Debt

Stop worrying and learn to love corporate bonds

10 Sep 2012

What’s a bond investor to do when safe government yields range from negligible up to low? For now, the solution appears to be buying corporate debt. That means being exposed to a slowing economy, and could end badly if central banks withdraw their largesse. But the good times probably won’t end soon.

No need for Malaysia to jump off a fiscal cliff

6 Sep 2012

Two rating agencies have taken harsh views of the country’s public debt in the past month. But Kuala Lumpur shouldn’t panic. Public spending is helping to attract private investors. Though Malaysia needs to broaden its tax base, hasty belt-tightening would be counterproductive.

Greek lesson encourages can pay, won’t pay states

20 Aug 2012

Belize is trying to force a restructuring. The Caribbean nation is more or less solvent, but its cash is precious and its debt expensive. Foreign creditors have limited leverage, as the Greek and Argentine examples show. They can lose their shirts even if countries don’t go bust.

Citigroup CDO judge’s chutzpah admirable if doomed

14 Aug 2012

Jed Rakoff filed a feisty rebuttal to claims he overreached in rejecting Citi’s $285 mln settlement with the SEC. He secured his image as a public interest champion and likely stiffened the U.S. watchdog’s spine. But he’ll rightly lose this fight, and it’s time to move on.

Uncle Sam may never divorce Aunt Frannie

10 Aug 2012

The two mortgage agencies earned $8 bln between them in the second quarter. Rather than speed up plans to reform them, though, funding-starved politicians may get too hooked on the revenue from their bailout dividend payments. That could make Fannie and Freddie untouchable.

Uncle Sam still living well beyond his means

8 Aug 2012

While June consumer credit just missed its 2008 peak, overall debt in the first quarter was 250 pct of GDP against 232 pct four years ago. While the consumer has deleveraged a bit, business debt is flat and government debt has soared. At some point, this has to end.

Ireland gives euro zone a hint of crisis freedom

26 Jul 2012

Dublin is issuing long-term debt for the first time since the rescue of 2010. The funding is likely to be pricey. But if the deal gets sold, it will show that bailouts needn’t be forever, or end in default. With Spain and Italy on the brink, euro zone partners will be thankful.

Plenty of room for wrangling over Spanish recaps

29 Jun 2012

Madrid has won a victory of sorts: the euro zone can prop up its banks directly. So the state’s debt load won’t need to shoot up by 100 billion euros. But there are many unanswered questions - including when, on what terms and even if Spain will tap the funds.

Taking the leverage out of economic growth

21 Jun 2012

For two decades private sector debt in the U.S. and euro zone expanded at a faster rate than nominal GDP. The binge helped boost output, but led to the crisis. Reducing leverage without choking growth is a challenge that economists and central bankers have just begun to ponder.

Even crazy cheap debt can be cheaper still

21 Jun 2012

In a world of rock-bottom rates, some corporate issuers are finding ways to save even more. Time Warner Cable, a U.S. company with only U.S. customers, just sold $1 bln of 30-year paper denominated in sterling. The textbook arbitrage may save it 25 basis points. It’s easy money.

Japan’s retiree raid augurs political paralysis

20 Jun 2012

The PM has cut a deal to double consumption tax and start paying off debt more than double GDP. It’s a good start if it passes. But raising taxes on Japan’s rising retiree class may be political suicide and further delay spending cuts needed to avoid a sovereign debt crisis.

Germany could live with Eurobills

7 Jun 2012

Full mutualisation of euro zone government debt looks like a pipe dream for now. But pooling together short-term debt could help weak countries, without incurring the risk of moral hazard and potential losses of full-blown euro bonds.

Ethical economy: what to do about debt

30 May 2012

Debt, a little like sex, is a two-sided relationship which pleases partners and can be good for society. But for both, indiscriminate and excessive use is harmful. That’s the lesson of the financial crisis. Daring methods are required to encourage better behaviour.

France makes most of German virtues, Greek vices

25 May 2012

France is enjoying a good crisis and its funding costs are at record lows. The rally owes much to fears of a Greek exit, which are pushing German yields to surreally-low levels and make French bonds attractive. But this won’t last much if Hollande’s policies disappoint markets.

Italy’s new off balance sheet wheeze

23 May 2012

Rome is in a bind; arrears to local companies are choking the economy, but funding them upfront could push up the country’s debt and spook markets. So Italy is using banks to front some of the money. The optics are better, even if the benefit for the economy is probably worse.

Debt markets may be good compromise for Dreyfus

18 May 2012

The commodities giant needs to invest to maintain its position in a consolidating and increasingly capital-intensive industry. Tapping debt markets and listing a Brazilian unit will give extra firepower without diluting family control. But the pressure to go further won’t abate.

Ethical economy: Bad ideas spawn Lesser Depression

16 May 2012

When Lehman failed, there were good reasons to think the pain would be brief and concentrated. Almost four years on, the rich world has not fully recovered. Policymakers are following flawed expert advice. A rethink on both unemployment and debt is urgently needed.

Debt-tax hybrid could be Europe’s least-bad option

8 May 2012

Should euro zone taxpayers be compelled to buy their own government’s debt? Two leading economists are in favour. If the Keynesian analysis that countries lack demand is right, they have a point. This variety of financial repression could also help tame reckless markets.

Euro fiscal targets should depend on actual growth

1 May 2012

The rush to balance budgets as fast as possible can lead to a death spiral of austerity, or to growth-smothering tax increases. Deficit targets are needed, but struggling euro zone governments need some slack. The main goal should be to cut spending in the medium term.

Argentina case puts bite in holdout hedgies’ bark

9 Apr 2012

Elliott Associates spurned the nation’s debt swap but may still get paid, thanks to a U.S. judge’s plan for blocking payouts to other bondholders. If upheld, the ruling might muddle sovereign lending and workouts. But it should also reassure creditors that deal terms have teeth.