Bonds

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.

Central bankers offer easy gains for bond traders

15 Aug 2013

Policymakers are more concerned about short-term than long-term interest rates. That leaves the long end of the bond market free to respond to an economic pickup, which seems to be arriving. It’s a cue for the U.S., German and British yield curves to steepen further.

J.C. Penney inspires long-term investing rethink

15 Aug 2013

In a world increasingly disrupted by technology, it’s harder to know which companies will navigate the next 10 years let alone 100. Buyers of J.C. Penney’s century bonds 16 years ago may now have reason for pause, but so will those sitting on 30-year debt from the likes of Apple.

Decoupling of UK bonds and CDS can be sustained

13 Aug 2013

The gap between British and German sovereign yields has increased, yet the cost of insuring against UK default has fallen almost to the low German level. After years when sovereign bond spreads and CDS often widened in lockstep, it’s evidence of a durable normalisation.

Paying old debts would set Peru on right track

29 Jul 2013

Peru’s 1970s land reform bonds have become cheap fodder for speculators. But as with U.S. revolutionary war debt and frozen Yugoslavian savings in the 1990s, a genuine effort to pay off creditors can earn a government valuable market confidence. Lima should try it.

India seeks diaspora bailout without strings

26 Jul 2013

For the fourth time in 22 years, India may ask its expats in other countries for a rescue loan. The practice has its uses. Jewish emigrants have been a cheaper source of financing for Israel than global bond markets. And lenders won’t demand IMF-type fiscal austerity.

Euro zone weakened by banks’ sovereign-debt feast

16 Jul 2013

Peripheral bonds seem impervious to rating cuts or political crises, because debt is being increasingly swallowed up by domestic banks and investors. That stifles lending, discourages reform and delays the euro zone’s recovery. The ECB could help - but only up to a point.

Higher volatility is the new normal in credit

10 Jul 2013

The end of Fed bond buying will remove a crutch that supported credit markets even as investment banks cut their trading inventory. Worse, it would come as credit ETFs are suffering outflows. Less liquid markets bring bigger price swings. For the smart money, it’s an opportunity.

Pension discount-rate relief is easy to overstate

4 Jul 2013

Rising bond yields improve the reported position of defined-benefit pension schemes. Corporate sponsors are happy, but the accounting mechanics are debatable and the financial reality is more complex. For the long term, the funding picture is still fraught with uncertainty.

Safe havens face three-pronged assault

3 Jul 2013

Markets have corrected but safe havens are still vulnerable. U.S. dollar strength is bad for gold, bonds, and the Aussie dollar. A euro zone out of acute crisis is bad for the Swiss franc. And even a tepid economic recovery will attract funds out of safe havens into stocks.