Bonds

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.

Carney hopes for UK face bond-market bears

30 May 2013

The new governor of the Bank of England is expected to help the UK economy. Like the U.S. Fed, Mark Carney may try to keep bond yields low by issuing “forward guidance”. But his efforts may founder against bearish bond trends unless the bank prints money and mops up gilts.

India in depth: A costly flirtation with “linkers”

21 May 2013

Inflation-linked bonds will give gold-addled savers a safer investment option. But limited initial issuance means New Delhi will have to pay up to lure investors until the securities become more liquid. A bolder commitment to the new asset class can save the government money.

Greece’s vicious circle may be turning virtuous

15 May 2013

Yields on Greek 10-year bonds hit their lowest level in nearly three years. Investors are returning now that fears of a euro zone exit have receded and the country’s finances and politics look more stable. The economy is still in trouble, but it’s moving in the right direction.

Greece offers value in distorted low-rate world

13 May 2013

German Finance Minister Wolfgang Schaeuble worries that loose monetary policy is distorting markets. That doesn’t show for Greece, whose bonds still pay a hefty yield even after risks of a euro exit have receded. Athens remains an outlier in the peripheral dash for trash.

Portugal marks triumph of Draghi bluff

8 May 2013

Lisbon’s first 10-year bond since the country’s bailout makes ECB bond buying possible - but less likely. Mario Draghi’s promise to intervene has tamed markets, and central banks worldwide are forcing investors to take on risk. That virtuous circle has one weak link: politics.

Apple debt shows revival of yield desperation

1 May 2013

The tech giant sold 30-year paper with a coupon under 4 pct. Markets have also seen a surge in dividend recaps, PIK toggles and other throwbacks to the pre-crisis leverage boom. One culprit is central banks sucking supply and squashing rates. Such distortions usually end badly.

Former junk bond king has more leverage than ever

1 May 2013

Three decades after Michael Milken mastered raising money he now trades mostly in intellectual capital. This year, the likes of Carlos Slim and Tony Blair joined old friends at his annual Beverly Hills jamboree. These growing networks are a better sort of crony capitalism.

Euro zone spread monster is only half-dead

29 Apr 2013

The euro zone crisis has tuned to a slow burn. Government bond spreads now discipline, rather than terrorize governments. However they hurt local economies and, by several measures, are still higher than they should be. It shows the success, and limits, of ECB policy.

Bond vigilantes succumb to unlikely complacency

24 Apr 2013

Euro zone bond investors are shrugging off rising national debts, missed growth targets and political uncertainty. Having first terrorized policymakers into austerity, they now seem to think they will be reflated to safety. The relaxed approach leaves a lot to trust.