Debt

ECB corporate bond buying is risky experiment

1 Jun 2016

The central bank's pledge to buy company bonds has caused a surge in issuance. As a result, market spreads - the premium investors demand over sovereign debt - are not falling. The unwanted side effects of the programme show why corporate credit markets are best left alone.

Qatar’s debt bonanza stores up problems for future

27 May 2016

Too much of a good thing could be bad for the Gulf state. It has just raised a whopping $9 billion in the bond market thanks to investors’ hunger for yield. Loading up on debt will help Qatar cope with lower energy prices, but just dodges its biggest problem: lavish spending.

Greek deal is rational, predictable, messy

25 May 2016

Both the IMF and Europe have compromised in Greece’s new debt plan. Athens’ fiscal targets are looser, but less so than the IMF wanted. Its debt costs will fall, but the relief is vague. There’s a hoary cliche about kicking the can down the road. This doesn’t even go that far.

U.S. lenders’ $3.4 bln deal pits hope vs. reality

23 May 2016

Ares Capital’s takeover of under-fire rival American Capital may well bring more fees, lower funding costs and better returns. But the market for lending to mid-market companies has become tougher even as banks have retreated. The complexity of the tie-up doesn’t help, either.

IMF atonement offers natural justice for Greece

23 May 2016

The lender of last resort wants Athens to have less austerity and bigger debt relief. The move frustrates Germany’s desire to avoid overt fiscal transfers. Yet the IMF holds the aces, and its plan comes close to how a bailout should have looked had the fund done its job in 2010.

Credit Suisse labours to spin misfortune into gold

20 May 2016

A bond that wipes out if the Swiss bank encounters big operational losses, from rogue trades to cyber crime, has not been an easy sell. Even for investors who specialise in natural catastrophes, this product is esoteric. Such cleverness is impressive, but unlikely to catch on.

Investors may rue framing art as an asset class

20 May 2016

Collectors increasingly see paintings as investments – and collateral. The value of loans secured by art has doubled to $10 bln in four years. Yet as this spring’s big auction downturn shows, the business is volatile. Best to rely on the aesthetic return.

Euro zone rules need more carrot, less stick

20 May 2016

Spain, Portugal and Italy are getting free passes to break Europe’s fiscal rules. Political calculations explain why, but even if penalties were enforced they’d be self-defeating. Instead of punishing sinners, the single currency needs simpler rules that reward those who comply.

Puerto Rico fix gives everyone something to hate

19 May 2016

U.S. lawmakers’ latest effort to provide a framework for the island to restructure $70 bln of debt would impose strong oversight. While it appears to bolster senior creditors’ claims, holdouts could end up with a bigger haircut than they’d like. That makes it a decent compromise.

Illinois governor all but summons bond vigilantes

17 May 2016

In an interview with Breakingviews, Republican Bruce Rauner challenged a pervasive belief in markets that governments can always just raise taxes to plug deficits. The issue resonates beyond his state’s $140 bln fiscal mess. Debt investors have neglected to focus political minds.

Chancellor: UK housing crisis isn’t supply problem

17 May 2016

British home prices are higher than ever relative to incomes. But nosebleed values aren’t a sign of inadequate supply. It’s all about ultra-low interest rates and foreign capital flows. When Chinese capital flows reverse, the London property bubble will burst.

Quicken Loans may yet reroute U.S. lending justice

13 May 2016

Prosecutors say it knowingly broke rules on government-backed mortgages. The lender wants its day in court, calling the feds’ actions a “misuse of power.” The likes of Wells Fargo have settled rather than fight. Forcing the government to make a case at trial could change that.

India’s bankruptcy revolution will be a slow burn

12 May 2016

The country has passed a new insolvency code. The overhaul is overdue and ambitious. It could take years to implement properly. In the meantime, creditors will have to rely on other innovative fixes to deal with India’s massive pile of bad debt.

Belgium may not be only loser at Draghi’s casino

11 May 2016

The small euro zone state hedged the risk of borrowing costs rising - only to suffer losses because ECB President Mario Draghi’s monetary easing drove yields down so much. Those states that ditched such hedges look smart right now. If rates go up, they will look like Belgium.

Puerto Rico creditors making perfect enemy of good

10 May 2016

A bill to cut the U.S. territory’s $70 bln debt stalled amid fierce lobbying by bondholders that insist on full repayment. New but similar legislation offers a chance to get the island back on track. Though no one wants a haircut, a messy default could be far more costly.

India shows China the way to deal with bad debt

6 May 2016

State-backed banks in both countries have lent too much to politically connected companies that are now in trouble. While India is pushing lenders to come clean, China is still not admitting the extent of the problem. Future growth depends on a proper cleanup.

Credit Suisse sheds problem assets but not stigma

4 May 2016

The Swiss bank has sold $1.2 billion of distressed credit to buyout group TPG, locking in an extra $100 mln of writedowns. High-yield prices are similar to what they were in October. Hence Credit Suisse hasn’t gained much financially for the dent in its credibility. 

Euro zone needs better glue than Canadian kindness

29 Apr 2016

Portugal’s eligibility for ECB bond-buying hangs on the rating of Toronto-based agency DBRS. Effectively, the ECB has outsourced the decision of whether to cut off a country. It works to a point: it’s hard to imagine the ECB abandoning Italy or France whatever their ratings.

Euro zone cracks show in QE plaster

27 Apr 2016

The ECB’s money printing has squashed interest rates for countries and companies, even in the south. Yet the difference in borrowing costs between riskier sovereigns and Germany is rising. Bond-buying has not made investors insensitive to risk. It may not prevent default either.

Abu Dhabi could shoulder most of 1MDB tab

27 Apr 2016

The emirate blinked in a standoff over $3.5 bln of debt it guaranteed for the disgraced Malaysian investor, and is now paying interest on 1MDB bonds. The fund’s default is a headache for Malaysia. But Abu Dhabi’s reluctance to let down outside investors means it might pay more.