It is not just the Bank of England where a minority of policymakers support tightening of credit. At our Fed too the hawks are swooping led by Kansas City Fed Chief Esther George. She has no vote at the main Fed.

Fund managers John P. Calamos and Gary Black of Calamos Investments analyze of the prospects for higher interest rates and how they will affect high yield funds:

We present four scenarios that forecast one-year returns for the U.S. high yield bond market in varying market environments. The scenarios examine changes in default rates, recovery rates, spreads, and Treasury yields to depict forecasted returns for the overall U.S. high yield market. These returns do not represent actual performance, are not guaranteed, and serve only to illustrate possible total returns for changes in the four variables. An investor’s actual performance may differ dramatically from these forecasts depending on many factors.

Scenario 1: The economy expands quicker than expected, leading to lower defaults (1.5%), while recoveries maintain long-term averages (40%). With an improving economy, spreads tighten to +300 in this scenario but are offset by 5-year Treasury rates rising to 2.25% as the taper continues unabated and more talk of the first Fed rate hike intensifies. In this bullish scenario, the high yield market generates a hypothetical total return of 6% over the next 12 months.

Scenario 2: Default rates are in line with Moody’s projections (2.5%) and recovery rates maintain long-term averages (40%). In this scenario, spread tightening of 22 basis points to +350 is offset by 5-year Treasury rates rising by 37 basis points to 2%. This scenario generates a hypothetical return of 4.4% for the next 12 months.

Scenario 3: Defaults and recovery rates are the same as [in] Scenario 2 but 5-year Treasury rates ratchet up to 2.5%, while spreads stay fairly constant and widen by 3 basis points to 375 bps. In this scenario, the carry return more than offsets loss from defaults and interest rate increases to generate a hypothetical return of 1.3%, which would generate positive excess returns over Treasurys with comparable maturities.

Scenario 4: In our worst case scenario, the economy does not expand as expected and default rates tick higher to 3.5% while recovery rates decline to 35%. Spreads widen significantly to 600 basis points and five year Treasury rates rally back to 1.25%. In this scenario, the hypothetical return would be -2.9% .

The combination of stable Treasury yields, moderate economic growth and extremely low volatility continues to be supportive of the high yield asset class. We still expect Treasury yields to migrate higher as the year progresses.

(Thanks to Nicolas Bornozis of capital link, publisher of Closed-end Fund Newsletter, for sharing this paper.) In addition to the Calamos closed-end fund group inputs on the USA, we publish more about other markets today. Plus more from China, Japan, Singapore, Hong Kong, Britain, France, Spain, Switzerland, Finland, The Netherlands, Australia, Israel, Egypt, and Canada.

*The Red Rooster stopped crowing today as Guangshen Railway fell modestly after steadily rising. GSH serves the old Chinese Pearl River Basin export powerhouse. It reported H1 results today under IFRS. It said that “marcoeconomic adjustments” in the domestic and world economy led to “decelerated domestic economic growth” which, along with competition from other modes of transport, like road and river, led to a slowdown in demand.

Sales revenue came in at RMB 7.168 bn ($116.5 mn), up ~7%, with rail network use income down mainly because of lower short-haul passenger business, but offset by a 33% rise in freight receipts and a 39% rise in other income, mainly from providing operational services to highspeed intercity trains. Passenger revnues for through trains rose over 10% to RMB 3.5 bn, just under half the total. However the figures were distorted by a new value added tax which boosted receipts in 2014 vs 2013.

However, GSH would have had lower (unstated) profits to compete by offering new stations, and heavy mainenance and repair spending. The press release said nothing about earnings and but I am prepared to bet they were below the 44 cents booked in H1 2013. Because of seasonal factors, GSH makes more money in H2 almost every year, which is not an excuse for not telling us the number for H1.

For H2 GSH plans to face “the challenging operating environment” by offering intercity express and special holiday trains in its prime area while boosting its long-distance lines using new stations. It also plans to offer round trip and multi-stop options on long-distance trains plus shipment of luggage ahead to lure in more passengers. This is still a tiny part of GSH's business.

GSH also plans to diversify from its high-frequency Guangzhou-Shenzhen express train business to other areas. It is considering consolidated land development in the Pearl River region to boost competitiveness by making rail access easier. It yields 3% and its p/e ratio at the start of this year was 17. The stock has barely moved today despite the release because nobody knows the profit levels.

*Compugen will buy back the Baize Investments (Israel) participation rights for its product pipeline by an issue of 1.6 mn CGEN shares and cancelled warrants for another half million shares at $7.50/sh.Baize will retain the right to 5% of the cash generated from third parties for candidate drugs formerly financed by Baize until the end of 2015 vs 10% earlier running till 2030.

Baize bought the monoclonal antibody oncology and immunology pipeline rights for $13 mn late in 2011. Baize, a private medical innovation investor, also provided CGEN with research support earlier. CGEN is up modestly on the news.

*Novartis licensed its experimental tropical disease drugs exclusively to the non-profit Global Alliance for TB Drug Development which works with Johns Hopkins U, including finds from NVSs Institutes for Tropical Diseases. The most important is an indocarboxame drug that work against multi-resistant TB strains by blocking a protein the TB bacteria needs to survive, NITF304. NVS is a new Swiss pick.

*GlaxoSmithKline won FDA approval for inhaled asthma powder Arnuity Ellipta, a corticosteroid fluticasone fuorate combo taken 2x/day. This is another boost for GSK's respiratory portfolio.

Fund note:

*Albert Ades, the senior emerging markets analyst at BankofAmerica-Merrill Lynch Global Research, has resumed his bullishness on emerging market outlook in today's strategy weekly. He cited steadier exchange rates, better equity pricing, and some accumulation of reserves as an argument for going back into emerging markets. Of course we never left.

By country he favors South Korea thanks to its expansionary budget and central bank easing. Heexpects better growth also in reformist Mexico. He also likes investing in India, Brazil, and Chile, but that is a more widespread view.

*Two notes about our Tencent came via www.seekingalpha.com today. The first signed note says that while TCTZF is unlike potential rival Alibaba in sticking to its core businesses, it is one of the contendors to buy Chinese gas stations fromSinopec. The writer speculates that this may be to distribute e-commerce packages under its new partnership with JD.com.

Bleeker St. Research (an anonymous writer) notes that the hoopla and price rise achieved by China Finance Online Ltd (JRJC) yesterday after it claimed it was providing China's first independent stock-trading platform is based on a lie. In fact, Tencent already has such an on-line Chinese web stock trading platform, lauched in Feb. with a Chinese Mainland brokerage. JRJC rose by 13.4% yesterday on the news and is up 443% YTD, which the probable short-seller wants to fight. Bleeker St. is in Greenwich Village here in NYC.

*Delek Group and operator Noble Energy resumed negotiations to sell Tamar offshore gas to Egypt using the trans-Sinai pipeline to sell $60 bn worth to shuttered Damietta (Nile Delta) liquefaction plants. The talks are expected to result in a contract by the end of this year, according to Bloomberg.

*Singaporean Global Logistics Properties secondary issue of J-Reit shares raised Y34.5 bn ($334 mn). GBTZF is cashing out on its developed country warehouse and logistics sites to invest more in Brazil and China.

*News that Microsoft will be using Opera Software, a Scandinavian firm, to build its Windows smartphones in former Nokia plants in Finland boosted NOK shares by 2.7% today in European trading.

*Thanks to increasing production, IAM Gold has been reducing its core costs per oz of gold to $1333 from $1422 this year, according to Hebba Investments LLC (which shared its analysis with www.seekingalpha.com). This despite taxes which are higher this year than in 2012-3. The analysis calculated the cost per gold equivalent oz excluding writedowns, but adding back all taxes. IAG all-in costs are still higher than those for almost all other gold producers, the report notes, and its debt levels (not analyzed) give Hebba cause for concern longer term.

It concludes that the trend is your friend, however. Hebba expects boosted output in H2 to further cut costs/oz.

*Delays in approvals for oil-by-rail links from the Bakken fields to Oregon and Washington ports favor the pipeline alternative. This is good news for our Veresen and its partners. Unlike the company's own releases, which are banned from distribution in the USA, the oil and gas industry's API SmartBrief goes out to journalists here. FCGYF also gains from announcing an August dividend of C$0.0833/sh and again Canadians will be able to reinvest this at a 5% discount, not open to US shareholders.

*Cameco was slashed to market perform from outperform by brokerage Cowen & Co. CCJ mines uranium in Canada. The targe price is now $20, vs $25. The share is marginally over that level.

*Goldman Sachs in a paper on Russian telcos slashed Yandex to neutral from overweight because of concerns over its cost of capital and high p/e ratio. However, it also wrote that YNDX will benefit from monetization and growth of ads in Russia, and its “contextual ads” will be be “relatively immune to macro headwinds.” While Yandex is Dutch, it has a priority shareholder, Sberbank, which is on the western sanctions list over Ukraine where it also offers search services.

*Veolia is up sharply today on big volume. This may be a further result of VE Euroland water and sewage revenues rising as recovery inches up in its key markets, or perhaps merely the hope that this will occur.

*Abengoa SA common (not the yield shares) are up ~5% today on huge volumes, perhaps for the same reason. Our Frida Ghitis wrote up ABGB which is from Spain.

*Another Frida stock, Australian miner Orocobre, which is developing a lithium mines in Argentina, is up 9% so far today. OROCF is benefiting from a sagging Argentine peso which is the currency in which it incurs costs.

*As promised, your editor bought more China Chaintech, CTEK, at 92 UK pence.

*Treasury Wine Estates which we sold is a target for takeover. But it is losing money. In its FY 2013-4 to end June it lost A$101 mn (US$94 mn) because of collapsing Chinese demand and US wine glut. It was spun out by Foster's, the beer firm.