if the deals were backed by foreign governments and involved critical technology, but it left the committee discretion to determine what other types of transactions deal makers would have to submit for Cfius review, according to an initial assessment of the measure by law firm Covington & Burling LLP.

The new, temporary regulations take effect in a month and will be superseded by permanent regulations some 15 months later. Under the new regime, even nongovernment-backed foreign investors involved in such technology deals would have to file.

And the pilot regulations don’t specify Chinese and Russian investors as priorities for review, as House Financial Services Chairman Jeb Hensarling (R., Texas) and ranking member Maxine Waters (D., Ca.,), whose committee has jurisdiction over Cfius, had asked in a September letter to the Treasury that sought favorable treatment for allies.

Write to Kate O’Keeffe at

Treasury’s Mnuchin warns China against currency devaluation as yuan falls

October 10, 2018

‘Various factors’ behind currency weakness, including Chinese economy, Mnuchin says

Getty Images
U.S. Treasury Secretary Steven Mnuchin

U.S. Treasury Secretary Steven Mnuchin stopped short of accusing China of purposely depressing its currency, in a newspaper interview published Wednesday, but warned Beijing against engaging in a competitive devaluation of the yuan as the two countries continue to battle each other over trade.

“As we look at trade issues, there is no question that we want to make sure China is not doing competitive devaluations,” Mnuchin said, according to the Financial Times, in an interview ahead of meetings of the Group of 20 nations, International Monetary Fund and World Bank in Bali, Indonesia.

See: Here’s why traders think the Chinese yuan could reach a record low against the dollar

The U.S. dollar USDCNY, -0.0029% rose to more than 6.93 yuan earlier this week. The dollar edged back down 0.1% to 6.919 yuan early Wednesday.

The yuan has dropped nearly 11% from its 2018 peak in March and is trading within striking distance of 7 per dollar, an important psychological level. Economists and analysts have attributed much of the weakness to China’s slowing economy and other factors, arguing against the idea that the government is working to purposely weaken the currency as part of the trade battle with the U.S.

A sharp rise in interbank lending rates in Hong Kong, an offshore trading hub for the yuan, surged Tuesday, possibly reflecting efforts by China’s central bank to prevent the currency from weakening too much, The Wall Street Journal reported.

Mnuchin said the currency had “depreciated significantly” and that U.S. officials looked forward to discussing the “various factors” behind the move. “One of those factors has to do with their own economic issues and what has gone on in the Chinese economy,” he acknowledged.

The Treasury Department is expected to release its semiannual currency report later this month. A Bloomberg report said Mnuchin has faced pressure from the White House to formally designate China a currency manipulator. The Financial Times said Mnuchin refused to talk about the report, except to say he expected it to be published soon and that he didn’t specifically refer to currency manipulation.


U.S. Sanctions Three Asians Seen in Islamic State Beheading Video

August 25, 2018

Three Southeast Asians who appeared in a 2016 Islamic State video showing the beheading of a captive were added to the US Treasury’s sanctions blacklist Friday.

The Treasury said Malaysian Mohamad Rafi Udin, Indonesian Mohammed Karim Yusop Faiz and Filipino Mohammad Reza Lahaman Kiram all took part in the June 2016 video made in Syria in which Islamic State members execute a prisoner.

Sigal Mandelker, Treasury under secretary for terrorism and financial intelligence, said the video was “part of a propaganda campaign to attract radicals to join militant terrorist groups in Southeast Asia.”

Udin, 52, is a well-known Malaysian militant, having been detained in 2003-2006 for his association with the radical Islamist group Jemaah Islamiyah.

As of last November, he was believed to be the seniormost Malaysian in the Islamic State in Syria, the Treasury said.

Faiz, 49, was imprisoned in the Philippines for nine years on explosives and weapons charges. After being released he traveled to Syria in 2014 and joined Islamic State.

Kiram, 28, is believed to be responsible for the bombing a bus in Zamboanga, Philippines in 2012. He was still in Syria fighting for Islamic State as of January 2017, the Treasury said.

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A Rural Transit bus is left in front of the Guiwan bus station in Zamboanga City after an explosion ripped its rear end open. At least 6 persons were injured in the blast. Another explosion occured in the city an hour later. August 17, 2012. abs-cbn photo



U.S. Treasury Sanctions Russian Firms for Allegedly Helping North Korea

August 21, 2018

Sanctions hit Russian shipping firms for banned North Korea energy shipments

“The Treasury Department is disrupting Russian efforts to circumvent our sanctions,” Treasury Secretary Steven Mnuchin said Tuesday.
“The Treasury Department is disrupting Russian efforts to circumvent our sanctions,” Treasury Secretary Steven Mnuchin said Tuesday. PHOTO: JASON LEE/REUTERS

WASHINGTON—The Trump administration on Tuesday levied new sanctions against Russian firms it accused of violating trade bans on North Korea and breaches of U.S. laws against cooperation with Russia’s intelligence services.

Combined, the actions underscore a recent escalation in U.S. economic pressure against Moscow as Congress seeks to impose new sanctions against Russia and the administration tries to show lawmakers it is committed to punishing the Kremlin for U.S. election interference and other acts Washington says undermine U.S. foreign policy.

The Trump administration is calling out Russia and China for easing economic sanctions on North Korea. The WSJ’s Gerald F. Seib explains how that action and others could impact nuclear negotiations. Photo: Getty

The U.S. Treasury Department said Russian firms operating out of the Eastern port of Vladivostok—Primorye Maritime Logistics Co Ltd and Gudzon Shipping Co LLC—helped Pyongyang evade United Nations bans on oil trade with the pariah nation. In the other action, the Treasury said two Russian individuals, working through Vela-Marine Ltd. and Lacno SRO, helped a sanctioned Russian firm, Divetechnoservices, procure goods and services for Russia’s Federal Security Service in violation of a U.S. law against abetting Russia’s intelligence services.

“The Treasury Department is disrupting Russian efforts to circumvent our sanctions,” said Treasury Secretary Steven Mnuchin. “Today’s action against these deceptive actors is critical to ensure that the public is aware of the tactics undertaken by designated parties and that these actors remain blocked from the U.S. financial system.”

The Russian embassy in the U.S. didn’t immediately respond to a request for comment. The firms weren’t immediately available for comment.

Aside from the political impact, the blacklisting of the companies and individuals blocks the targets from accessing U.S. markets and hinders their ability to finance their activities and travel abroad.

Write to Ian Talley at

What to Make of Italy’s Astonishing Bond Selloff — Are investors are complacent about the dangers Italy poses

May 30, 2018

Much of Italy’s debt is domestically owned, but the sheer size of Italy’s debt pile means a default would be catastrophic both for its own and Europe’s banks.

Italian two-year bonds had by far their worst day since at least 1989.
Italian two-year bonds had by far their worst day since at least 1989. PHOTO: PIAGGESI/FOTOGRAMMA/ROPI/ZUMA PRESS

Market reporting is prone to hyperbole, but Tuesday’s Italian bond selloff was truly astonishing. Short-dated bonds that can usually be treated as a close proxy for cash turned toxic, and bondholders showed serious panic. Prices fell and yields on short-dated bonds rose as much or more than when the euro was fighting for survival in 2011 and 2012.

The reaction in other markets was muted by comparison. Sure, stocks and the flakier end of European government bonds sold off, and there was a flight to the safety of U.S. Treasurys. But this wasn’t much more than a run-of-the-mill bad day. Portugal’s 2-year bond yield rose 0.23 percentage point and Spain’s was up 0.12 percentage point, both their worst day since early last year. The 10-year U.S. Treasury had its best day in almost two years amid a flight to safety.

By contrast, Italian 2-year bonds had by far their worst day since at least 1989, when Thomson Reuters data starts. The yield leapt more than 1.5 percentage points to 2.4% at the close of European hours, with more selling later.

There are three possible interpretations for why markets outside Italy haven’t sold off more. The first is fundamental: Europe’s weak economies have been transformed since they were threatened by contagion from Greece in the last euro crisis. Ireland is now regarded as a safe “core” country, Spain is growing fast and even Portugal has taken the medicine. Perhaps this time round the trouble can be contained.

Mamma Mia, Here We Go AgainItaly’s 2-year bond had its biggest one-day rise in yield in decades.Source: Thomson Reuters
.Percentage points2000’02’04’06’08’10’12’14’16’18’20-1.25-1.00-0.75-0.50-

The second is technical: The lack of significant contagion is because investors elsewhere regard the Italian move as overdone, the result of hedge funds and others piling in to sell bonds in a market that became suddenly illiquid. Buyers stayed on the sidelines because a market that has overshot can always overshoot even further in the short run, but the bond yield isn’t a reflection of the real risks to Italy.

The third is the most troubling. Perhaps investors are complacent about the dangers Italy poses, relying on the European elite to once again come up with a way to keep truculent crowd-pleasing politicians under control, as they have so often in the past decade.

Italian bonds are cheaper (have a higher yield) because of the fear that the country will re-denominate its euro bonds into devalued lira, default on them, or both, just as it was for Greece in 2011. Greece, of course, went on to default on its bonds and briefly use capital controls to suspend convertibility of its euros into the euros used in the rest of the region, while no other country followed suit.

It is true that Europe’s weak countries—bar Italy—aren’t as weak as they were in the last crisis. Banks have been recapitalized or restructured, competitiveness improved and current account deficits turned into surpluses. Ireland, Portugal and Spain are all far stronger than they were. Italy, meanwhile, has bumbled along; as Capital Economics’ Chairman Roger Bootle points out, every other country in the region except Italy has become more competitive against Germany since 2011.

Further, Europe has a habit of doing the impossible at the last minute, offering both fiscal and eventually monetary bailouts during the last crisis despite them having previously been deemed impossible and possibly illegal.

Still, it is hard to see how the single currency could survive an Italian exit without other countries following it out the door. The country is the third-biggest borrower in the world, with €2 trillion ($2.33 trillion) of bonds and bills outstanding. Much of its debt is domestically owned, but the sheer size of Italy’s debt pile means a default would be catastrophic both for its own and Europe’s banks. It would also create political fractures that could threaten the European Union, ironic for an organization founded by the Treaty of Rome.

Economic chaos in Italy after a devaluation would be all but guaranteed, and surely hurt growth in the rest of Europe – although such chaos might persuade reluctant euro members that the pain of staying is worthwhile. Even worse from the point of view of markets would be if Italian euro exit went well, encouraging anti-Europeans in other countries to push for a repeat.

More convincing is the idea that Italy’s bond market is exaggerating the panic because it has become so hard to trade. The gap between the yield at which people were willing to buy and sell on the 2-year bond was exceptionally wide at 0.46 percentage point, according to Tradeweb, backing up the idea that liquidity had evaporated. As one hedge-fund manager shorting Italian bonds put it, there has been a “buyer’s strike” because foreigners were unwilling to buy, while domestic investors were scaling back holdings.

The problem with the technical explanation based on liquidity is that it could go either way. If buyers return and the yield falls, all well and good. But often in markets the first panicked move turns out to be right, after a period of consolidation. If the speculators are correct about the danger of the newly installed technocratic government rapidly being replaced by anti-EU populists, bond yields this high or higher might well be justified. That will be the true test of contagion.

Write to James Mackintosh at

Pompeo to immediately pursue talks with allies on Iran: U.S. officials

May 10, 2018

Immediately on returning from North Korea on Thursday, Secretary of State Mike Pompeo will embark on talks with allies in Europe, the Middle East and Asia to try to persuade them to press Iran to curb its nuclear and missile programs, U.S. officials said.

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The open question is whether the allies, and above all Iran, will agree to resume full-fledged talks having just seen the United States withdraw from the 2015 Iran nuclear deal and renege on its promises under the landmark arms control accord.

The U.S. hope is that Iran will be dragged to the table by the resumption of U.S. sanctions – and possibly the imposition of more – which would penalize European and other companies and likely cripple Iran’s oil-driven economy.

A senior State Department official said discussions with Britain, France and Germany, as well as Japan, Iraq and Israel on next steps had already taken place since U.S. President Donald Trump on Tuesday pulled out of the nuclear pact.

Image result for mike pompeo, 3 freed americans, photos

“There will be an effort to go out globally and talk to our partners around the world who share our interests. That is the first stage,” a senior State Department official said of plans for talks by Pompeo and his chief Iran negotiator, Brian Hook.

“The composition of what happens when we sit down with the Iranians is several stages out,” the official said, adding that talks would focus on how to raise pressure on Iran “in a way that is constructive and conducive to bringing them to the negotiating table.”

Trump’s decision opens the door to greater U.S. confrontation with Tehran and strains relations with America’s closest allies, current and former diplomats said.

Washington has given grace periods of 90 days to six months for companies to wind down their trade with Iran. Some allies, like France, will push for exemptions from U.S. sanctions to protect their companies.

Even though companies can seek U.S. Treasury licenses to continue operating in Iran beyond the deadlines, the threat of U.S. sanctions will likely force them out, experts say.


Companies will also have to assess whether they could face revived secondary sanctions, which would target sectors of the Iranian economy, including energy, petrochemicals, shipping, financial and banking, experts say.

“The goal is ultimately to reach a point where we sit down with the Iranians and negotiate a new deal, but I don’t think we’re at that point today, or will be tomorrow,” the State Department official said.

“The ultimate goal is to lay the groundwork for getting everyone back to the table and negotiating a new deal.”

Several U.S. officials have acknowledged there is no “Plan B” if Washington cannot win the support of allies – and Iran – to negotiate a new expanded agreement, which would end Iran’s nuclear program, restrain its ballistic missiles program, and curb its support for groups in Syria, Lebanon, Yemen and Iraq.

“The goal is to prevent Iran from ever developing or acquiring a nuclear weapon and the detail beyond that is something we are going to have to flesh out,” the official added.

William Peek, deputy U.S. assistant secretary for the bureau of Near Eastern Affairs at the State Department, denied the pressure campaign aimed to force regime change in Iran.

“No, we are trying to change the regime’s behavior,” he told reporters on a conference call, adding that Washington would use diplomacy to convince allies to follow the U.S. sanctions lead.

Peek acknowledged there are some “diplomatically tactical disagreements” with Europeans, but said those differences could be overcome. “This is something where we cajole, we urge, we prod, which have proven effective,” he added.

While the parties were unable to agree on a supplemental pact to the 2015 nuclear deal, the senior official said a new round of talks would “pick up all of the work” done so far.

Reporting by Lesley Wroughton; Editing by Robert Birsel

As Bond Traders Struggle to Bust 3%, Morgan Stanley Sees a Rally

April 23, 2018

By Brian Chappatta

  • Psychological level matters as momentum hangs in the balance
  • Hornbach sees test of 2.7% if 3% holds, but 3.25% if breached

It turns out there were plenty of buyers of 10-year Treasuries at a 3 percent yield . Well, 2.996 percent, to be exact.

The inability to break through that key psychological level makes all the difference to Morgan Stanley on calling the next move in the world’s biggest bond market.

 Image result for Matthew Hornbach, photos

The latest failure to breach 3 percent, should it last, portends a rally back to 2.7 percent, according to strategists led by Matthew Hornbach. Of course, it’s not too late for the selloff to intensify, and the yield could reach 3.25 percent once past the 3 percent hurdle, they said. Ten-year Treasuries traded at a 2.97 percent yield at about 11:15 a.m. in New York.

“A lot of investors that we speak with, when I ask them ‘Where would you want to enter the market and start to buy Treasuries?’ you’re typically hearing numbers like 3 percent on the 10-year, 3.25 percent on the 30-year,” Hornbach, global head of interest-rate strategy at Morgan Stanley, said in an interview at Bloomberg’s New York headquarters. Because those are such “common numbers,” they can drive momentum up or down, he said.

Fixed-income fund managers have been focused on the 3 percent level to gauge whether the three-decade bull market in bonds is at an end, and to assess how much a glut of supply from the U.S. Treasury will weigh on investors.

For the chartwatchers wondering what might come next, 3.05 percent is on strategists’ minds. It’s the highest intraday level since 2011, set on Jan. 2, 2014. Once past that mark, there’s no obvious support, if you’re looking to seven years ago for guidance. That year, the 10-year yield fell from as high as 3.766 percent to as low as 1.67 percent as the U.S. credit downgrade rocked markets.

For now, just as investors like Pacific Investment Management Co. anticipated, enough buyers showed up around 3 percent to keep yields in check. Barclays Plc strategists said they’re sticking with their recommendation to buy at 2.9 percent (or higher, as the case may be) with a target of 2.7 percent.

The next few sessions will be critical for gauging the momentum in Treasuries. Relative-strength index analysis signals 10-year notes are the most oversold in two months, a sharp departure from earlier in April, when they appeared the most overbought since September.

The key indicator to watch will be the 10-year breakeven inflation rate, Hornbach said. It exceeded 2.19 percentage points Monday, up from 2.05 percentage points earlier this month. That suggests investors are starting to expect price growth that exceeds the Federal Reserve’s 2 percent target. To be sure, some of the inflationary pressure may subside, with the Bloomberg Commodity Index falling three straight sessions, after reaching the highest since 2015 last week.

If the breakeven rate continues to climb without the 10-year Treasury yield breaking 3 percent, that would likely signal a rally ahead, Hornbach said. Already, fed funds futures are pricing in more than two additional Fed rate hikes by year-end as inflation expectations firm.

“Momentum in Fed policy has a lot to do with people’s forward-looking rate expectations,” Hornbach said. “It’s one of these psychological phenomena where we look at what happened to us yesterday, and we think the next three years of our lives are going to be dictated by that.”

“Pushing above 3 percent would be a great opportunity for investors to put money to work,” he said on Bloomberg TV.

— With assistance by Ivan Levingston


Tesla bonds trouble is a warning for risk, credit — anxiety is rising

March 29, 2018

Image result for elon musk

Elon Musk

  • Tesla’s bond blowout is not symptomatic of wider problems in the credit markets but it does come as anxiety is rising over risk assets and in some parts of the credit world.
  • While the moves in credit market represent some risk aversion, analysts say it’s more smoke than fire at this point.
  • Libor, the rate at which banks lend to each other, has been creeping up and has in the past represented credit risk. But analysts say the move is largely technical.
Options traders are pumping the brakes on Tesla  

Tesla’s bond yields blew out to record highs Wednesday on the electric car maker’s own set of problems, but analysts say it highlights signs of worry that have been creeping across markets.

Analysts pointed to the explosion of volatility in stocks, where the Nasdaq has had 2 percent moves in four of the past five sessions. High yield and investment grade corporate bond spreads have widened, and investors have rushed back into Treasurys, driving yields lower. At the same time, Libor, a barometer of credit fear during the financial crisis, is ticking higher.

All of this comes as the markets approach the end of the quarter, which could be exacerbating moves. While analysts say there may be more smoke than fire, the swings in the stock market are creating anxiety across markets. Issues like Tesla don’t help.

Flat Tire, flat market concept

Getty Images

“Tesla’s still a poster child for speculation in this bull market. If people are going to have a more discerning eye on Tesla, they’re going to have a discerning eye on a lot of other credits,” said Peter Boockvar, chief market analyst at Bleakley Financial.

Boockvar said there has been a widening in high-yield spreads since early February, but only to about 355. They had been as wide as 840 basis points when oil prices fell in 2015 and 2016, creating havoc for energy company bonds. Spreads are the difference between the yield on the high-yield corporate index and the comparable Treasury yields.

Tesla 2025 bond

Tesla bonds were downgraded by Moody’s to B3 from B2, which also changed the outlook to negative from stable due to the significant shortfall in the company’s Model 3 production rate. The 2025 Tesla bond was yielding around 7.7 percent Wednesday, up from 6.80 percent Tuesday. Yields move opposite price. Tesla stock plunged 7.7 percent Wednesday.

Andrew Brenner of National Alliance said Tesla’s bond is not indicative of problems for other issuers, but there is a bit of concern around credit.

“It’s a signal for other risk assets that you have to be aware of the cash flows of the companies you’re buying,” said Brenner. “While Elon Musk may be taking us to Mars and everywhere else, he still has to come up with cash.”

The widening of spreads between corporates and Treasury yields is no where near fire alarm levels of past years, but it is a creep up in recent weeks that analysts have been monitoring.

“I think it’s indicative of a greater risk aversion,” said Boockvar.

The move is evident in LQD, the iShares 10+ Investment Grade Corporate ETF and HYG, the iShares iBoxx $ High Yield Corporate Bond ETF, both of which have declined since the start of February. LQD was slightly higher Wednesday, while HYG was lower.

“What it means is there’s a lot more volatility going on in the corporate space. People are taking money off the table. People are a little more concerned about risk assets. If you look at an options adjusted spread for investment grade [corporate debt] at the beginning of the month it was 88, today it’s 102. It’s widened 14 points,” Brenner said.

On Wednesday, Treasury yields at the long end moved lower, with the 10-year back to 2.77 percent, after breaking the key support at 2.80 percent Tuesday.

Ian Lyngen, head of U.S. Treasury strategy at BMO, said the move is reflecting the fading of optimism and the volatility in stock prices. But the move in Libor has been nagging at markets, even though it is being dismissed as technical.

“It’s the spread between Libor and OIS which people care about because that implies there’s a certain amount of risk in the credit system. The divergence between Libor and the implied fed rate has increased dramatically,” he said. “It affects a lot of corporate borrowing. It’s the reference floating rate for everything.”

Libor is the London interbank offered rate, the level at which banks lend to each other.

Brenner said at the beginning of the year, 3-month Libor was at 1.69, and it’s moved out 61 basis points since then. “We’ve only had one Fed rate hike. It’s moved out by 61 and you only have a 25 basis point hike,” he said. “Corporations have $2 trillion of Libor-based floating rate debt, so that’s costing them money.”

Analysts have said the move in Libor, however, is not sending the alarms it did when it shot up sharply during the financial crisis. They blame the jump in Libor on two factors: A much higher amount of short-term Treasury issuance and the fact that U.S. companies are bringing their overseas cash home, some of which was held short term securities.

“There’s more competition for some of this shorter dated issuance. That went for bills, or commercial paper, and there’s less demand for it because what were typically investors in those types of securities or paper, namely these firms that were investing their offshore earnings are no longer doing that to the extent they were,” said Jon Duensing, head of corporate credit at Amundi Smith Breeden.

“It’s an decrease in demand matched up with an increase in supply that’s pushed up the cost of money in short term funding markets. Traditionally, investors have looked to those short term funding markets as for signs of stress in the financial markets. I think you could call a supply demand imbalance a little bit of stress. It’s not like bank A doesn’t trust bank B,” he said.

How Hong Kong Makes Evading North Korea Sanctions Easier

March 17, 2018

The city presents itself as one of the world’s easiest places to do business—which goes for front companies, too

According to Hong Kong records, the sole shareholder and director of a company whose tanker Japan suspects of violating North Korean sanctions is Tang Yun Hui, and his address is this two-story farmhouse in a remote Chinese village. Mr. Tang says he is a sailor who has never heard of the company or owned a ship.
According to Hong Kong records, the sole shareholder and director of a company whose tanker Japan suspects of violating North Korean sanctions is Tang Yun Hui, and his address is this two-story farmhouse in a remote Chinese village. Mr. Tang says he is a sailor who has never heard of the company or owned a ship. PHOTO: JAMES T. AREDDY/THE WALL STREET JOURNAL

In late February, Japan’s government released photographs of a tanker it said it strongly suspects was making a transfer, likely of oil, to a North Korean ship in violation of international sanctions.

The tanker’s owner, Ha Fa Trade International Co., is registered to an address in Hong Kong’s Wan Chai district. But the company can’t be found there. Instead, the cluttered 23rd-floor office belongs to an agency that helps businesses register with the authorities, with scant information on their ultimate owners.

This isn’t an accident or an oversight: Hong Kong has positioned itself as one of the world’s easiest places to do business, allowing companies to register with minimal documentation in as little as a day.

U.S. and United Nations experts say this is making the city a hub for North Korean front companies—and the U.S. wants Hong Kong to crack down. A U.N. Panel of Experts report made public on Friday describes registration middlemen like Hong Kong’s as a “key vulnerability” allowing North Koreans to defy sanctions intended to starve the country’s nuclear and missile programs of funds.

Of the nine companies outside North Korea that the U.S. sanctioned in February for working on Pyongyang’s behalf, two are based in China, one each in Panama and Singapore—and five in Hong Kong. Attempts to track down three of those five firms led to a maze of secretarial agencies.

A military parade in Pyongyang, North Korea, last month; the country has been subject to increasingly strict international sanctions meant to stop its nuclear-weapons and missile programs.
A military parade in Pyongyang, North Korea, last month; the country has been subject to increasingly strict international sanctions meant to stop its nuclear-weapons and missile programs. PHOTO: ASSOCIATED PRESS

Experts say front companies allow North Koreans and their agents, many of whom are in China, to obfuscate their identities and operate without revealing their Pyongyang ties.

“Those who start front companies are very skilled at taking advantage of Hong Kong’s business-friendly regulatory and financial environment,” said Wendy Wysong, who heads law firm Clifford Chance’s anticorruption and trade-controls practice in Asia.

Hong Kong put new regulations into effect this month that aim to make money laundering more difficult, including stricter client-verification guidelines for company service agencies.

The city “has a robust and efficient supervision system in place,” a Hong Kong government spokesman said, and was “looking into cases in which Hong Kong-registered companies are alleged to be involved” in evading sanctions.

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Lawyers in Hong Kong who advise banks on sanctions enforcement say that while the new regulations are a step in the right direction, they won’t solve many of the problems the U.N. panel identified.

Even under the new rules, registering a company in Hong Kong typically requires merely filling in a form with such basic information as founding shareholders’ addresses and the director’s national-identity-document numbers. The company’s listed director can be its sole shareholder, and needn’t live in Hong Kong. Corporate-service agencies take care of the rest, and the whole process can be done online.

Agencies advertise such services as “24-hour express incorporation” and “shelf companies”—entities that have already been created and can be purchased by emailing copies of basic identity documents to the agency.

Above, the Xin Yuan 18, which Japanese authorities say belongs to Hong Kong-registered Ha Fa Trade International; below, photos released by the Japanese government showing what it suspects was an illicit transfer, likely of oil, from the Xin Yuan 18 to a sanctioned North Korean vessel, the Chon Ma San, in late February.
Above, the Xin Yuan 18, which Japanese authorities say belongs to Hong Kong-registered Ha Fa Trade International; below, photos released by the Japanese government showing what it suspects was an illicit transfer, likely of oil, from the Xin Yuan 18 to a sanctioned North Korean vessel, the Chon Ma San, in late February. ILLUSTRATION: MINISTRY OF DEFENSE, JAPAN

How Hong Kong Makes Evading North Korea Sanctions Easier

One North Korean technique, experts say, is to use agencies to establish a front company that opens a bank account, does a deal and then shuts down—leaving nobody for enforcers to find.

Many of the agencies operate one-room, one-person offices in Hong Kong to serve as postal addresses for dozens of client companies. The episode of the oil tanker cited by Japan last month shows how hard it is to peel back the layers.

The tanker, the Xin Yuan 18, was spotted by a Japanese military aircraft alongside a sanctioned North Korean vessel, the Chon Ma San, in the East China Sea late one February night. A “comprehensive assessment” led Japan to suspect that a ship-to-ship transfer of cargo had occurred, according to Japan’s foreign ministry.

The 23rd-floor office where Ha Fa Trade is registered belongs to an agency called Yirenjiaren Registration Secretary Ltd. A woman working there said she couldn’t confirm whether Ha Fa Trade is a client. A representative at the agency’s main office in Shenzhen, China, said Ha Fa Trade didn’t come to the agency directly and is a client of a different agency that uses the same Hong Kong office as its address.

A representative for that agency, Fei Long International Business Co., said it had been approached to register Ha Fa Trade in Hong Kong by yet another company-service agent identified only as Liao. There was no response to repeated requests for comment left for that agent through Fei Long.

Documents obtained from Hong Kong’s company registry list Tang Yun Hui as Ha Fa Trade’s director and only shareholder. The documents show the company’s address in the remote village of Yaoxing in China’s Hubei province, but provide no phone number or email address.

Ha Fa Trade is registered in Hong Kong’s Wan Chai district, but the address actually belongs to an agency that provides registration services.
Ha Fa Trade is registered in Hong Kong’s Wan Chai district, but the address actually belongs to an agency that provides registration services. PHOTO: BILLY H.C. KWOK/BLOOMBERG NEWS

The address corresponds to a two-story house—empty on a recent visit—with broken glass and overripe cabbages in the yard. Reached by phone, using a mobile-phone number provided by another village resident, Mr. Tang said he is an “ordinary sailor” and knows nothing about Ha Fa Trade or Xin Yuan 18.

“I’ve worked on so many ships and never heard of that one,” he said. Told of the company documents, he expressed surprise: “How could they have my signature?”

The Chinese identification-card number on the documents is his, the 32-year-old Mr. Tang said, and the address is that of the farmhouse where he grew up.

The ID card has been out of his hands numerous times, Mr. Tang said, including in 2016 when he lost his wallet disembarking from a ship in Shanghai and during many Chinese port calls, when a ship’s third mate holds it to fill out paperwork.

Mr. Tang said he earns $8,000 to $9,500 a year as a sailor on Chinese ships and has never owned a ship, visited Hong Kong or been associated with North Korean trade. He said repeatedly he had not.

It wouldn’t be convenient to meet in person, he added: “I’m in the middle of the sea.”

The back of the farmhouse, which Mr. Tang says was his boyhood home.
The back of the farmhouse, which Mr. Tang says was his boyhood home. PHOTO: JAMES T. AREDDY/THE WALL STREET JOURNAL

An official who answered the phone at North Korea’s consulate in Hong Kong declined to comment for this article.

To curb money laundering, the new Hong Kong regulations require companies to keep a registry of the people that ultimately own them or have significant control. These registries, though, are available only to Hong Kong authorities, not to the public or to banks trying to check companies for North Korean links.

The U.N. report says an alleged North Korean military-equipment supplier, Glocom, established a web of front companies, including in Hong Kong, and used them to make payments and move money to other North Korea-controlled entities.

To pay an associate in Singapore, according to the report, a North Korean representative would transfer money from China to the account of a Hong Kong front company, which would then transfer it to the associate’s Singapore account. The Singapore bank would see only the receipts from the Hong Kong company.

Glocom didn’t respond to emailed questions.

During a Hong Kong visit in January, Sigal Mandelker, the U.S. Treasury’s undersecretary for terrorism and financial intelligence, urged leaders “to send a strong message that Hong Kong is not going to be a place where companies find any kind of safe harbor to facilitate front-company, shell-company activity.”

Write to Niharika Mandhana at, James T. Areddy at and Michael R. Gordon at

Appeared in the March 17, 2018, print edition as ‘North Korea Uses Hong Kong as Hub.’