Posts tagged 'government debt'

The real reasons why the US Treasury’s debt maturity has been rising

Depending on whom you ask, the lengthening maturity of US government debt is either a smart response to unusually loose financial conditions or an unhelpful countervailing force to Federal Reserve policy.

Either way, the assumption is that the chart below (from page 23 the Treasury’s most recent Quarterly Refunding Report) reflects the deliberate choices of policymakers rather than anything else: Read more

Government debt and monetary policy

A new paper by several Harvard economists, including former Treasury Secretary Larry Summers, argues that a little more than a third of the impact of the Fed’s asset purchase programmes was “offset” by the Treasury’s decision to lengthen the maturity of its outstanding bonds:

 Read more

S&P plays Grim Reaper for the upcoming death of AAA

A major FT exclusive on Monday:

Standard and Poor’s has warned Germany and the five other triple A members of the eurozone that they risk having their top-notch ratings downgraded as a result of deepening economic and political turmoil in the single currency bloc. Read more

Goodbye risk-free, hello French spreads at 21-year high

Another nail in the coffin for old Europe’s risk free status.

The French 10 year note is now seen as a spread product over comparable Bunds — 153bp at pixel time. Read more

What’s in a government debt number?

Remember the good old debt shenanigans? Where soon-to-be eurozone countries did everything they could to bring their debt figures down?

Every so often you’d read a story about a clever bit of financial engineering like an off-market swap that looked like debt, smelled like debt, and seemingly wasn’t reported to European statistical agency Eurostat as debt. Even though it should have beenRead more

Help! We’re all being financially repressed!

There’s a wider theme running through the relatively technical question of how the European Central Bank’s massive holdings of Greek government bonds will fare in any Hellenic debt restructuring.

There are plenty of market participants who already believe the likelihood the ECB will have to suffer the same losses as private investors on their Greek debt investment, is very very low. They figure the central bank will seek preferred creditor status, lowering the payouts left for other investors. Then there are others who argue that the ECB should seek de facto preferred creditor status to avoid a pari passu precedent. Then there are people like Roubini who argue that the ECB has already claimed de facto juniority (?) because it’s agreed to be on the hook for about €91bn worth of Greek liquidity lines. Read more

TBTF, Greek banks datapoints

Generally a poor outlook for the chances of a merger between National Bank of Greece and Alpha Bank on Monday, for quite a few reasons: an awkward history of past attempts, disputed valuation, plus …

… the small matter of both banks’ Greek government bond holdings. Read more

About that Irish downgrade

So what was really behind Ireland’s furious reaction to this week’s S&P downgrade?

Did a looming refinancing of government guaranteed bank debt play a part? Read more

EU reportedly considering a bond levy

In the wake of the Greek crisis, the European Commission is considering imposing a charge on bond sales by countries that breach eurozone debt rules, Bloomberg News reports. Members that don’t keep their debt-reduction promises could face “a levy in the form of a predefined percentage (number of basis points) on any issuance of government debt,” according to an EC proposal obtained by the newswire.

Japan sets targets to rein in debt

Japan on Tuesday moved to shore up confidence in its state finances by issuing a “fiscal management strategy” that aims to cap government bond issuance at current levels, curb future spending growth and target primary budget balance by 2020, the FT reported. The government aims to ensure that debt issuance next fiscal year does not exceed the roughly Y44,000bn expected this year, and that it “steadily decreases” thereafter.

EU edges towards tougher fiscal rules

Eurozone governments are moving gingerly towards an enhanced system of economic governance, uncertain how far they ought to limit national sovereignty in the name of saving their monetary union, reports the FT. The development comes as Germany warns that a failure to reduce public debts could trigger another worldwide economic crisis, according to the FT, saying that its planned cuts in spending will not endanger global growth.

Get ready, get set, deleverage! With one notable (US) exception

Here’s something for the weekend — a nice overview of US debt, courtesy of BNP Paribas.

The idea is to look at all forms of American debt, private as well as government. Read more

OECD urges tax rises and spending cuts

Public spending cuts and tax rises in advanced economies are required by next year at the latest to deal with “very unfavourable government debt dynamics”, the OECD warned on Wednesday. The organization also saw the need for interest rates in the US, UK and Canada to start rising by the end of the year. But as FT Alphaville pointed out, the report also contained something for the bulls.

Bets against pound reach record

Speculators raised their bets against sterling to record levels after the recent UK general election, as worries escalated over the government’s finances, the FT said. Positioning data from the CME, often used as a proxy for hedge fund activity, showed that speculators had extended their bets against sterling from 72,188 contracts to 76,745 contracts, equivalent to $6.9bn, in the week ending May 18.PO

Welcome to the OECD debt trap

George Magnus’ most recent report on the upcoming global structural crisis to come is so good, we thought it was worth highlighting some additional extracts.

Consider, for instance, the charts below. According to the UBS senior economic adviser, these reflect the makings of a potential debt-trap in not one, but numerous over extended OECD governments the world over: Read more

What happens when the risk-free rate isn’t risk free?

“Corporate finance is built on the idea that companies are more likely to go bust than governments.” Discuss.

According to the thinkers at the Economist, it is time to rethink the notion that the risk-free rate can always be used as a basis for pricing other assets: Read more

US 7-year swap spread turns negative

FT Alphaville has written about the (new) negative territory being experienced in US government swap spreads – the 10-year government swap, to be precise. On Tuesday, however, that spiral descended further, taking in the 7-year swap spread. Read more

US health reforms ‘will cut deficit’

The prospects for Barack Obama’s healthcare reform legislation brightened considerably on Thursday, when the independent Congressional Budget Office said the final bill would cut the US deficit by more than $1,300bn over the next 20 years. In anticipation of a vote on the bill on Sunday, Mr Obama postponed his trip to Indonesia and Australia for a second time. He now plans to now go in June.

Goodbye to the risk-free rate

Morgan Stanley’s Graham Secker has put out an interesting note on the rising cost of capital on Monday.

And it’s not a cheery read if you happen to be a sovereign issuer, given the shift of private-sector debt into the public sector. Read more