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’The carry trade and the goldilocks LTRO
The FT has already reported on how hesitant banks are about buying ever more sovereign debt. In fact they outright dumped €65bn of bonds in just nine months. Hopes that banks would hold the hand of the sovereigns that back them continue to dim,
How big could the Sarko trade go?
Some €15-45bn for Spanish banks and their government’s bonds at least, according to Morgan Stanley’s Huw Van Steenis, who has just produced a very interesting note on the carry trade du jour – or to use its technical name the ECB’s 3-year LTRO.
Keep on carrying on LTROs
It’s baaack! The prospect of eurozone banks buying more sovereign debt to take advantage of new cheap one-year ECB liquidity, that is.
You’ll have heard that the ECB will offer not one but two one-year Long-term refinancing operations to banks before the end of 2011,
Carried away in Switzerland [updated]
Negative rates have arrived! In Switzerland, anyway.
Which means the risk of the Swiss franc becoming a funding currency for carry trade — à la the Japanese yen — is very real.
That said, volatility is still the issue.
Feedback loops to give you (credit) nightmares
It’s a changed, changed world.
The introduction of bail-ins and burdensharing means capital markets will never be the same.
Intuitively, making creditors share some of the pain of public bailouts make some sense,
Battle of the BTPs and Bonos
It’s Europe’s least-loved debt, after Greek, Irish and Portuguese of course. It puts the ‘I’ and ‘S’ in the porcine periphery acronym we’re not supposed to say. It’s Italian BTPs versus Spanish bonos.
And Italian government debt,
Assessing the dollar’s weakness
How weak is the dollar?
A timely question asked by Goldman Sachs on Tuesday morning, what with the euro reaching a 15-month high of $1.45 earlier today. Indeed, on the face of it, there is weakness everywhere.
Further further reading
For the commute home, where the carry trade means helping your better half unload the car in exchange for first dibs on the remote,
- The FT visits Bernie Madoff.
- Where Galleon allegedly made its money.
Five reasons the yen will strengthen
Since March 11, analysts in Tokyo have widely predicted that the Japan’s triple disasters – earthquake, tsunami and nuclear plant crisis – would heighten risk averseness among Japanese investors.
Indeed,
Fallout from a flock of Black Swans
What’s that saying?
You wait for a Black Swan for ages and then three show up at the same time?
Citi FX strategist Steven Englander noted last week — just a few days before Japan’s disastrous earthquake sent asset prices swinging — that “investors are tired of being told to hedge against risks that have not emerged.”
What’s moving the yen?
The yen reached historic highs against the dollar late Wednesday.
It’s currently hovering around the 79.10 to the USD mark. The chart of recent action is pretty special though. Compared to Wednesday’s drop,
Carry trade as canary in the coalmine
BNY Mellon’s Simon Derrick briefly mentioned the carry trade last week.
This Thursday, the currency strategist is back with more detail
Think of the trade (where investors buy low-yielding currencies to fund purchases of higher-yielding currencies/assets) as a canary in the (crisis) coalmine,
Why debt investors are taking leave of their senses
Here’s an interesting view.
Is the search for yield getting in the way of all rational sense in the market?
BNY Mellon’s Simon Derrick, currency strategist, makes the point that investors are somewhat taking leave of their senses when faced with the choice of extra yield versus added risk or crisis exposure.
‘Tis the season to watch for carry trading
Here’s something to add to those lists of 2011 investment themes doing the rounds: whether we’ll get a full-blown comeback of the dollar carry trade in the new year.
Controversial, we know.
But here’s how BNY Mellon’s Michael Woolfolk set the scene on Wednesday,
Shadow banks and stock bubbles, Ngram edition
Have you been using the Google Books Ngram Viewer? It lets you search for any phrase across vast corpuses of digitised literature throughout the decades.
It’s quite addictive.
FT Alphaville fed in a few of our favourite phrases de nos jours to start off.
Mmm, European yield stew
The bright side of bulging peripheral bond-bund spreads, courtesy of the strategists at Nomura (emphasis ours):
…as central bank policy provides more substantial support for the economy – especially via extensions of QE and liquidity measures – we see increasing carry opportunities in higher-yielding assets,
LTROops
We find this funny — but then, we write about finance all day, and are easily amused.
The analysts at Deutsche Bank have a theory that the amount of money rolled from the European Central Bank’s 12-month Long-Term Refinancing Operation (LTRO) into its three-month one — an indication of banks’ demand for ECB liquidity — might not be too high.
Wake up and smell the BTPs
Here’s una piccola variazione all’italiana on why troubled eurozone sovereigns rely on domestic banks to buy up their debt (which FT Alphaville has noted may pose a few grande problems further ahead).
According to Lombard Street Research’s Stefano Di Domizio,
The pictorial, speculative, yen carry trade
Academics have been busy figuring out ways to plug the gaps in pre-crisis financial data.
In a BIS working paper, Stephen Cecchetti, Ingo Fender and Patrick McGuire identify and analyse two data sets that they think were lacking in the run-up to the financial crisis.
Let’s all go on a euro booze cruise
Wikipedia notes that a booze cruise is:
. . . a British colloquial term for a brief trip from Britain to France or Belgium with the intent of taking advantage of lower prices.
But Calais in France may have found a rival in the euro itself,
Not the ‘mother of all carry trades’?
FT Alphaville noted on Thursday how the USD three-month Libor rate had, for the first time since August 2009, moved back above the three-month JPY Libor rate.
It’s worth reminding at this stage what Dr.
The end of the $-funded carry trade?
We ask the question because the 3-month Yen Libor rate has fixed below the US 3-month rate for the first time since August 2009 .
So, while the dollar rate hovers around 0.25 basis points waiting for the Federal Reserve to lift interest rates,
A yen for liquidation?
So how much of yesterday’s yen move was really down to the threat of devaluation from Japan’s new finance minister and how much was just market positioning?
Sue Trinh, senior currency strategist at RBC Capital Markets poses the question with the below chart:
Cash and carry
It was a lesson writ large by the financial crisis; dabble in carry trades denominated in dinky currencies at your own peril.
The tale of the Icelandic krona serves as a particularly brutal parable of carry traded excess.
Debunking carry-trade denial
To carry trade or not to carry trade. That is the question.
In the last few weeks a host of different banks have stepped forward to question both the depth and degree of the current dollar carry trade. Among them have been Goldman Sachs,
Goldman: There is no dollar-funded ‘carry bubble’
So Nouriel, you are being asked here to please calm down. Yup, you heard it here first. (And here, but let’s ignore that for now).
“There has,” says Goldman Sachs strategist Mark Tan, “been a lot of focus recently on the extent of Dollar-funded carry trades contributing to the decline in the USD”.
Debunking the size of the carry trade
Historically low interest rates in the United States are, as we know, supposedly encouraging investors to put on dollar-funded carry positions.
But while current interest-rate differentials might imply this is a very profitable and popular trade,
Eyeing cash-and-carry bond issues
As has been duly noted by analysts, newspapers and commentators in the last few weeks — the dollar is emerging as the world’s new favourite ‘carry-trade’ currency. (Although, some have suggested it should really be the Great British Kroner.)
With that in mind,
Fujii: Yen intervention could ‘destroy a free economy’
For a septuagenarian, Japan’s new finance minister, Hirohisa Fujii, packs a punch, single-handedly driving up the yen on Wednesday – his first day on the job.
As the FT reported on Thursday, the yen