Bonds

Indian banks pile up risks with shock absorbers

25 May 2017

Lenders have pumped out more than $7 bln of contingent bonds that are written down if capital falls short. But implicit state support means investors are ill-prepared for losses. As some banks edge close to missing coupons, it is easy to imagine a system-wide freakout.

Euro zone bonds are taboo worth breaking

17 May 2017

Spain wants the bloc’s 19 governments to pool their debt. That idea is likely to be shunned by Germany. Yet mutualisation is happening anyway through bailouts and central bank largesse, and countries are less profligate than they were. Common bonds needn’t mean wayward spending.

German bonds are caught between Mario and Macron

12 May 2017

Euro zone yields have risen in anticipation of tighter policy from ECB President Mario Draghi. But the euro zone’s fragility puts a cap on long-term rates. Changing that would require the kind of common fiscal policy imagined by new French President Emmanuel Macron.

Malaysia throws cheque book at 1MDB problem

27 Apr 2017

A deal with Abu Dhabi puts Malaysia on the hook for $3.5 bln of the disgraced fund's debt and leaves a dispute over a further $3.5 bln unresolved. That is a costly attempt to patch up relations between the states and avoid potential embarrassment before an election.

China’s offshore bond revival could be brief

24 Mar 2017

Companies are rushing to sell dollar bonds overseas, aided by a new ability to issue onshore guarantees. Yield-hungry foreign investors are keen. But as liquidity tightens and rates rise, expect more defaults. Those pledges could prove unreliable if things go wrong.

Co-op bail-in would set bank creditors on edge

23 Mar 2017

The Co-operative Bank needs capital again, and markets are fretting over the risk of a resolution. Given Co-op’s ongoing losses, the Bank of England could justify one. The risk is investors think that even banks with respectable capital ratios aren’t safe from regulators.

China-Hong Kong “bond connect” has dual benefits

20 Mar 2017

Beijing is firming up plans to let mainland and Hong Kong investors trade in each other's debt markets. The tie-up will make it easier to get Chinese bonds into world indexes. It should also boost trading and push up prices in the territory's fixed income market.

Markets’ latest distortion: riskless company debt

7 Mar 2017

Some 200 billion euros of corporate bonds are trading below interbank swap rates – usually seen as a floor for credit risk. That renders one measure of companies’ creditworthiness redundant. This distortion comes courtesy of central bank meddling and German parsimony.

ECB asset purchase rules are self-inflicted wounds

28 Feb 2017

The central bank’s bond-buying scheme has mechanistic rules that are driving German bond yields to record lows well below zero. This makes losses likely. While past gains may offset such hits, loosening the rigid constraints would reduce the risk of losses and market disruption.

Rate tweak whiplashes UK insurers

27 Feb 2017

Insurance companies will have to pay more for injury claims after the government said payouts must be discounted at a negative rate. The metric was too high before, and arguably still is. The real mystery, though, is why financial risk ends up with claimants, not insurers.

China shows U.S. banks self-serving generosity

7 Feb 2017

JPMorgan and Citi have won coveted licences in China's onshore bond market. China's real goal might be to get inclusion in global bond indexes, which would bring stable foreign investment. But restrictions on capital flows make such bonds less appetizing than they could be.

Europe’s “whatever it takes” becomes “what next?”

2 Feb 2017

Bond yields are rising as the end of money-printing looms. The return of a crisis like the one that prompted ECB President Mario Draghi's pledge to save the euro zone is unlikely. Yet as investors focus on political risk and debt, governments will face tougher choices.

Guest view: Fixing finance to repair U.S. roads

19 Jan 2017

Plenty of federal programs exist to help leverage private funds eager to invest in infrastructure and make President-elect Donald Trump's $1 trln plan work, argues lobbyist James Courtovich. What's missing is cooperation in Washington to hold municipal bond issuers accountable.

Kuwait’s strength could be a weakness

17 Jan 2017

The oil-rich sheikhdom is planning its first dollar debt sale. It should be a hit: Kuwait has a good fiscal record and vast foreign assets. Yet other Gulf states are weaker, raising the risk of devaluations or euro zone-style bailouts. The strongest may end up bearing the burden.

Banks whiplashed by Asia’s distrust of hot money

9 Jan 2017

Indonesia plans new rules to ensure research is "factual", after a downgrade led it to cut ties with JPMorgan. Malaysia is clamping down on currency trading. The moves only highlight Southeast Asia’s vulnerability to capital flight rather than the region's impressive growth.

Shadow banking and Chinese bonds are dangerous mix

4 Jan 2017

China's bond sell-off was aggravated by a scandal at a securities firm. That's made regulators worried about the role non-bank financial institutions are playing in fixed-income markets. Untangling links between shadow banking leverage and bonds could cause economic shocks.

Cheap CoCos keep Chinese banks dancing

20 Dec 2016

Smaller Chinese banks need to raise billions of dollars in loss-absorbing bonds. Having to raise regulatory capital is supposed to curb risky behaviour. But state support means mainland banks pay far less than European peers. That gives them little incentive to sober up.

U.S. Fed catches Chinese bonds off-guard

16 Dec 2016

Yields are soaring on the prospect of a rapid rise in U.S. interest rates. Beijing needs to defend the currency, and prevent new bubbles, so its options are limited. Authorities have to restore calm while avoiding the ham-fisted tactics that failed during the stock market crash.

China bond market could use some foreign insight

9 Dec 2016

Regulators may allow foreign ratings agencies into the onshore market. That might comfort overseas investors enough to persuade index compilers to include Chinese bonds. The trick will be stimulating competition in a market twisted by government guarantees.

French bond rot has capacity to spread

7 Dec 2016

Gallic bonds are trailing euro zone peers. This suggests investors are worrying that the far-right's Marine Le Pen might do better in the 2017 presidential elections than polls show. Were her chances to improve materially, market damage would quickly spread across the region.