Bonds

China debt swap lays ground for greater reckoning

13 May 2015

Officials are finalising a plan to replace local authority loans with bonds, which lenders can use to borrow from the central bank. It won’t shrink the 16 trln yuan ($2.6 trln) tower of local government debt, but should stop good loans getting in the way of dealing with the bad.

Sliding markets may just reflect a reality check

12 May 2015

There’s no unexpected bad news to blame for bond price falls and stock declines. Yet by historical standards, high-class sovereign debt is still expensive. Shares aren’t cheap either – and Picassos are at all-time highs. Investors can be forgiven if they’re having a rethink.

Euro zone bond rout breaks whole new set of rules

7 May 2015

Remember when life was simple and easy money pushed up all asset prices? No longer. Government bonds whipsawed on Thursday and stocks are down, while oil prices are up. News isn’t the driver, either. The latest market dramas lack a rationale, but they’re still worrying.

Bond market shock wouldn’t trigger new 2008

21 Apr 2015

Thinning markets have led even Jamie Dimon to fret over what happens if investors are surprised. Bank exposure has fallen, while funds and ETFs have grown. Breakingviews explains why, despite the potential for price gyrations, lower leverage should help avoid another crisis.

Euro zone bond analysts live in brave new world

20 Apr 2015

The old skills are almost useless. Chart patterns tell no tales in uncharted territory. And forget about inflation, growth and nebulous concepts like term premia. Just study politics and ECB buying. It’s an easier life for specialists, but this market is riskier for the economy.

Europe’s credit boom locks in mediocre returns

15 Apr 2015

Investors are throwing money at European companies. Carrefour and Danone paid little over 1 pct a year to borrow for a decade; Novartis got 20-year funds at similar levels. A Breakingviews calculator shows how bond buyers’ generosity could backfire.

Tactical euro zone bond issuance is welcome

15 Apr 2015

Some euro zone governments are issuing a lot more long-dated debt to lock in low rates. The opportunistic supply switch may explain why ECB bond-buying isn’t pushing some peripheral countries’ yields even lower. If so, the extra bit of interest expense is a price worth paying. 

German bonds are becoming like gold dust

14 Apr 2015

They’re scarce, and you increasingly have to pay to own them. The benchmark 10-year Bund may soon go negative. But like gold, it might be a good deal. The market supply is shrinking, thanks to strong German government finances and ECB buying. This paper could prove precious.

China bond market serves up sweet taste of failure

8 Apr 2015

Messing up is good, at least in small doses. A default by a restaurant chain that botched its transition to cloud computing could bring some discipline to a market that had little. The pity is that freedom to fail is a long way from being applied regardless of size and sector.

Actavis sale dresses up barely investment grade

3 Mar 2015

The acquisitive drugmaker attracted huge demand for $21 bln of bonds one notch above junk. They yield 1.75 percentage points over U.S. Treasuries, less than Verizon’s bigger, better-rated issue did in 2013. Buyers of top-tier debt can’t help but keep looking further downward.

Pre-election nerves lurk under UK market calm

25 Feb 2015

It’s hard to tell from UK asset prices that investors abhor uncertainty. Sterling is rising and stocks are hitting record peaks less than three months before a very close election. Healthy economic fundamentals help. Still, there are plenty of jitters in options prices. 

Social trends may point to higher yields, someday

25 Feb 2015

In 2005, a Barclays strategist suggested a declining population of savers could push bond and stock prices down. A decade later, a different strategist at the same bank says the same thing. It may work out in time, but demographics have more influence on GDP than asset values.

Investor tolerance for low bond yields has limits

23 Feb 2015

Economic fundamentals can’t fully explain why U.S. and UK yields have risen sharply, decoupling from German ones. Perhaps investors are finally tiring of meagre returns. If so, planned ECB asset purchases may only cap euro zone yields, rather than driving them down much further.

High-yield boom enters hold-your-nose territory

22 Dec 2014

With defaults and interest rates low, junk bond sales have broken records. Central banks won’t stop the party in 2015. So investors will keep chasing yield, despite a market sell-off, a few blow-ups and rising corporate indebtedness. That will store up trouble.

Fiat tries to make convertible a mandatory buy

11 Dec 2014

Mandatory convertible bonds – debt securities that become equity – aren’t to everyone’s taste. Fiat has priced its $2.5 bln issue to sell. Investors get a high coupon and access to the carmaker’s Ferrari IPO. That compensates for the bond’s low rating and deferrable interest.

Amazon debt implies minor degrees of easy money

3 Dec 2014

The online retailer’s refusal to specify why it wanted to borrow $6 bln and a slim interest cover of 1.2 times required it to work harder than most to lure buyers. Medtronic’s record issue and Alibaba’s debut got away easier. Investors can hardly be called discriminating.

History may frown on Great War loan buyback

3 Dec 2014

The UK chancellor is to repay the state’s century-old war debt. By current standards, the undated stock is expensive for the government to service. Terms give holders of the hard-to-trade bond a decent payoff. It looks like a win-win. Time could prove a harsher judge of the deal.

China solar saga puts foreign lenders in the shade

1 Dec 2014

Troubled LDK Solar avoided liquidation after bondholders agreed to convert around $700 mln of offshore debt into shares. But the loss-making company owes mainland banks $2.5 bln. It’s a reminder that when things go wrong in China, overseas creditors are at the back of the queue.

Ethiopia’s bond plan will test hunt for yield

28 Nov 2014

The Horn of Africa nation plans to issue a debut dollar bond, of reportedly $1 bln. The demand for such frontier market debt, which is at the risky and illiquid end of the sovereign bond spectrum, will show just how adventurous investors have grown in their quest for returns.

Pricing most important market risk is a struggle

13 Nov 2014

Market liquidity is a bit like oxygen. Taken for granted when ubiquitous, horribly missed in absentia. Unfortunately, this precious commodity is proving hard to price. Even central bank gauges can’t quite capture its patchiness. Investors are worryingly vulnerable to big jolts.