Bonds

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.

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.