Bonds

Euro zone bond bonanza: waste not, want not

12 Apr 2016

The average yield on German debt has hit zero and France is locking in low borrowing costs for decades. How governments use such cheap funding matters. Berlin’s migrant spending may reap more benefits than French handouts to students. Public investment would be even better.

Breakdown: Green finance grows despite fuzzy logic

11 Apr 2016

Policymakers are desperate to coax cash into planet-friendly projects to cover the costs of environmental crises and climate change. The latest idea is to label green investments. But the precise benefits are often unclear. Breakingviews offers a guide through the undergrowth.

Bank CoCos deserve all the brickbats

18 Mar 2016

Deutsche Bank’s John Cryan thinks new hybrid bank bonds are flawed. Market turmoil is forcing regulators to clarify when baffled investors get coupons. Yet unless there is also standardisation of when they convert from debt to equity, CoCos will always be prone to death spirals.

Negative yielding bond world favours the agile

1 Mar 2016

German 10-year bond yields are in sight of last year’s record low, 0.05 percent. There’s no reason why they can’t fall lower than this given Japan just auctioned comparable debt at a sub-zero yield. Investors need to be nimble to make money in this world of negatives.

Deutsche bondholders send tepid vote of confidence

23 Feb 2016

The bank had to buy back less than half the 3 bln euros of debt on offer, making a tidy profit as most investors stood pat. That may allay fears of a market panic, but wide credit spreads suggest the lender is still considered risky. Its return to health is a work in progress.

Banks’ hybrid hissy fit is no disaster

18 Feb 2016

Fears that Deutsche Bank may stop coupons on hybrid debt took the bank to crisis. That will be seen as proof that hybrids are no match for real equity. Yet the mess was caused by vague regulators and lazy investors. Without these obstacles, hybrids can still play a role.

Deutsche makes investors offer they should refuse

12 Feb 2016

The German bank is offering to buy back 5 billion euros of bonds. A big take-up means more capital for Deutsche, but could also imply a lack of confidence in the bank’s solvency. Given the potential for bond prices to snap back, it may be better for investors to sit it out.

German CDS imply bank doom loop is unbroken

10 Feb 2016

Market turbulence has led investors to snap up safe German bonds, yet the cost of insuring against a Teutonic default is up. Blame a rout in Deutsche Bank shares. Until Europe’s banking union is complete, governments are the ultimate backstop if big lenders get into trouble.

Deutsche hybrids: from poster boy to problem child

9 Feb 2016

The German lender has moved to reassure investors fretting about delayed coupons on its new AT1 securities, after CDS prices collapsed. Unlike hybrid forebears in 2008, AT1s should absorb losses. Yet instead of dampening volatility, the fear of a trigger is exacerbating it. 

Puerto Rico’s 46 pct haircut may grow, not reduce

1 Feb 2016

The broke U.S. territory is suggesting creditors write off nearly half some $49 bln of debt. There’s also an earnout if – big if – growth picks up enough. Puerto Rico would still be heavily indebted. Lenders will see it as an opening gambit, but they need to accept reality, too.

Illinois flunks a fix for Chicago school finances

28 Jan 2016

The state’s push for a takeover and possible bankruptcy of the system may have foiled a needed $875 mln bond sale, making a bad situation worse. Illinois has shown it can’t handle its own budget and Mayor Emanuel is too weak to fight back. It’s a lesson in fiscal incompetence.

Peru could use legal tip from Brazil or Argentina

21 Jan 2016

The Andean nation beats neighbors economically but may lag on the legal front. A court scandal over land-reform bonds has hedge fund Gramercy and others crying foul. Rio and Buenos Aires are learning market confidence comes easier with independent judges and a wish to negotiate.

Puerto Rico exposes dearth of bond vigilantes

7 Jan 2016

Tax perks and a thirst for yield meant bond buyers tolerated bad fiscal practices for years. They only seriously pushed up borrowing costs after the island’s $70 bln debt crisis became all too obvious. Foolish financial crowds had better wise up to other U.S. danger zones.

Chancellor: The illusion of debt-fuelled earnings

18 Nov 2015

Low borrowing costs enabled acquisitive drugmaker Valeant to ratchet up EPS with leverage. Earlier episodes of financial engineering - like Japan’s zaitech and the 1960s conglomerate boom - came unstuck after rates rose and stocks fell. It won’t be any different this time.

U.S. election complicates Puerto Rico repair job

3 Nov 2015

President Obama wants Congress to help the island out of a $72 bln hole. His calls for debt restructuring, better oversight, tax and healthcare tweaks make sense, but risk falling prey to candidate posturing. It may take a full financial meltdown for D.C. to roll up its sleeves.

Treasury’s Puerto Rico superbond looks half baked

15 Oct 2015

The U.S. territory and the federal government have discussed swapping some of the island’s $72 bln debt for a new bond paid from a Treasury-run kitty. The idea is politically fraught and may not work. It’s a poor substitute for a financial control board or Chapter 9 bankruptcy.

Bruised investors try out double-whammy insurance

8 Oct 2015

Equities and bonds are supposed to move in different directions. But recently both fell, even though slowing global growth should be good for bonds. Such unusual times are leading asset managers to demand unusual insurance policies that were once the preserve of hedge funds. 

European bond auctions are crying out for change

22 Sep 2015

The reliance on a small group of approved dealers is supposed to smooth government debt sales. But lately it hasn’t been working brilliantly in Germany and the UK due to a regulatory squeeze. It’s time to give final investors more access, and shrink the middlemen’s role. 

Debt markets mistake Spain for Italy

18 Sep 2015

Last year the Iberian country was being compared by investors to safe Germany. Now foggy politics mean investors want a higher return than on Italian debt. The political premium looks temporary: Spain is faster-growing and no riskier than its Mediterranean cousin. 

Liquid banks foretell dryer bond markets

16 Sep 2015

Lenders are close to reaching their targets for safe assets like government bonds, as required by new liquidity rules. Recently they have been forced buyers, helping suppress yields. If that demand has peaked, bond investors have more to worry about than U.S. rates and China.