Posts from Thursday May 17 2012

The Closer


Back to risk-off today as the US 10-year Treasury yield closed just below 1.7 per cent, almost hitting the lows of last September. The US S&P 500 closed down 1.51 per cent at just below 1,305. But stocks were down pretty much everywhere. (Financial TimesRead more

Trap door opens under US Treasury yields

1.697 per cent at pixel time. Worries about Europe, collateral crunching, people changing their minds about buying Facebook (which, by the way, priced at $38 a share)… take your pick.

The high yield tranche piece

Coverage of the $2bn $3bn loss emanating from JPMorgan’s Chief Investment Office on its synthetic credit portfolio continues a pace, and FT Alphaville’s tour continues too.

The desire to understand what the trade was and the rationale behind it continues to bug us and many others. Interestingly, some of the discussion of late has come full circle. Bloomberg kicked off the London Whale saga on April 6th, and their follow-up on April 9th contained a detail that has now come back into the narrative. This time, though, it’s more than a mere sidenote — more on this in a minute. Read more

Funnily enough, operational risk is more prevalent in Germany than Greece

Settlement fails.

Whether one considers them a systemic problem or not is definitely debatable. Read more

The undercollateralisation risk

Central counterparty clearing and settlement was always intended to make the financial system safer.

If you use a CCP, the idea goes, you’re far more robustly protected against counterparty default. The counterparty default risk has been absorbed by the much larger central entity. (The CCP can weather the default risk because its exposure is spread across numerous members.) Read more

About that Spanish bank downgrade…

Yes, it is definitely happening and it looks comprehensive.

The FT’s Madrid correspondent, former Alphavillan Miles Johnson writes… Read more

Dylan Grice on sovereign comeuppance

Maybe all the Anglo-Saxon central banks have done is create the illusion that our sovereigns are more solvent than they are, and that our budget constraints are really a safe distance away. But I don’t think they are. And I think the truth gets out eventually. The Enrons, the Allied Capitals, the Bernie Madoffs … they all get their comeuppance.

That’s from SocGen’s Dylan Grice, who seems more than a little bit annoyed by government’s abilities to fiddle with the amounts they can borrow (their budget constraints). Read more

Greece: when the drugs run out

Beneath the political stasis — another sign of a sharp turn for the worse in Greece’s liquidity crisis.

The country’s pharmacies are owed €500m by the state-backed healthcare insurer, according to reports. From next week patients will have to stump up the cash for their medicines upfront, and then claim a reimbursement from the National Organization for Healthcare Provision (EOPYY). Read more

And contagion is running wild…

Any vague “connection” to Europe is enough to get you hammered:

 Read more

Flight of the euros

A flight from:

 Read more

A flight to quality, charted

That’s German bund futures, on Wednesday. Fresh record.

Oh, Bankia.

The capital monster listed in July 2011 at €3.75 a share. At pixel time, after a heavy fall during Wednesday trading (on this El Mundo report), the shares are hugging €1.20. Read more

RoRo and the carry trade’s fight back

There have been rumours of the so-called carry trade’s demise knocking about for a little while now, but HSBC think it is staging a quiet comeback and taking a chunk out of RoRo’s (Risk on/Risk off) importance in the FX markets.

This is a chart from HSBC which tracks the importance of interest rate differentials in the FX market over the past few years (click to enlarge): Read more

Markets Live transcript 17 May 2012

Live markets commentary from 

The (early) Lunch Wrap

Good morning New York…


Fitch attempts to tally the cost of Basel III

So you’re a global systemically important financial institution and, bar a few near global meltdowns, you have a pretty good time of it… but you also know Basel III is fast coming down the tracks and in its attempt to make you better able to stand up to those unexpected shocks that nobody likes, it will force a load of restraining rules upon you.

Fitch has gamely joined the ranks of those trying to put some numbers on the whole thing. The ratings agency had a look at the 29 global systemically important financial institutions (or G-SIFIs, a horrible acronym for banks listed at the bottom of this post), which as a group represent $47tn in total assets, and estimated that they might need to raise roughly $566bn in common equity in order to satisfy the new Basel III capital rules: Read more

Further reading

Elsewhere on Thursday,

– A skeptical Madison Avenue ahead of Facebook’s IPORead more

The 6am Cut London

Cameron adds to eurozone warnings. David Cameron will be saying it in a speech today that the single currency unravelling would “carry huge risks for everyone”, reports the FT. Cameron will back Francois Hollande’s proposals to boost European growth – including providing more British capital for infrastructure projects and small business lending – but he insists the eurozone must sort out its own problems. European leaders are pitching the June Greek election as a referendum on eurozone membership, says the FT, in a high stakes gamble. José Manuel Barroso, Angela Merkel and Francois Hollande all stressed on Wednesday that they wanted Greece to remain in the union. Mario Draghi acknowledged for the first time that Greece could leave the monetary union, says Bloomberg, while the ECB temporarily halted regular liquidity operations to some Greek banks.

Japan’s Q1 GDP growth was higher than expected at an annualised rate of 4.1%, but the figure was boosted by reconstruction spending that’s poised to fade just as a worsening in Europe’s crisis threatens to curtail export demand, says BloombergRead more

Overnight markets: Slightly lower

Asian stocks swung between gains and losses as faster-than-estimated economic growth in Japan and optimism the Federal Reserve will do more to stimulate the US economy offset concern Greece’s debt crisis is worsening, says Bloomberg.

Canon a camera maker that depends on Europe for almost a third of its sales, slid as much as 1.6% in Tokyo. Toll Holdings, an Australian trucking company, slid 7.8% in Sydney, extending yesterday’s losses after forecasting lower full-year profit. Li & Fung, a supplier for Wal-Mart, rose 1.6%. Korea Gas jumped 6% after a report it discovered gas in Mozambique. Read more