Bonds

Oil, bonds highlight risk of imperfect recovery

10 Jun 2009

Huge deficits and zero rates are keeping depression and deflation away. But the oil price has been swept up by the rising liquidity tide and bond yields have risen in a fearful response to free money. The two together could make for a more painful recovery than the market hopes.

Setanta learns cost of combining hope and promises

9 Jun 2009

The upstart Irish payTV broadcaster has to find £30m by next week to avoid administration. It might just manage something, but the £500m owed to content providers looks crippling. The recession and a halflost auction have been just too much for the company.

US should end bank debt guarantees

9 Jun 2009

With the likes of Goldman and JPMorgan and even stumbling Citi now issuing debt without Uncle Sam s backing, there s little justification for FDIC backing bank bonds. But the TLGP has attractions as a bailout tool. Officials should avoid that siren song and shut it down.

The LBO club doesn’t look so chummy anymore

4 Jun 2009

Not long ago, the government was probing private equity firms for acting too clubby. As the brewing battle over Clear Channel s proposed debt exchange suggests, however, it could soon be more like open warfare in the land of the leveraged.

Devaluations loom in eastern Europe

4 Jun 2009

A failed Latvian debt auction is a clear market no to the attempt at devaluationfree restructuring. Latvia probably can t hold out, and Estonia and Lithuania are likely to follow. Baltic woes are bad for Swedish banks and for other frail eastern European economies.

Devils remain in derivatives plumbing details

3 Jun 2009

JPMorgan, Goldman and others responded to US Treasury boss Tim Geithner s sabrerattling with promises to reduce risk and improve transparency in the nearly $600 trillion market. But much depends on how their broadbrush plans which still invite wrangling are implemented.

Lacroix woes point to luxury goods consolidation

28 May 2009

Christian Lacroix s request for creditor protection underscores what can happen to the luxury sector s overleveraged smaller players in a downturn. It also highlights the pressures on the whole sector. Consolidation is needed but don t expect a rush of deals just yet.

UK bank lending decline is no cause for panic

28 May 2009

The UK corporate sector is borrowing less. But it s not clear that the fall is due to banks withholding credit. Demand has fallen too. What matters is that the banks stick to their commitment to make credit available to suitable borrowers should demand pick up.

Derivatives volume collapse doesn’t mean less risk

19 May 2009

For the first time since the market revved up ten years ago, the notional amount of all derivatives fell by 13.4% in the second half of last year. That doesn t mean less risk, though. The market value of the remaining contracts jumped, as did their gross credit exposure.

US credit card law has silver lining

13 May 2009

Banks are lobbying furiously against legislation that would restrict a host of common practices. They say it will force them to cut credit to weak borrowers. But they re already doing so. And if it makes banks manage their credit risks more intelligently, that s a good thing.

Credit hedgers not all villains in GM saga

12 May 2009

Some fear hedged bondholders will oppose the US government s deal because they can reap gains on CDS contracts by tipping the carmaker into bankruptcy. But they probably hedged before GM s trouble became acute meaning they re not just opportunistic speculators.

Microsoft’s debt offer matters – to Microsoft

12 May 2009

The software giant is set to issue nearly $4bn of bonds. It doesn t need the cash, not with a $170bn market capitalisation, prodigious cash flows and no debt. But the rapturous reception of Microsoft s first ever bond issue says more about the company than the credit markets.

US government bond bubble may soon deflate rapidly

5 May 2009

Seasonal funding needs, huge government borrowing requirements, green shoots of economic stabilisation or recovery and the inflationary effect of Fed liquidity creation are combining to send Treasury bond yields upward. They may go a lot higher, quite quickly.

US insider trading case could weaken CDS critics

5 May 2009

Regulators charged two people with fraudulently reaping $1.2m in the credit default swap market. It s the first US insider trading case involving these instruments, and if prosecuted successfully, it would demonstrate that the CDS market isn t entirely lawless.

Double bankruptcies are a warning for vultures

28 Apr 2009

US department store Fortunoff is being liquidated after filing for bankruptcy for the second time. Filene s Basement is also about to make a repeat appearance in bankruptcy court. This shows that buying failed companies, even on the cheap, isn t necessarily a bargain.

CDS critics can’t have it both ways

17 Apr 2009

Some want credit derivatives trading limited to investors who own underlying debt. But others are now blaming creditors who own credit default swaps for forcing companies into bankruptcy. The arguments directly conflict. Better just to try to ensure the swaps are traded safely.

US backing can’t dispel Citi credit concerns

14 Apr 2009

You d think government support of the megabank including $45bn of taxpayer equity and a partial asset guarantee would ease creditor concerns. But default protection costs twice as much for Citi as it does for BofA. Despite assurances, bondholders are bracing for pain.

G20 to bail out bank bondholders

3 Apr 2009

Although it isn't spelt out, that s the implication of one of their papers and confirmed by knowledgable people. Regulators are too afraid of the knockon effects of even subordinate debt defaults. The quid pro quo is that such debt will, in future, not count as capital.

Convertible market flips back to life

2 Apr 2009

After several months of silence, US companies rushed to issue convertible bonds in the last week of March. As long as balance sheets are stretched, stock volatility is high and investors think share prices have bottomed, the trend has room to run.

Running the numbers on NXP’s debt exchange

1 Apr 2009

Only a fraction of bondholders took up the exchange offer, while nearly half Freescale s holders agreed to its recent deal. It looks like NXP needed to offer a sweeter deal. Breakingviews provides a calculator to help do the debt swap maths.