Bonds

ECB visits creative destruction on covered bonds

11 Nov 2014

The European Central Bank’s bid to boost its balance sheet by 1 trillion euros is distorting the prices of the covered bonds it’s buying. Inefficient markets can breed trouble. But that may be the necessary collateral damage of central bank action.

Bond markets nudge France towards periphery

23 Oct 2014

Investors want a growing yield premium to hold French bonds rather than Dutch, Belgian or Austrian ones and the cost of insuring against a Gallic default is inching up. Blame repeated budget misses and a sluggish economy. Still, a large, liquid debt market has some attractions.

ECB’s corporate bond plan is powerful but risky

21 Oct 2014

Forget QE: the European Central Bank may buy corporate bonds. The move could lower companies’ and governments’ borrowing costs and stimulate securitisation. It might also fuel moral hazard. But the central bank’s pledge to fight deflation would become more credible.

Jammed exits amplify global market gyrations

16 Oct 2014

It’s the worst financial turbulence since the euro zone crisis. Waning economic confidence and contagious fear can explain some of the rush out of stocks and into safe bonds. The decline of active market-makers is magnifying the movements. 

Rampant market fear clarifies global divide

15 Oct 2014

A slump in 10-year U.S. Treasury yields and the evaporation of this year’s stock gains augur poorly for the Fed’s bond-buying exit. Yet the domestic economy has been improving. Slowing growth elsewhere presents the bigger worry. America’s central bank can’t do much about that.

Reborn as the bond market? No way. Look at yields

9 Oct 2014

An adviser to U.S. President Bill Clinton once said he’d like to be reincarnated as the bond market because it can intimidate anybody. Those days are gone. Central banks now push investors around. That’s why yields are falling globally, and are at record lows in Europe. 

Sukuk are newest financial centre status symbol

12 Sep 2014

Hong Kong has followed the United Kingdom by issuing an Islamic sovereign bond. There’s little demand in either place for such instruments but the hope is they will lure other issuers. Much like the global race to trade the Chinese currency, innovation signals a city’s ambition.

China bank capital raisings look opportunistic

19 Aug 2014

Lenders like ICBC and CCB are issuing bonds and preference shares at competitive prices. They can do so because of hazy reform prospects and the appearance they don’t need the money. Yet growing lending and rising bad debts mean the case for investing in the instruments is weak.

German yield curve is the safest one to play

18 Aug 2014

The spread between short- and long-dated bond yields keeps shrinking in the UK, United States and Germany. Stronger economic activity explains the Anglo-Saxon moves, economic weakness drives the Teutonic trend. The trade that relies on euro zone frailty looks the least risky.

Junk debt blows its own perfect storm

14 Aug 2014

Low-grade bonds had a bad July, and no one is quite sure why. But high-yield is vulnerable. There is too much hot money and funds have bank-style liquidity mismatches. Add in the hunt for yield amid enduring low rates, and it’s a recipe for further turmoil.

Forex options hint at end of preternatural calm

30 Jul 2014

When daily action in most financial markets is so subdued, almost any signs of activity are noteworthy. Shifts in FX options prices, which suggest a future increase in currency volatility, are basically good news. Some investors are getting ready for choppier waters. 

Argentine opportunity cost is reason to cut deal

28 Jul 2014

Another default arguably might not make things immediately worse. But it would set back recent efforts to curry favor with international financiers. With maybe $300 bln needed to develop shale oil and gas alone, swallowing national pride and ponying up $15 bln look worth it.

China default shows market forces exist for some

22 Jul 2014

A second bond looks set to fail, and funding costs for riskier issuers have been rising. Yet big and state-linked borrowers still enjoy low rates, because investors believe failure is only for the unlucky few. The real shift will come when China challenges that tenet.

Markets sleepwalking into European slowdown

15 Jul 2014

Portuguese worries have taken Europe’s shares off their highs. But investors haven’t fully registered a deceleration in the region’s big economies – including Germany. The softening may partly reflect the crisis in Ukraine. Either way, policymakers have no easy remedy.  

"Seller beware" when profiting from market calm

10 Jul 2014

Volatility, gauged by indicators like VIX, is ultra-low. While it could be the calm before a storm, investors including Pimco have been selling insurance against price swings. It’s one way to make money amidst shrinking yields, but it’s also a risky bet against the unexpected.

Euro periphery bonds’ era of easy gains is over

23 Jun 2014

The market sometimes sends little signals that investors are losing faith. The spread between the bid and offer price on southern European government debt has widened since May. That suggests an increase in caution, and less confidence that yields will keep falling. 

Europe’s new market finance zeal slides over risks

5 Jun 2014

With banks not keen to lend, European officials want markets to provide more credit. The ECB may even try to help by buying asset-backed securities. The goal is worthy, but caution is warranted. Markets come with their own risks, most notably vanishing liquidity in a crisis. 

Central banks abet the complacency they fret about

4 Jun 2014

Monetary policymakers worry that today’s torpid markets carry the seeds of tomorrow’s torrid moves. They’re right to worry, but the problem is of their own making. Cheap money is making investors complacent, so they underestimate the risk of big adverse price swings. 

Low volatility and high doubt hamstring markets

29 May 2014

Trading volumes are dipping in several asset classes. Low price volatility and tougher regulation can be blamed. So can investors’ bruised confidence, after some big bets went awry this year. It’s safer to sit still than to move in what might prove to be the wrong direction. 

Spanish boards: a country for old men

23 May 2014

Company directors in Spain are older, and boards are larger and less diverse than the European average. The biggest groups have been run by the same bosses for over a decade. Change isn´t likely to come from within. It’s up to investors to demand a governance shakeup.