Bonds

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.

Liquidity risk: a bondholder survival guide

17 Aug 2015

Wall Street executives Jamie Dimon and Gary Cohn blame trickier trading on new rules, an argument ex-Fed boss Paul Volcker refutes. But investors need not panic. They already have tools at their disposal to help combat a sudden drought in the market, and one or two new ones, too.

Green bonds struggle to justify the hype

23 Jul 2015

China’s first eco-friendly bonds push this year’s issuance close to $20 bln. The market has grown fast. But definitions are fuzzy, returns are humdrum, and it’s not clear what problem this solves for corporate issuers, most of whom could sell conventional debt at similar rates.

Puerto Rico woes come with systemic silver lining

8 Jul 2015

Fears that the commonwealth will default on its debt have whacked bond insurers’ shares. Unlike 2008, though, the likes of MBIA and Assured Guaranty now back only a small fraction of the markets they operate in. That should prevent too much pain spreading beyond their walls.

Europe has power to contain Greek bond contagion

16 Jun 2015

Immunity to infection is fading in euro zone debt markets. The gap between German and other yields is widening sharply as Athens and its creditors harden positions. EU authorities can offer boosters to restore the power of their peripheral debt inoculation. They may have to.

Central bankers try tough love on debt markets

12 Jun 2015

Rate-setters are not only tolerating big bond swings. They are actively welcoming the lessons that volatility teaches investors. But there are limits to market discipline. If borrowing costs rise enough to threaten economic recovery, policymakers will probably soften up. 

Chicago bonds catch mild version of Moody’s blues

27 May 2015

Two weeks after the firm cut the city’s credit rating to junk, underwriters priced about $670 mln of bonds with yields approaching 6 pct. That’s nearly double what triple-A cities pay, but well shy of broke Puerto Rico. It’s a fair reflection of Chicago’s simmering fiscal mess.

Euro pessimists are taking the long view

26 May 2015

The single currency is below $1.09 for the first time in nearly a month. Its short-term fortunes may depend as much, if not more, on when U.S. rates will rise as what happens in Greece. But options prices reveal that euro bearishness is becoming more and more entrenched. 

Malaysia’s GDP blueprint has a credibility deficit

22 May 2015

Najib Razak has vowed to make the country rich by 2020. Investors are wary. The opposition chief is in jail, race relations are tense, and a scandal-plagued state investment fund has hurt the prime minister’s authority. A slumping ringgit shows there could be trouble ahead.

Bond turmoil signals new era of return-free risk

15 May 2015

Forget the risk-free rate - investment safe havens are in short supply. Cash can be costly. Gold is a dollar proxy. And recent gyrations in the largest debt markets have undermined the concept of risk-free returns. When this last compass fails, investors are really at sea.