Bonds

CoCo pricing looks a little loco

4 Mar 2014

The newish market in contingent capital bonds is growing fast. But when it comes to pricing, it is immature. One example: investors ignore the way credit risk increases with maturity. Time may iron out pricing inefficiencies. The risk is that reality dawns after a sudden shock.

Japan bond investors’ overseas trip may flop again

26 Feb 2014

The Federal Reserve’s taper talk discouraged Japanese investors from venturing abroad last year. Now wobbly emerging markets are threatening this year’s outing. That’s bad news for bondholders searching for better returns - and for the Bank of Japan’s anti-deflation campaign.

Securitisation muzzling does more harm than good

17 Feb 2014

Over-egging the practice of repackaging loans as bonds helped cause the 2008 crisis. Yet supervisors keen to avoid a repeat are loading investors in asset-backed debt with excessive capital charges. Smart firms may find workarounds, but the reforms hamper a key source of credit.

Europe’s big bond traders lose out to Wall Street

28 Jan 2014

Both U.S. and European banks have to comply with new “leverage ratios.” But traditional business models mean firms like Deutsche Bank have to do more deleveraging than American rivals. Already, hard-won portions of the fixed-income pie are disappearing across the Atlantic.

Investors at fault for Arcelor hybrid-bond stink

21 Jan 2014

In buying back one of its hybrid bonds, ArcelorMittal is doing what is financially sensible. Investors, who have taken a big hit, have only themselves to blame for ignoring a risk that was plain to see. It’s a sign the credit yield grab is getting silly. 

Mainstream market outlook could still be right

14 Jan 2014

Contrarians have had a good start to the year. The consensus is that safe bond yields will rise in 2014; they’re falling. Equities are supposed to do well, but look wobbly. Still, a first-quarter setback could improve the chances things will pan out as widely expected by year-end.

Japan’s yen glut is failing to lift global bonds

5 Dec 2013

With the central bank printing money at home, Japanese investors were supposed to be big buyers of global bonds. Instead they have been net sellers this year. While that’s changing, a yen deluge looks unlikely as long as investors remain afraid of the Federal Reserve’s next move.

Chinese “tapering” may worsen U.S. bond woes

27 Nov 2013

Large dependable buyers of Treasuries may be thin on the ground in the coming years. The Fed will trim, and eventually stop, its asset purchases. And now China is talking about halting its reserve accumulation. U.S. bond yields could rise faster and further than expected.

Sovereign CoCos look like good financial innovation

20 Nov 2013

Banks issue loss-absorbing contingent capital, so why not sovereigns? A Bank of England proposal to make government debt extendible in bad times would render crises easier and rarer. The system would be hard to set up today, particularly in Europe, but the idea is worth backing.

Banks’ bad IPO habits spread to China bond deals

15 Nov 2013

Despite booming bond issuance by Chinese groups, banks are crowding into new offers. Companies keep lenders happy by dispensing league table credit to many book runners. As in the equity market, though, working for measly fees is a poor way for bankers to justify their existence.

“Great Rotation” fans face earnings reality check

6 Nov 2013

Pimco’s flagship bond fund has been supplanted by a stock index rival as the world’s largest mutual fund. More money may flow from bonds to equities. But indiscriminate enthusiasm for the trade is unwise. The company results season, particularly in Europe, is less than stellar.

Risky bonds offer strange kind of safety

30 Oct 2013

Yield-hungry investors are gobbling up junk bonds and “pay-in-kind” notes. Yet there is an odd rationality behind this exuberance. As economies grow, companies can de-gear safely. And these bonds will be hit less hard by rising interest rates or leveraged buyouts.

UK takes token step into Islamic finance

29 Oct 2013

The government is finally making good on a promise to be the first Western nation to sell a sukuk, the Islamic finance name for a bond. It could establish a benchmark for other British issuers, but at 200 million pounds, the deal’s main payoff is political, not financial.

Africa trumps U.S. junk as bond investment

11 Sep 2013

Buyers are more familiar with lower-rated American companies like Sprint, which just sold a record $6.5 bln of paper. But solid African economies with low debt may offer more upside and less risk. Coming debuts from Kenya and Tanzania will give investors another chance to play.

Japan’s bond market calm hides fiscal disquiet

11 Sep 2013

Inflation expectations are firming up, but Tokyo faces little pressure to offer higher compensation to its creditors. While Prime Minister Shinzo Abe can thank the Bank of Japan for the bond market’s blissful nirvana, he could easily ruin it with fiscal overreach.

Yield curve shifts look less lucrative for banks

10 Sep 2013

A steepening government bond yield curve is usually a money spinner for banks by allowing them to lend at much higher rates than they borrow. The phenomenon may be less profitable this time. Regulation has changed the rules of the game and the economic environment is different.

Credit markets face bumpy ride into 2014

3 Sep 2013

The end of ultra-loose monetary policy means higher corporate funding costs. Bond-market theory says the pain should be offset by lower credit spreads, as earnings improve. But it’s not working out like that. Higher rates and volatile spreads will cause some upset in credit.

New U.S. mortgage bond rules at least are simpler

28 Aug 2013

Regulators have reworked proposals for how much of their own structured finance cooking banks must eat. Though the feds have given ground on down payments, the streamlined requirements – despite their 500 pages – are a step toward greater mortgage market confidence.

Bond yield menace intrudes on equity market party

21 Aug 2013

For much of the past five years, equity investors had few concerns about rises in U.S. and German bond yields. They often went hand in hand with gains in shares. But now, higher yields are more likely to hinder than to help equities.  

Moody’s U-turn raises bar for choosing hybrids

19 Aug 2013

The rating agency’s decision that junk-rated hybrid bonds are entirely debt and not quasi equity highlights the changeability of this funny money. The fallout is limited for now. But it’s another reason for companies to think twice before issuing hybrids, and investors before buying.