Debt

Market shakeout too incoherent to mark trends’ end

30 Apr 2015

The dollar has stopped rising, German bond yields have stopped falling and both are now flouting consensus expectations. Economic data can’t fully explain the sharp moves. The unwinding of traders’ positions can. But that is not a good enough reason to give up on big trends. 

German bonds are becoming like gold dust

14 Apr 2015

They’re scarce, and you increasingly have to pay to own them. The benchmark 10-year Bund may soon go negative. But like gold, it might be a good deal. The market supply is shrinking, thanks to strong German government finances and ECB buying. This paper could prove precious.

Grenada offers debt restructuring model for Greece

9 Apr 2015

The Caribbean island is close to agreeing a deal with creditors after years of wrangling. The deal structure, including warrants and phased debt relief, is equitable, and provides incentives for reform. It looks like a decent model for Ukraine—or even Greece.

China bond market serves up sweet taste of failure

8 Apr 2015

Messing up is good, at least in small doses. A default by a restaurant chain that botched its transition to cloud computing could bring some discipline to a market that had little. The pity is that freedom to fail is a long way from being applied regardless of size and sector.

Good news: China’s bad debts are on the rise

24 Mar 2015

Agricultural Bank’s 28 percent increase in duff loans over six months looks modest next to what’s happening at some lenders. Across the board, write-offs and overdue loans are ballooning. Still, China’s economic slowdown may be giving cover for some welcome honesty.

Elliott emits ray of pragmatism in Argentina feud

23 Mar 2015

The hedge fund and a U.S. judge say Citi can process two of the country’s bond payments, despite a court-ordered block. It’s a concession to cover the bank’s back, not a broader shift in holdout creditors’ intractable spat with Argentina. But it may qualify as progress.

Fannie, Freddie bailout fear revives reform debate

23 Mar 2015

A watchdog says the U.S. mortgage guarantors could lose $190 bln in a crisis. They lack capital cushions because Congress is stripping their cash. Changing that would require a policy rethink and could embolden undeserving equity holders. But the status quo is not sustainable.

China debt swap conjures money from nothing

23 Mar 2015

Turning 1 trillion yuan ($160 billion) of local-government debts into bonds will lower rates for borrowers and may also create value for the banks who lent to them. What looks like a win-win, however, is really just a way of spreading debt risks more thinly.

Madrid acts late on private debt problem

17 Mar 2015

Spain’s new political parties have thrown the spotlight on the country’s private debt, equivalent to 180 pct of GDP. Now the government is passing a law to help indebted individuals reduce borrowings. It’s the right step, but largely formalises what banks were already doing. 

U.S. student loans could need $500 bln bailout

27 Feb 2015

Borrowing for education has soared over the past decade, ballooning to $1.2 trln and growing far faster than GDP. With serious delinquencies at 11 pct and Washington on the hook, there’s a mess in the making. A Breakingviews calculator shows how big Uncle Sam’s exposure could get.

China developers build up four storeys of trouble

17 Feb 2015

The default and restructuring of housebuilder Kaisa may have been unexpected, but China’s property developers are also showing visible signs of strain. From financial extensions to split-level sales, there are a few recurring features that give cause for concern.

China property dispute unearths debt skeletons

16 Feb 2015

Days after rattling creditors with a late interest payment, developer Kaisa has disclosed borrowings double those it reported at the end of June. It may be a tactic to force lenders into a restructuring. Still, it’s a reminder that many of the sector’s horrors remain unexcavated.  

German trade numbers hide quiet rebalancing

9 Feb 2015

Behind the record surplus, a readjustment is underway. Strong domestic demand remains a key driver of growth, with real wages and employment rising, while cheap oil is dampening imports. German economic change is slow, but for real.

Sub-zero corporate debt brings more ill than good

6 Feb 2015

Some Nestle bonds now yield less than zero. Novartis and Shell debt isn’t far behind. Blame a weak economy, unhealthy markets and generous central banks. In theory, ultra-low rates should spur investment. Perhaps, but there’s more evidence of re-leveraging to reward shareholders.

China developer rescue more grey knight than white

6 Feb 2015

The purchase of 49 percent of defaulted property group Kaisa by rival Sunac gives offshore bondholders hope of getting their money back. For the wider sector, though, it’s only a problem deferred. While Kaisa may have been saved, there are only so many brave buyers to go around.

Edward Hadas: The redundant fictions of Greek debt

4 Feb 2015

The new Athens government wants a deal with its reluctant creditors. The debate is poisoned by false claims about writedowns and moral obligation. Everyone twists the truth about how debt works and how economic pain is shared. Such fictions were helpful once – but no more.

ECB-induced distortions sprout in debt markets

29 Jan 2015

Mario Draghi’s asset-purchase plans are warping bond markets. The most obvious and benign consequence is a drop in yields. But there are also insidious effects. Investors shun anything the ECB won’t buy. And market liquidity will become patchier as the programme progresses. 

Greek debt looks fine despite Syriza poll dangers

23 Jan 2015

The left-wing coalition may win the elections in Greece on Jan. 25. Its plans for debt relief and the end of austerity would put Athens on a collision course with its euro zone lenders. No one has interest in a messy “Grexit” - and the risks of a mess are fairly priced.

The profit and loss of going broke in China

15 Jan 2015

When companies like developer Kaisa get into trouble, the result is often a messy scramble. Foreign creditors can be left with pennies as government meddling and offshore structures create unpredictable outcomes. Collateral helps, but nuisance value is often the deciding factor.

Sovereign fund "debt crisis" is stain on Malaysia

8 Jan 2015

1Malaysia Development has missed repaying a $558 mln bank loan. Its cash pile and a guarantee from a local billionaire suggest commercial brinkmanship more than financial distress. Yet the lack of transparency around the indebted government vehicle hurts the country’s reputation.