Debt

Euro debt rush marks redemption not resolution

8 Jan 2014

Risky sovereign debt from Portugal to Greece is a star in the new year. Peripheral economies are reforming. Their bonds offer a haven from U.S. tapering. Yet the euro zone has no solution to the problem of high debt and low growth. Bondholders will not always be protected.

Europe could live with Italian deficit heresy

7 Jan 2014

Matteo Renzi, Italy’s likely next leader, has suggested Rome could break euro zone fiscal rules. Higher deficits could be good economics and shrewd politics. But to keep markets and euro zone peers from panic, he has to offer lower public spending and faster privatisations.

Local audit highlights China’s debt dilemma

31 Dec 2013

Provinces and towns owed almost $3 trillion at the end of June, according to a long-awaited report. The state will now have to decide which borrowers to bail out, and which to cut loose. The broader conundrum is how vital increased lending is to China’s continued economic growth.

China is moving closer to its “Dubai moment”

20 Dec 2013

The emirate in 2009 shocked lenders who assumed it stood behind all local debt. As China shifts to a more market-based financial system, it will have to draw a clearer line between public and private loans. A system for protecting bank deposits is crucial to limiting the fallout.

Edward Hadas: a Christmas message for lenders

18 Dec 2013

This is the season for racking up debts in the provision of seasonal goodwill. It should also be a time to think about debt forgiveness. Excessive borrowing brought five years of global suffering. Obligations shouldn’t be sacrosanct; generosity to borrowers makes economic sense.

Swift bad loan clean-up will beef up Indian banks

18 Dec 2013

Lenders should be better at dealing with bad credit, if new rules stick. That should make state-run banks more resilient. They’re not quite investment-ready yet though – there’s still the matter of pouring in capital to deal with the 10 percent of loans that have already turned.

Suntech casts shadow over China capital raisings

8 Nov 2013

The stricken solar panel maker is fighting bondholders who want to see it liquidated. Despite a vague offer of local government cash, its $270 mln enterprise value looks deluded. For investors piling into Chinese companies, it’s a lesson in what happens when things go wrong.

When will US stop acting like a fat spoiled brat?

17 Oct 2013

Congress ended its phony war on the debt ceiling by setting up an even bigger showdown four months from now. The tragedy is that America has the natural resources, human and financial capital and demographics to resolve its fiscal problems yet continues to behave petulantly.

New hybrid fans will have weak hand in a crisis

10 Oct 2013

Banks are selling so-called additional Tier 1 bonds to replace hybrid debt in their capital buffers. These are bonds only in name: issuers don’t contractually have to pay investors a penny. That makes it all too easy for them to bin loyalty to creditors if times get tough.

For China, U.S. debt ceiling is a paper tiger

8 Oct 2013

The biggest holder of U.S. debt is understandably troubled by Washington’s financial straits. Yet absent an actual default, China is relatively insulated from market gyrations. The more trade partners doubt the dollar, the faster it can promote its own currency as a substitute.

There’s no preparation for debt-ceiling collapse

4 Oct 2013

A U.S. default could unleash global financial panic. Non-payment almost certainly won’t happen, because neither the Fed nor the nation’s creditors want to try out Lehman-to-the-power-of-10. Which is good, because portfolios cannot be trimmed to risk-manage Armageddon.

Japan’s tax blow is well cushioned

1 Oct 2013

Prime Minister Shinzo Abe has unveiled a $51 billion stimulus to help offset next year’s increase in the sales tax. That should soften the impact on spending. But if consumers do catch a deflationary chill, the government can count on the Bank of Japan to crank up money printing.

Emerging markets’ foreign debt is no time bomb

18 Sep 2013

Companies and banks in developing countries have borrowed almost $6 trillion from foreign lenders, a 50 percent jump in four years. But unlike the 1990s, a big chunk of this debt is from local subsidiaries - and in local currencies. That lowers the risk of a funding crunch.

Verizon herds investing sheep in grand fashion

11 Sep 2013

Bond buyers are piling into the telco’s record $49 bln debt sale. A 10-year yield above 5 pct and an investment-grade rating make it appealing. A big part of the lure, though, is the creation of a supersized, super-liquid benchmark. It’s an offer that just can’t be refused.

Edward Hadas: A dangerous lie about debt

21 Aug 2013

The 2008 crisis and the slow recovery have exposed a flawed financial system. Obvious culprits include bankers and policymakers. But some really bad ideas also bear responsibility. For example, the notion of a risk-free rate gives investors dangerous wrong ideas about safety.

Bond yield menace intrudes on equity market party

21 Aug 2013

For much of the past five years, equity investors had few concerns about rises in U.S. and German bond yields. They often went hand in hand with gains in shares. But now, higher yields are more likely to hinder than to help equities.  

Moody’s U-turn raises bar for choosing hybrids

19 Aug 2013

The rating agency’s decision that junk-rated hybrid bonds are entirely debt and not quasi equity highlights the changeability of this funny money. The fallout is limited for now. But it’s another reason for companies to think twice before issuing hybrids, and investors before buying.

Central bankers offer easy gains for bond traders

15 Aug 2013

Policymakers are more concerned about short-term than long-term interest rates. That leaves the long end of the bond market free to respond to an economic pickup, which seems to be arriving. It’s a cue for the U.S., German and British yield curves to steepen further.

Decoupling of UK bonds and CDS can be sustained

13 Aug 2013

The gap between British and German sovereign yields has increased, yet the cost of insuring against UK default has fallen almost to the low German level. After years when sovereign bond spreads and CDS often widened in lockstep, it’s evidence of a durable normalisation.

Edward Hadas: Imagine a world without debt

7 Aug 2013

Banks need to raise equity to bear possible loan losses. Why not replace loans with securities that take losses naturally? Wait, these exist today, with gainsharing and inflation protection. Shares, or something similar – call it flexi-debt – are the key to crisis-free finance.