Bonds

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.

Cyprus bond swap is good publicity, bad economics

2 Jul 2013

The creditor banks of Cyprus “voluntarily” exchanged 1 bln euros worth of sovereign debt at cheap rates. That lowers the bailout bill for the euro zone, but the burden falls unevenly on the country’s banks. Exchanging all creditors’ debt would have been fairer - but messier.

Investor imperative – get on top of bond duration

27 Jun 2013

Until now, only geeks worried about this measure of a bond’s sensitivity to changing rates. But if yields keep rising, duration will become a crucial indicator. For a start, it shows how the UK government is well prepared for the shift - and how the U.S. Treasury is vulnerable.

China’s spiking rates create winners and worriers

14 Jun 2013

Big banks thumbed their noses at an auction of Ministry of Finance bills. No wonder: they can do better lending to each other. Tight liquidity has pushed up rates in the $31 trillion interbank market, creating profit for some, pain for others, and disquiet for central bankers.

UK houses look expensive, like German bonds

14 Jun 2013

The British house price recovery will keep on for now, as the economy picks up. But even as it begins, homes are unaffordable. Prices have been propped up by ultra-loose money, rather like UK and German bonds. That creates the risk of a painful fall when interest rates rise.

Europe tries to skirt both chaos and complacency

13 Jun 2013

Governments struggle to make tough choices when markets are forgiving. Rising yields on risk-free debt, and the German constitutional court’s unpicking of the ECB’s bond buying, herald a tougher ride for peripheral bond markets, and less chance for governments to rest easy.

Markets suffer too much central bank attention

12 Jun 2013

It’s Goodhart’s law: indicators start misbehaving as soon as they are seen to be telling gospel truths. The monetary authorities think strong asset markets and weak currencies will help growth, but their financially orientated policies are now more confusing than helpful.

Hybrids trapped by fickle agencies and firm issuers

11 Jun 2013

Investors are smarting after Dong Energy said it would redeem a hybrid bond below its market price because S&P decided the security was no longer equity. The episode has cost Dong too - and it faces punishment when it sells its next hybrid. This immature market has growing pains.

Edward Hadas: Bond markets and failed theory

5 Jun 2013

If the recent rise in yields shows investors rebelling against pathetically low returns, then so far they are asking only to be flayed with a smaller whip. But the episode makes clear that monetary policy is now an economic hazard. Blame the crazy idea of a natural interest rate.

Inflation arises from popping EM asset bubbles

5 Jun 2013

Mere talk about Fed tapering has been enough to reverse the previous flood of foreign money into emerging market bonds and stocks. As these bubbly assets deflate, currencies are falling in Turkey, Brazil and Mexico. That will push up inflation and cut into growth.

Bond jitters shouldn’t delay Japan pension reform

4 Jun 2013

Asking state funds to buy fewer government bonds when the central bank is struggling to control yields may look an own goal. But juicier returns should reduce the taxpayer’s exposure to future shortfalls. Besides more money moving out of Japan will help keep the yen weak.

Japan bond market blues: A guide for the perplexed

31 May 2013

The central bank is struggling to keep a lid on interest rates. Will rising yields choke Japan’s recovery and cause fiscal and financial panic? While the surge looks manageable for now, it’s a reminder to Prime Minister Abe not to neglect his remaining reforms. Our guide explains.