October, 2010
Can gilts go on?
UK gilts are performing better than they have been for decades.
But… gilts might also be just about on the brink of a pullback in their hour of triumph.
And not for the reasons you’d perhaps expect.
‘Copulas have an image problem’
Never were truer words spoken of a mathematical formula.
Out on Friday — some über-Geeky weekend reading for those (still?) interested in financial risk management. It comes courtesy of The Joint Forum,
Anglo Irish’s burden-sharing template
On Thursday, Anglo Irish — Ireland’s euro-guzzling bailed-out bank — unveiled a dramatic exchange offer for investors in its subordinated, or junior, debt.
The bank is offering holders of some of its outstanding sub-debt to swap their notes for new Irish government guaranteed bonds that will be due in 2011 with a coupon of three-month Euribor plus 3.75 per cent.
‘Something exceptional’ is happening in volatility, correlation
Whilst much has been written about the rise in correlation recently — what’s been less frequently observed is the strange disconnection that’s occurring between correlation and volatility.
The two traditionally move together.
Capital controls: new front in the ‘currency wars’
South Korea is showing its uncanny knack for timing with its planned new steps to curb capital inflows, just ahead of its star role as host of the upcoming G20 meetings — which are likely to be dominated by discussions of “currency wars”.
Markets Live transcript 22 Oct 2010
Markets Live chat transcript for the chat ending at 11:17 on 22 Oct 2010. Participants in this chat were: Neil Hume, FT bryce.elder NHGood morning NHor hola NHfor our Spanish readers
Something for the weekend
Here are a couple of contrarian views to mull this weekend.
The first comes from Greg Gibbs at RBS, who says the case for shorting the dollar no longer looks clear-cut:
The market has developed an expectation that the Fed will deliver a big QE on 3 November.
More muppet madness
That’s the share price chart of Parkmead Group, a small Aim-listed oil and investment company. The spike has followed news that Tom Cross, the founder of Dana Petroleum, has been appointed executive chairman.
Correlating causality, QE2 edition
From a Deutsche Bank note on equities (click to enlarge chart):
And another chart (also click to enlarge):
Oh, and a FT Alphaville health warning on correlation and causality.
And they’re off
Betfair has hit the ground running on Friday morning:
Betfair set the offer price for the sale of 15 per cent of the company at £13 a share. The benefits of a limited free float eh?
Further reading
Elsewhere on Friday,
- America’s top 25 foreclosure banks.
- Mortgage madness linkfest.
- More on Geithner’s currency classifications.
- Krugman on ‘British fashion victims’.
- FOMC and QE2.
Pink picks
Comment, analysis and other offerings from Friday’s FT,
Robert Wade and Jakob Vestergaard: Overhaul the G20 for the sake of the G172
Behind the friction over currencies and trade, the G20 faces a deeper problem,
Snap news
Breaking pre-market news on Friday,
- Betfair prices IPO toward the top end of the range; values business at almost £1.4bn — statement.
- BSkyB says has made good start to the year, with 96,000 net customer additions — statement.
A matter of (not having any) trust
Your chart du jour:
It shows the findings of the latest quarterly Financial Trust Index from professors at the University of Chicago and Northwestern University business schools. The index found that “trust in the financial system dropped to 25 percent in September from 26 percent in July 2010,
One size does not fit all in ABS risk, Fed says
Risk retention requirements for Asset-Backed Securities *yawn.*
But the 96-page report released by the US Federal Reserve this week — outlining the potential impact of risk retention on ABS — makes for interesting financial crisis forensic reading.
Those money-guzzling GSEs
The Federal Housing Finance Agency, the US body charged with overseeing Fannie Mae and Freddie Mac after the two were placed into conservatorship in 2008, has released new projections for how much additional money the Government-Sponsered Enterprises will have to draw from taxpayers over the next three years.
On SWFs and private money
A couple of items to note for the Sovereign Wealth Fund trend-watchers out there.
First, a milestone of sorts. The Sovereign Wealth Fund Institute just reported that SWF assets have crossed the $4,000bn mark,
Anglo Irish unveils sub-debt exchange
Anglo Irish’s “mutually advantageous talks” with sub-debtholders have led it to…
… this ‘exchange.’ €0.20 on the euro, and possibly worse. Fresh from the RNS:
EXCHANGE OFFERS, PROPOSALS AND PUBLICATION
Mutinous mortgage rates
Spotted in the realm of US mortgages — an increase in rates.
This is the first time the rates have increased since they reached a record low of 3.62 a couple weeks ago. The above Bloomberg chart shows 15-year mortgage rates from McLean rising to 3.64 per cent from 3.62 per cent.
Auf QE-dersehen, pet
First time since May 2009, this. The five-year gilt yield has fallen under the yield on five-year Bobls (chart via Bloomberg, click to enlarge):
Meanwhile, 10-year gilts are trading the tightest to their bund peers since late 2009 (chart via Bloomberg,
And now for something extremely bearish…
… from John Taylor, the chairman of FX Concepts, one of the world’s biggest currency hedge funds.
Some of this stuff would make even Albert Edwards blanch, but given Taylor’s track record, he’s more than qualified to pontificate on the FX market.
Sarbanes-Oxley meets mortgage servicer execs
Oh Sarbanes-Oxley, you always come back to haunt financials, don’t you?
Sarbox, enacted in 2002 in response to corporate fraud at firms like Enron, mandates increased personal liability for senior managers.
Equities’ (and insurers’) days of future past
There was a nifty little Morgan Stanley note recently which took on all that ’stocks are dead, long live bonds’ investor sentiment.
Nifty, because the bank did note short-term support for a return to equities (buybacks,
China’s sizzlingly (disappointing) growth record
It’s a small indication of the enormous expectations of China these days that Thursday’s announcement of Chinese GDP — 9.6 per cent growth in the third quarter — managed to fuel investor jitters and weigh on some Asian stock markets.
China does a forex whoopsie
From Reuters on Thursday:
Yuan ends up after fixing error raises appreciation view
* China FX system inputs incorrect mid-point before mkt open
* Corrected to 6.6695 from 6.6495 in several minutes
* Pause in yuan appreciation expected over next few days
* Yuan seen resuming rise to around 6.6 by late Nov
* Yuan at 6.6504 vs dollar,
Borderline bank bail-ins in Europe
A discreet publication from the European Commission on Wednesday may have passed much of the financial world by — but we think it deserves a quick look.
The Commission had been expected to let loose its opinions on so-called bank bail-ins this month — perhaps even giving a hint in favour of the measures,
Hand-waving, UK bank levying, etc.
The step-by-step guide to shaking down UK banks for £2.5bn, according to a draft law released on Thursday.
But there is a rather embarrassing omission (H/T Sam Jones):
Step 1
In accordance with Part 4 of this Schedule,
A record GBPEUR 2-yr swap spread
This is a chart from Lloyds TSB showing the EUR/GBP exchange rate, versus the two-year EUR/GBP currency swap spread:
According to Adrian Schmidt, the bank’s newly appointed senior currency strategist,
Markets Live transcript 21 Oct 2010
Markets Live chat transcript for the chat ending at 11:32 on 21 Oct 2010. Participants in this chat were: Neil Hume, FT bryce.elder NHHola NHand welcome to Markets Live