Debt

Prioritizing U.S. debt could stamp out market risk

19 Apr 2013

Drama over the cap on Uncle Sam’s borrowing power rattled investors back in 2011. A new proposal would force Treasury to pay bondholders before contractors and seniors. If the debt limit can’t just be scrapped, at least markets could be spared some of Washington’s dysfunction.

Conviction beats evidence in policy: the proof

17 Apr 2013

Advocates of small deficits have long relied on a seminal paper by Harvard economists Carmen Reinhart and Ken Rogoff. New research shows it’s full of holes. Stimulus enthusiasts may gloat, but they too put conviction before facts. That’s inevitable. Useful facts are hard to find.

Argentina may finally be picking up some toys

27 Mar 2013

The country’s government has thrown many from the pram in its fight to avoid paying anything to bondholders unhappy with a default settlement. Now ministers seem to be considering paying with new securities. It might not win over holdouts yet. But it’s an encouraging sign.

Italy illustrates reward, and cost, of austerity

21 Mar 2013

Rome raised its deficit target for the next two years. It’s a belated realisation of austerity-induced recession, and a reward from Brussels for towing the line. A country with no government and rising debt might spook markets, but Mario Draghi has sedated the bond vigilantes.

Ireland shows powers of virtual ECB

14 Mar 2013

Dublin has sold the first 10-year bonds since its bailout. The move helps it qualify for controversial ECB bond buying - and shows it doesn’t need it. Mario Draghi’s virtual intervention is working wonders. The euro crisis goes on.

China’s solar bonds leave dim hope of payback

13 Mar 2013

On financial grounds, the looming default of panel-maker Suntech should leave foreign creditors with nothing. Solar overcapacity is rampant and the bonds’ terms are weak. What value remains is a risky bet that authorities will deem offshore investors too useful to snub outright.

Aging drives U.S. debt more than medical costs

11 Mar 2013

Much Washington talk focuses on runaway healthcare spending. But that has been slowing. Over the long term, say 25 years, the number of people needing treatment is the federal government’s biggest problem. Not far behind is the cost of interest as borrowing balloons.

Hugo Dixon: Markets too sanguine about Italy

11 Mar 2013

The country’s politics and the economics are both messed up - and there are no easy solutions. While Rome does have the ECB as a backstop, it may have to get to the brink before using it.

Hungary’s budding market success may not last

6 Mar 2013

Investors seem hungry for Hungary. Last month Budapest raised funds from the market for the first time since 2011, luring buyers with high returns and improved finances. But the government’s erratic agenda ahead of a 2014 election could curb future appetite for the country’s debt.

Brewing Latam defaults could prompt 1980s re-run

5 Mar 2013

Argentina may stop all debt payments to avoid paying holdout creditors from its last default 11 years ago, and Venezuela’s credit looks shaky. The danger is that one failure to pay sparks others in the region, and even virtuous borrowers like Colombia are cut off from credit.

Corporate hybrid boom retreads bank capital fiasco

25 Feb 2013

Corporate hybrids, securities that blend debt and equity, are booming. They give companies tax-efficient cheap capital, and investors yield. But the more the market grows, the greater the fallout if issuers, like banks during the last crisis, actually use their equity features.

Welcome back, CLOs

21 Feb 2013

Sales of new collateralised loan obligations are taking off in Europe for the first time since the financial crisis. These packages of high-yield debt were a major culprit behind the last credit bubble. But this time round, lower leverage has made CLOs safer. They even have a useful role to play in refinancing.

U.S. debit-card deal recalls value of subprime

20 Feb 2013

Since the crisis, borrowers with middling to poor credit have been all but abandoned by mainstream lenders. Yet the $1.1 bln sale of prepaid card provider NetSpend, which caters to them, values the company at 17.5 times expected earnings. It’s a sweet spot that now eludes banks.

China’s next debt crisis will be a local affair

20 Feb 2013

Elaborate ties between local governments, lenders, companies and guarantee firms mean that the big risks may not lie in the country’s big banks, but in towns and regions. A recent suggestion of setting up local bailout funds sounds sensible. But contagion will be hard to avoid.

Vietnam floats a lifeboat for foreign creditors

8 Feb 2013

The government has helped end a two-year standoff between bankrupt shipbuilder Vinashin and overseas lenders by guaranteeing a new $620 million bond. That will aid the country’s capital market rehabilitation. But the victims of other shipwrecks shouldn’t count on similar rescues.

ECB delivers long-overdue Irish relief

7 Feb 2013

The European Central Bank has given the nod to the restructuring of Ireland’s bank bailout, which will make the country’s debt more bearable. Euro zone leaders had resisted allowing their bailout fund to take on the burden. Luckily the ECB is stepping in when governments fail.

U.S. fiscal fix will only hold until 2015

5 Feb 2013

Washington’s budget number-crunchers say deficits will now decline for a few years. That buys breathing room. But medium and long-term problems persist because of rising healthcare and retirement outlays. Lawmakers still need to tackle these tricky areas - ideally before 2016.

Myanmar needs private growth more than public debt

30 Jan 2013

Now it has a Paris Club debt relief agreement, aid agencies will flock to lend to Myanmar’s government, as will global banks. Myanmar should avoid taking too much easy money; private sector growth through domestic savings and property rights matters more than infrastructure.

Buoyant markets give ECB upper hand in Irish spat

28 Jan 2013

The European Central Bank has rejected a plan by Dublin to restructure its bank bailout. Any deal needs to balance the risks of derailing Ireland’s recovery against a breach of its own rules by the ECB. For now, low Irish bond yields give Frankfurt an advantage.

Weaker Chavez is no sign of strength for investors

10 Dec 2012

With his cancer back, Venezuela’s president for the first time named a successor if he dies or can’t serve. A transition will test the power of Chavez’ big-state legacy, but voters will probably embrace it even after he’s gone. That makes the country’s debt no more appealing.