Debt

Apple’s new debt is more iBond 1S than iBond 2

29 Apr 2014

The iPhone maker is venturing into bond markets for the second year, even though it has $151 bln of cash. Investors who snapped up last year’s $17 bln offering are nursing losses thanks to Apple’s good timing. The 2014-model debt issue’s main improvement is its smaller size.

China’s offshore bond boom has further to run

25 Apr 2014

Companies like Tencent and CNOOC are looking overseas for financing. Tighter credit on the mainland is a factor. So is international expansion by Chinese groups. Though the yuan’s slide is a reminder of the risks of borrowing offshore, bond issuance should carry on rising.

Securitisation reboot is harder than it sounds

17 Apr 2014

Central bankers, from the ECB’s Mario Draghi to the Bank of England’s Andy Haldane, want to revive securitisation - a change from regulators trying to kill it. That is a worthy goal when banks are shrinking, but it is tricky to achieve. And there is still a way to go.

Detroit’s bond deal spells relief for muni markets

9 Apr 2014

The bankrupt city has agreed to pay insurers of $388 mln in general obligation debt at least 74 cents on the dollar, far more than the 15 cents proposed before. A judge must still approve the plan, but it should calm investor nerves and boost Motown’s chances of raising funds.

Edward Hadas: When credit is too much of a good thing

9 Apr 2014

What does credit do after it has funded productive activity in the economy? It fuels asset price inflation and funds profligate governments. Leverage increases, bringing crisis and recession. If only policymakers showed more awareness of the line between useful and useless debt.

Euro crisis 2.0 will need a new shock absorber

4 Apr 2014

European banks kept yields in check by buying sovereign debt in 2010-13. Now that Basel III rules force losses to be deducted from capital, banks like BPI are shedding their holdings. It unpicks the notorious “doom loop,” but leaves the ECB explicitly on the hook in future.

U.S. bond yields may ape trailblazing UK shifts

26 Mar 2014

Fixed-income investors are wondering if the Fed will raise rates sooner than expected. They won’t have to think too hard about how to react since a similar situation has already cropped up in Britain. Short-dated bond yields are likely to rise much faster than long-dated ones. 

Mystery bond shift doesn’t dent faith in dollar

18 Mar 2014

An unexplained $105 billion shrinkage in the Fed’s store of Treasuries held for other central banks caused no market ripples. That’s testimony to investors’ belief in the dollar’s reserve status. Even more remarkable: the world’s most liquid bond market still holds big secrets.

Puerto Rico bond hopes may be self-fulfilling

13 Mar 2014

Investors’ warm reception for this week’s $3.5 bln issue looks strange given the island’s junk rating and rocky finances, not to mention that existing bonds trade at a big discount. But the issue funds deficits long-term and keeps the market open, giving Puerto Rico a lifeline.

Bondholders will have to pay for Ukraine’s reset

5 Mar 2014

The country’s bonds keep sinking in spite of an upcoming IMF package. Creditors are facing either a soft debt rescheduling or more radical haircuts. The risks of austerity, devaluation and continued political uncertainty all point to the latter. Market prices still look rosy.

Panglossian view of euro zone debt has pitfalls

28 Feb 2014

Italian and Spanish bond yields are falling with German ones. Investors no longer view southern European debt purely through the prism of credit risk. That makes sense for now. But over-optimism may be unwise, especially if low-to-no inflation hampers debt-cutting. 

Fear and loathing in China’s trust industry

19 Feb 2014

The $1.8 trillion sector is the enfant terrible of Chinese finance.  The inherent mismatch between long-term loans and shorter-dated investments means trust products depend on confidence to survive. Yet widespread failures are less of a risk than reckless bailouts.

India in depth: Investors want realism, get magic

19 Feb 2014

Finance Minister P. Chidambaram missed the whole point of his last budget. It wasn’t to make ingrained fiscal problems vanish by conjuring up unbelievable deficit estimates. Investors would have preferred a gritty appraisal of the tough tradeoffs ahead. He let them down.

Securitisation muzzling does more harm than good

17 Feb 2014

Over-egging the practice of repackaging loans as bonds helped cause the 2008 crisis. Yet supervisors keen to avoid a repeat are loading investors in asset-backed debt with excessive capital charges. Smart firms may find workarounds, but the reforms hamper a key source of credit.

Chinese loans are building a bridge to nowhere

17 Feb 2014

Banks lent like crazy in January. But why? The fight for deposits looks ever fiercer, and growth in a narrow measure of money supply was the lowest on record. Add in poor economic signs, and the explanation seems to be that productive lending has given way to extending.

Edward Hadas: Mega sovereign writeoff could work

12 Feb 2014

Mainstream economists want governments to go on a slow, careful diet of prudent budgets. Politicians will struggle to stay virtuous for so long. After years of excessive deficits, a one-time 50 percent debt cut makes more sense. There are three plausible ways to do it.

Central bank alchemy turns credit into equity

5 Feb 2014

Bond markets are turning into equity. Esoteric products like PIKs, AT1 CoCos and corporate hybrids give yield when rates are low. The downside is that such products may perform erratically in a crisis, and investors may not realise they are taking equity-like risk.

Thai monetary trilemma: Politics, taper, debt

23 Jan 2014

The central bank’s decision to hold interest rates steady was a close call. Political unrest is taking a toll on growth. But a rate cut could hasten capital flight amidst a rollback of the Fed’s money-printing. A weaker baht may help exports but hurt borrowers with foreign debt.

Bond rally stretches luck of the Irish

20 Jan 2014

Ireland is less risky than the United States, say bond markets. That’s a stunning performance for a country barely out of bailout – and it looks like a throwback to the pre-crisis era when credit risk was ignored. It may not last. And it dents Ireland’s hopes for EU debt relief. 

Euro zone “happy loop” carries a warning

9 Jan 2014

European bank shares are rising along with peripheral euro zone bonds. It’s the mirror image of the “doom loop” of shared falls. This connection solves - rather than causes - a policy headache. But it shows the symbiotic link between governments and banks hasn’t been broken.