Debt

Dismantling a Chinese developer could get ugly

7 Jan 2015

Stricken housebuilder Kaisa denies it has decided to wind itself up after defaulting on a loan. Even so, a debt restructuring looks inevitable. That will pit bondholders against banks and homebuyers who paid up front, and expose the flimsy structures foreign investors rely on.

Strong dollar is $10 trillion headache for debtors

8 Dec 2014

The global private sector has borrowed $9.5 trillion from foreign banks; companies in emerging markets have raised another $500 billion by selling foreign-currency bonds. With a big chunk of claims getting settled in dollars, a strong greenback could threaten financial stability.

Ethiopia’s bond plan will test hunt for yield

28 Nov 2014

The Horn of Africa nation plans to issue a debut dollar bond, of reportedly $1 bln. The demand for such frontier market debt, which is at the risky and illiquid end of the sovereign bond spectrum, will show just how adventurous investors have grown in their quest for returns.

Pricing most important market risk is a struggle

13 Nov 2014

Market liquidity is a bit like oxygen. Taken for granted when ubiquitous, horribly missed in absentia. Unfortunately, this precious commodity is proving hard to price. Even central bank gauges can’t quite capture its patchiness. Investors are worryingly vulnerable to big jolts.

Debt market sends muddied signal on deflation risk

10 Nov 2014

Bonds with longer maturities usually compensate investors for a host of uncertainties, including unexpected inflation. But this term premium has shrunk, even turning negative for U.S. and German debt. This has as much to do with loose global monetary policy as with “lowflation.” 

Reborn as the bond market? No way. Look at yields

9 Oct 2014

An adviser to U.S. President Bill Clinton once said he’d like to be reincarnated as the bond market because it can intimidate anybody. Those days are gone. Central banks now push investors around. That’s why yields are falling globally, and are at record lows in Europe. 

China has two bad role models on dealing with debt

6 Oct 2014

Japan’s government shouldered the pain of corporate deleveraging, and the economy became comatose. South Korea crammed its debt onto households with only marginally better results. Now it’s China that has a problem with high leverage. The race is on to find a different strategy.

Emerging market euro debt is illiquid honey trap

3 Sep 2014

A growing portion of emerging market debt is being denominated in euros. Borrowers like the alternative to a rising dollar. Euro zone investors get higher yields and lose currency risk. But the euro-EM market is still relatively small and illiquid. That could become a problem.

China bank capital raisings look opportunistic

19 Aug 2014

Lenders like ICBC and CCB are issuing bonds and preference shares at competitive prices. They can do so because of hazy reform prospects and the appearance they don’t need the money. Yet growing lending and rising bad debts mean the case for investing in the instruments is weak.

German entry into select bond club would bode ill

8 Aug 2014

Ten-year Bunds look set to fall below 1 percent for the first time. Germany would then join Japan and Switzerland in being able to borrow for so long for so little. But ultra-cheap debt seems to accompany weak growth and too-low inflation, and lead to desperate policy measures.

Euro zone’s biggest problem is debt, not slow growth

7 Aug 2014

Growth is stumbling in Italy, Germany and elsewhere. That in itself would not be a huge problem – except that the sovereign debt mountain has kept growing even in “austere” years. This means states cannot spend their way out of trouble, and another crisis remains a real risk.

Debt boom augurs ill for fragile African economies

22 Jul 2014

Senegal is raising $500 mln abroad. Borrowing from West African franc zone governments is set to jump 50 pct to $7.2 bln in 2014. But big trade deficits mean the region would struggle to cope with a sudden withdrawal of foreign liquidity – a frequent shift in emerging markets.

China default shows market forces exist for some

22 Jul 2014

A second bond looks set to fail, and funding costs for riskier issuers have been rising. Yet big and state-linked borrowers still enjoy low rates, because investors believe failure is only for the unlucky few. The real shift will come when China challenges that tenet.

Portugal makes world look a little shakier

10 Jul 2014

Problems at one smallish bank don’t justify the slump in European stocks. Yet even as the U.S. finally heals, recent data from the EU, China and Japan has mostly been discouraging. In another lukewarm year, investors probably should be jittery – and market over-reactions expected.

Only Brussels can solve EU sovereign risk mess

7 Jul 2014

The Basel Committee on Banking Supervision is mulling ways to force banks to hold capital against sovereign debt. That’s good, but the global guidelines on government debt are not the main issue. The problem is the way they have been implemented in the euro zone.

Euro periphery bonds’ era of easy gains is over

23 Jun 2014

The market sometimes sends little signals that investors are losing faith. The spread between the bid and offer price on southern European government debt has widened since May. That suggests an increase in caution, and less confidence that yields will keep falling. 

China’s vanishing metals corrode confidence

12 Jun 2014

Traders may have pledged copper or aluminium as collateral for multiple loans. Lenders can’t always spot such behaviour, and may have reasons not to complain too much or pull back too quickly. But metal-related antics are another sign of the weakness in China’s financing chains.

Credit punters leave little margin for error

5 Jun 2014

Risk premiums on corporate debt are near pre-crisis lows. That makes sense as long as generous monetary policy helps keep weak companies afloat. But current spreads leave little room for either an economic downturn or a return to what used to be considered normal rates. 

Bond bears’ ordeal will only get worse

15 May 2014

There is more pain in store for investors who have bet on falling bond prices. With the ECB likely to ease and the Fed and BoE unexpectedly dovish, higher rates are a way off. The result is an epic search for yield. Resistance looks futile, but surrender will amplify the trend.

China’s bank exam ticks just one of three boxes

30 Apr 2014

As in Europe and the United States, the country’s central bank makes its largest lenders sit an annual stress test. But regulators don’t publish individual results, or spell out the consequences of failure. That’s why the inspection won’t do much for investor confidence.