Yellen would need Congress to approve use of clawed-back Fed loan funds: Treasury

November 24, 2020

WASHINGTON (Reuters) – President-elect Joe Biden’s Treasury secretary will need Congress to approve re-use of $455 billion in funds that the Trump administration is taking back from Federal Reserve and other pandemic lending programs, the Treasury said on Monday.

Biden is expected to name former Federal Reserve chair Janet Yellen as his Treasury secretary, putting a woman in the job for the first time since the department was created in 1789.

Current Treasury Secretary Steve Mnuchin last week said he would allow some little-used coronavirus lending programs at the Federal Reserve to expire on Dec. 31 and allow Congress to spend the funds on other aid for businesses and individuals.

Biden’s transition team called the move, which restricts the new administration’s ability to backstop financial markets during a worsening pandemic, “deeply irresponsible.”

A Treasury spokesperson confirmed a Bloomberg report saying that the reclaimed money will be put into the Treasury’s General Fund, but denied that moving it out of the Exchange Stabilization Fund would put the funds off limits.

The funds are tied to expiring Fed lending programs for mid-size businesses, municipal bond issuers and other borrowers, the spokesperson said, adding that any new use, including renewing the facilities, would require congressional approval.

Senator Ron Wyden, the top Democrat on the Senate Finance Committee, said Mnuchin’s move was “shameful” and marked a sharp contrast to his efforts to broker a large stimulus deal before U.S. President Donald Trump lost the election.

“As the economy backslides amid skyrocketing COVID-19 cases, Secretary Mnuchin is engaged in economic sabotage, and trying to tie the Biden administration’s hands,” Wyden said in a statement to Reuters.

A Treasury official said on Friday that funds covering about $25 billion in existing loans from the facilities would stay at Treasury, but any money paid back from the loans could not be used for anything else without Congressional approval.

At the end of 2025, according to the CARES Act legislation passed in March, any remaining relief funds must be transferred to the General Fund and used for budget deficit reduction.

(Reporting by Heather Timmons and David Lawder; Editing by Cynthia Osterman and Bill Berkrot)

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A Fed Chair for Treasury

Once upon a time Democrats chose Wall Street or business veterans for the Treasury, with a goal of reassuring the private capital markets. Jack Kennedy chose Wall Streeter Douglas Dillon while Jimmy Carter picked Michael Blumenthal of Bendix. These days Democratic Presidents lean toward Washington experience, which helps explain Joe Biden’s leaked choice on Monday of Janet Yellen to be his Treasury secretary.

Ms. Yellen is an economist by training but she’s a political economist by experience. Most recently she was Chair of…

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Janet Yellen To Be First Woman U.S. Treasury Secretary – Jewish Business News

Janet Yellen To Be First Woman U.S. Treasury Secretary

News of Janet Yellin’s appointment has met with many cheers.

President Elect Joe Biden has tapped Janet Yellin to become America’s first woman Treasury Secretary. The 74 year old career economist and Brooklyn native from a Polish Jewish family is no stranger to such firsts as she only recently completed her term as the first woman Chair of the U.S. Federal Reserve.

Her appointment breaks the Republican tradition of giving the position to people from Wall Street, such as the current Secretary of the Treasury Steven Mnuchin. Democrats have generally appointed people with more government experience such as President Obama’s first Treasury Secretary Timothy Geithner.

The news was met with a positive reaction on Wall Street where stocks went up after it was revealed. CNBC cited sources that said they were relieved by the news because they believe that Janet Yellin will concentrate more on repairing the economy which has been devastated by the Corona Virus rather than promoting a liberal economic agenda.

Barry Knapp, director research for Ironsides Macroeconomics, told CNBC, “To me it shows Biden is taking stuff pretty seriously and definitely not pandering to the left. She’s a very serious economic thinker, and they have some very serious problems to deal with.”

Democratic Senator from Massachusetts Elizabeth Warren tweeted, “Janet Yellen would be an outstanding choice for Treasury Secretary. She is smart, tough, and principled. As one of the most successful Fed Chairs ever, she has stood up to Wall Street banks, including holding Wells Fargo accountable for cheating working families.”

Eric Stein, chief investment officer for fixed income at Eaton Vance, told Financial Times, “I think she will do her best within the legal framework to reinstate as much of those programs as she can. Given Yellen’s background at the Fed, her views will be very much in line with the Fed and she will want the Fed to be able to provide as much credit to various sectors of the economy as possible.”

Diane Swonk, chief economist at auditing firm Grant Thornton, told AP, “She is extraordinarily talented. She is the right person at this challenging time. She has worked every crisis.”

Read more about: Janet Yellin, Joe Biden

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Treasury yields tick higher after Moderna announces positive vaccine news

U.S. Treasury yields rose slightly Monday as Moderna Inc. announced its COVID-19 vaccine candidate was 94.5% effective, bolstering the appeal of risky assets and leading investors to shun safe-haven assets like government bonds. Bond yields, however, finished off their highest levels of the day amid news of a resurgence of the epidemic that was encouraging fresh lockdown protocols in the U.S. and elsewhere the world.

What are Treasurys doing?

The 10-year Treasury note yield
rose 1.4 basis points to 0.906%, while the 2-year note rate
edged 0.2 basis point higher to 0.179%. The 30-year bond yield
added 1.2 basis points to 1.659%. Yields and debt prices move in opposite directions.

What’s driving Treasurys?

Bond yields rose and stocks climbed after Moderna
said that its coronavirus vaccine candidate was highly effective based on an early analysis of its late-stage Phase 3 trial results.

See: Moderna shares soar premarket after COVID-19 vaccine candidate achieves 94.5% efficacy in Phase 3 trial

This comes after Pfizer
and BioNTech
a week ago announced that their vaccine candidate, was more than 90% effective at preventing COVID-19.

Meanwhile, an adviser to President-elect Joe Biden said a national lockdown would be a “measure of last resort” as municipal and local governments implemented new restrictions on social and business activity over the weekend. Biden himself during a Monday speech said “we are going into a very dark winter,” while emphasizing the need for infrastructure spending that creates jobs, as well as for Congress to come together and provide additional, urgent funding for states, cities and front-line workers during the pandemic.

On the economic front, a gauge of industrial activity in New York state this month fell to 6.3, from 10.5 in October.

A senior Federal Reserve official commented on bond market trading on Monday. Fed Vice Chairman Richard Clarida said he wasn’t worried by the recent run-up in the 10-year Treasury yield, and struck an optimistic note over the U.S. economy’s momentum heading into the fourth-quarter.

What did market participants say?

“The initial spike in longer dated Treasuries yields proved unsustainable, although the bid for domestic equities simply reinforced the bull market in stocks despite all the potential headwinds created by the spike in Covid-19 cases,” said Ian Lyngen, head of U.S. rates strategy at BMO Capital Markets.

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Australia’s Treasury chief warns economic recovery could ‘falter’ without strong fiscal boost | Australia news

Steven Kennedy has warned that without strong fiscal stimulus the Covid-19 economic recovery could “falter” despite record low interest rates.

In a speech on Thursday, the Treasury secretary called on the government to consider lowering the threshold for fiscal intervention, so it could spend to boost the economy whenever it is flagging, not just after a “large shock”.

Kennedy credited the government with already providing $257bn in “direct economic support” totalling 13% of 2019-20 GDP.

But he noted that after the Reserve Bank of Australia cut the official cash rate to 0.1% on Tuesday there was no further room to boost the economy using conventional monetary policy. The reserve bank also opted to buy $100bn of government bonds from banks over the next six months by printing money in a quantitative easing program.

Kennedy told Australian Business Economists on Thursday that states and territories “can also play an important role in supporting the economic recovery” by spending more on social and other infrastructure.

He said the federal budget had “used a wide range of levers and incentives to support aggregate demand” including income tax cuts, business tax concessions and infrastructure spending.

The government had also allowed extra welfare payments and lower tax receipts to boost the economy rather than cut back to shrink the $281bn deterioration in the underlying cash balance, Kennedy said.

But “given the lack of conventional monetary support available, the recovery could falter without a strong fiscal policy response leading to years of anaemic growth”, he warned.

“More and more unemployment would become entrenched reducing the productive capacity of the economy. Lower growth also means that inflation and wages would likely remain lower for longer.”

In October, Australia’s unemployment rate hit 6.9% – outperforming expectations – although there are early warning signs that cuts to jobkeeper wage subsidies at the end of September hurt wages and will result in more job losses.

According to Australian Bureau of Statistics figures released on Wednesday, retail trade was down 1.1% in September, and payroll jobs decreased by 0.8% from 3-17 October.

Kennedy argued that there was “less space” for monetary policy to work before it reached the lower bound because the “neutral or natural interest rate” had been steadily falling for 40 years.

This raised “fundamental issues” about when governments should step in to help reserve banks boost the economy.

“Fiscal policy has always responded to large shocks but there is now a question about whether the threshold for intervention should be lowered.”

Although monetary policy was favoured as the quickest option, the Treasury is now able to use real-time data and is working to speed up its processes to provide “more up-to-date assessments of the appropriate stance of fiscal policy”.

“Any move towards more active fiscal policy needs to be pinned to credible long-run anchors,” Kennedy said. “In the case of Australia, this is achieved through a continued commitment to sound public finances, underpinned by the tax to GDP cap, balanced budgets and stabilising and reducing debt in the longer-term.”

The shadow treasurer, Jim Chalmers, responded to the speech by calling for a “comprehensive economic plan for recovery” to prevent the only lasting legacy of the recession being “a trillion dollars of debt and higher unemployment for longer”.

“The reserve bank has been forced to enact extreme measures to support Australians and the economy in the face of a government which has not done enough to prevent the jobs crisis worsening,” he said.

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Jobmaker will create just 10% ‘genuinely additional’ jobs of Coalition’s total pledge, treasury says | Australia news

The Coalition’s youth wage subsidy will create 45,000 “genuinely additional” jobs, just 10% of the 450,000 number boasted by Josh Frydenberg on budget night, according to treasury.

Treasury officials revealed the conservative estimated benefit of the jobmaker hiring credit on Monday, ahead of a snap inquiry likely to spark calls to legislate more safeguards to the program.

The hiring credit is the last major plank of the budget’s economic measures yet to pass parliament, after Labor waved through income tax cuts and business tax concessions.

But despite $98bn of new spending to boost the Australian economy, questions remain around whether the measures will be enough to cut short the Covid-19 recession.

On Monday the treasury secretary, Steven Kennedy, advised there is room for the federal government to spend more on fiscal stimulus if required.

The jobmaker hiring credit would pay employers $200 a week for each additional employee they hire aged 16 to 29 and $100 a week for those aged 30 to 35.

On budget night, Frydenberg said treasury “estimates that this will support around 450,000 jobs for young people”.

On Monday Jenny Wilkinson, the deputy secretary of treasury’s fiscal group, told Senate estimates it was “very hard to judge” whether businesses would have hired a new employee anyway or will have done so only because of the hiring credit.

“In costing this we’ve made a conservative assumption that about 10% of employment is genuinely additional – it would not have happened but for the hiring credit,” she said. “A significant proportion are going to be additional.”

Wilkinson added there were “very wide” margins of error on the estimate. International studies suggested wage subsidies can create “close to zero” additional jobs up to 30%, depending on design and economic context.

Labor’s shadow employment minister, Brendan O’Connor, said the evidence meant the $4bn program is set to create just 45,000 jobs “costing nearly $90,000 per job”.

He called on Frydenberg to “explain the discrepancy between his inflated jobs number claims compared to treasury’s estimates”.

“This government is all about announcements, but fails on delivery.”

The hiring credit has copped criticism from unions, Labor and the Greens who warn it does nothing to help older workers and could even see them laid off by employers hoping to gain payments.

The Greens will amend the bill to prevent employers sacking existing staff to claim the subsidies, on top of the government’s unlegislated safeguards that employers must increase their headcount and payroll to claim payments.

O’Connor has also hinted at “potential amendments” from Labor, although it will be difficult for the opposition to stand in the way of a stimulus program if the government does not take up its suggestions.

In its review of budget measures, the parliamentary library has warned jobmaker hiring credits could have “potentially distortionary displacement effects”. These include the risk of hiring younger workers at the expense of others who are ineligible and “deadweight effects”, of paying employers for workers “they would have hired anyway”.

Wilkinson defended the scheme, noting that businesses who received subsidies for jobs they would have created anyway “could make decisions to hire someone else, or to invest”.

“[The hiring credit] provides additional support in terms of what they want to do to support the economy.”

The finance minister, Mathias Cormann, said the program was targeted at young people because they would “find it harder to reconnect” to jobs and the government wanted to avoid “a new generation of long-term unemployment”.

“Older [people] have a longer track record and demonstrated employability, they’ll find it comparatively easier to find work, so they won’t need the same level of support and incentivisation,” he said.

Earlier, Kennedy told Senate estimates that although the budget had “resulted in a sharp rise in debt”, Australia’s fiscal policy “remains sustainable” because interest rates are low and debt levels still below other advanced economies.

“The current and projected debt levels would enable additional targeted and temporary fiscal support measures to be adopted should they be required,” he said.

Kennedy has consistently argued that during the recession unemployment is a bigger problem than debt. The Reserve Bank of Australia has similarly given the government the green light for further spending by noting debt levels are manageable.

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The Treasury – The rise of Rishi Sunak | Britain

BEFORE HE WAS prime minister Boris Johnson used to enjoy himself at Conservative Party conferences upstaging his duller colleagues, whose jokes fell flat in half-empty halls. Light on substance but full of can-do optimism, his speeches imagined a Britain buzzing with new homes and futuristic energy sources. This year, there was no one to upstage, and no appreciative audience. The prime minister’s address was delivered from a recording studio. The content, though, was familiar: by 2030, he said, Britons would travel in zero-carbon jets and hydrogen-powered trains through a land of plentiful housing, thinner waistlines and racial harmony.

Given Britain’s present difficulties, this talk of sunlit uplands sounded hollow. In a survey by YouGov, a pollster, of how citizens of 22 countries think their government has managed by the pandemic, Britain bumps along at or near the bottom. Mr Johnson’s ratings have suffered in consequence (see chart).

Now Tories are looking to a new king across the water: Rishi Sunak, the chancellor of the exchequer. Not that a leadership challenge is brewing. MPs are grateful to Mr Johnson for the party’s electoral triumph last year. But there are growing doubts about his competence and about recent policy decisions. Many Tories believe that the government has recently erred too far in restricting people’s freedoms, a view that Mr Sunak has championed in cabinet.

A survey of party members by ConservativeHome, the party’s house website, before the conference, produced a damning result for the prime minister (see chart). Last month Ipsos MORI, a pollster, found that Mr Sunak has the highest satisfaction ratings for a chancellor since Denis Healey in 1978. Unlike his boss, he scores better than Sir Keir Starmer, the Labour leader, on most metrics. “Without him we are cream-crackered,” says a Tory.

Talk of rivalry has been fuelled by Mr Sunak’s attentiveness towards other MPs, who feel unloved by Number 10, and an advertising campaign which has seen his personal signature attached to Treasury policies, in the manner of a television chef’s cookware range. Mr Sunak sought to cool it in his brief conference speech, which hailed Mr Johnson’s “special and rare quality” as a communicator.

His rising stock is a reflection of Mr Johnson’s problems. The prime minister called rumours that he is still unwell after being hospitalised with covid-19 in April “seditious propaganda”. But in interviews he has struggled to recall details of regional lockdown regimes. His main domestic agendas—of levelling up Britain’s poor productivity and improving public services—lack policy content.

In many ways Mr Sunak is the opposite of Mr Johnson. To those who never liked or have tired of the prime minister’s personal style, that is part of the chancellor’s appeal. Where Mr Johnson is brimming with personality, Mr Sunak is bland. Where the prime minister is chaotic, the chancellor is perfectly organised, well briefed and pays close attention to detail. Where the prime minister is a mess, the chancellor is impeccably groomed.

He rose swiftly, becoming an MP in 2015 and chancellor in February, and has shown no appetite for ideological grandstanding. Many colleagues regard him as a truer Thatcherite than George Osborne or Philip Hammond, Tory predecessors, but he embraced trade union leaders in designing the wage-subsidy programme. He supported Brexit because he believes it will help Britain prosper, but refrains from bombastic Brussels-bashing. A Stanford graduate who has written pamphlets on how the Tories can reach ethnic minorities, he appeals to younger, liberal voters.

But his popularity springs mostly from his largesse. The Treasury will this year spend £192bn ($248bn) on responding to the crisis, including a furlough scheme for workers, business loans and restaurant subsidies. His face adorns adverts for discounted ales at JD Wetherspoon, a pub chain, which benefited from a sales-tax cut, under the banner “Sunak’s Specials”. These schemes used existing tax and payroll systems, so ran more smoothly than the error-prone test-and-trace programme. And the Treasury is the most competent department in government: if Mr Sunak is managing things well, that is partly thanks to the quality of the ministry he inherited.

It is easy to be popular when you are giving people money; harder when you have to take it away. This month Mr Sunak is replacing the furlough scheme with a much less generous wage-subsidy regime, and the prospects for the economy are deteriorating. Tighter restrictions have hit consumer spending, and summer’s recovery seems to be petering out. Unemployment is forecast to hit 8.3% by year-end. As joblessness rises, the chancellor will come under pressure to increase universal credit, the main unemployment benefit.

He may not be inclined to. He used his conference speech to argue that, once Britain is through the worst of the pandemic, it will need to deal with its vast pile of borrowing. If the Tories argue “that we can simply borrow our way out of any hole,” he asked, “what is the point of us?” Since Mr Johnson is keen to maintain a high level of public services, Mr Sunak will either have to fight the prime minister or raise taxes.

“Hard choices are everywhere,” Mr Sunak added. He is beginning to make some. The popularity he has won so easily will soon be tested.

This article appeared in the Britain section of the print edition under the headline “Easy riser”

Reuse this contentThe Trust Project

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Treasury yields: Are higher Treasury yields coming? Options traders bet yes

NEW YORK: Options investors are positioning for rising Treasury yields, as improving data and rising hopes for a COVID-19 vaccine fuel bets on US economic growth.

The average one-month put-call ratio on the iShares 20+ Year Treasury Bond ETF stands near its highest level since the beginning of the year, according to data from Trade Alert, reflecting expectations that longer-dated bond prices will fall in coming months. Bond yields move inversely to prices.

The bets stem from growing confidence among some investors that the nascent rebound in the US economy will continue, diminishing the allure of longer-dated government bonds while boosting economically sensitive assets such as small-cap stocks, financials and industrials.

A budding US recovery “is giving some asset allocators the idea that it’s time to start nibbling at tremendously undervalued sectors,” said Arnim Holzer, macro and correlation defense strategist at EAB Investment Group, who has recommended TLT puts to clients. “It’s a macro call on a reasonable economic outcome.”

The Federal Reserve, which concludes a monetary policy meeting on Wednesday afternoon, has pledged to hold rates near zero for the foreseeable future to help the economy recover from the damage caused by the novel coronavirus pandemic.

While that will likely keep yields on the shorter end of the curve anchored near historic lows, longer-dated bonds may be more susceptible to shifting expectations for inflation and economic growth.

Yields on 30-year Treasuries stood at 1.4174% on Wednesday, up from a record low of 0.702% in March, a move that has been partially driven by gains in the labor market and other evidence of economic healing as well as hopes that a breakthrough on a COVID-19 vaccine is close.

Some investors also see asymmetric risk in government bonds. The Federal Reserve’s aversion to negative rates has left little upside in bond prices, said Mark Cabana, head of US interest rates strategy at BofA Global Research. Bank of America’s equity derivative strategists have recommended options strategies involving TLT puts.

By contrast, factors like a COVID-19 vaccine and additional US fiscal stimulus could push yields higher, he said.

The bank’s strategists also anticipate a rotation into value shares and away from the tech-related stocks that have led markets higher this year. They recommend an options strategy based on the small-cap iShares Russell 2000 ETF outperforming the Invesco QQQ Trust Series 1, which tracks the tech-heavy Nasdaq 100.

The QQQ has climbed 31% this year, while IWM has dropped 6%.

Rising TLT put activity may also be a hedge against a possible change in Fed policy should the recovery gather speed, said Michael Purves, chief executive of Tallbacken Capital Advisors.

“Everyone is convinced that interest rates will be anchored to zero for eternity,” he said. “But if we get a vaccine and everything’s heating up and it forces the Fed’s hand to raise the Fed funds rate, that’s going to spill over to the 10-year Treasury.”

The central bank’s recent decision to allow periods of higher inflation also could pressure longer-dated bonds on expectations that rising consumer prices will erode their value. Recent US economic data showed underlying inflation firming in August.

A steeper yield curve sets up favorable conditions for shares of US banks, which are also benefiting from the vast amounts of debt being issued to support businesses and federal aid programs, said Holzer, of EAB Investment Group. In addition to TLT puts, he has recommended clients buy calls on the Financial Select Sector SPDR Fund in order to benefit from gains in financial stocks.

Banks’ “earnings potential could be better than people expect,” Holzer said.

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Italy’s Treasury signs off on decree to sell Monte dei Paschi: sources

September 7, 2020

By Giuseppe Fonte

ROME (Reuters) – Italian Economy Minister Roberto Gualtieri has signed off on a government decree listing options to sell Italy’s controlling stake in Monte dei Paschi di Siena <BMPS.MI>, two sources close to the matter told Reuters.

Rome rescued Monte dei Paschi in 2017, spending 5.4 billion euros ($6.4 billion) on a 68% stake which under the terms of the bailout negotiated with European Union competition authorities must be sold next year.

Gualtieri’s signature paves the way for final approval by Prime Minister Giuseppe Conte, the two sources said, asking not to be named because of the sensitivity of the matter.

The Italian Treasury declined to comment.

Although Italy’s co-ruling 5-Star Movement wants the state to delay its exit from Monte dei Paschi, sources have told Reuters the Treasury is working to find a buyer by the end of the year.

The goal is to combine a merger with a complex scheme to free the bank of its remaining problem loans, sources said.

While Banco BPM <BAMI.MI> is seen by the Treasury as a good partner, the Milan-based bank has repeatedly denied any interest in a tie-up with Monte dei Paschi.

The decree, obtained by Reuters, authorises the Treasury to help Monte dei Paschi shed 8.1 billion euros in problem debts through a deal with state-owned bad loan manager AMCO.

This clean-up “is essential to give the bank the prospect of a lasting return to profitability … and pave the way for the economy ministry to sell its holding,” the decree states.

Rome also lists ways the government can liquidate its holding, which include a share offerings, a public tender or negotiating a merger.

(Reporting by Giuseppe Fonte; Editing by Valentina Za and Alexander Smith)

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Britain’s treasury officials pushing for tax hikes -newspapers

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Treasury officials in Britain are pushing for tax hikes to plug holes blown in public finances by the coronavirus pandemic, two leading British newspapers said.

Such hikes will enable the exchequer to raise at least 20 billion pounds ($26.70 billion) a year, and some could be introduced in the November budget, the Sunday Telegraph said

The Sunday Times newspaper said officials were drawing up plans for a 30-billion-pound “tax raid” on the wealthy, businesses, pensions and foreign aid.

In its budget, the government also plans to raise both capital gains tax and corporation tax, the Sunday Times added.

Finance Minister Rishi Sunak is considering a proposal to boost corporation tax to 24% from 19%, a move that would raise 12 billion pounds next year, rising to 17 billion in 2023-24, the paper said.

The Treasury did not immediately respond to a request for comment on Sunday.

Britain’s economic recovery from the shock of the pandemic has gathered pace, data showed this month, but government borrowing has exceeded 2 trillion pounds and fears of future job losses are mounting.

The economy still faces a long recovery after shrinking by a record 20% in the second quarter, the largest decline of any big country.

Britain entered lockdown in late March and shops in England only reopened fully on June 15, followed by bars and restaurants on July 4.

Sunak has indicated that some taxes will need to rise over the medium term. ($1=0.7491 pounds) (Reporting by Kanishka Singh in Bengaluru)

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