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’Breaking the Bank (in gilts)
This’ll be a controversial argument about the Bank of England’s buying of UK government debt, we know… but it comes from Philip Rush of Nomura:
Aggressive quantitative easing brings [gilt] market capacity constraints into play.
We want negative Treasury yields
Interesting exchange in the latest minutes of the TBAC – Treasury Borrowing Advisory Committee, which brings together primary dealers and US Treasury officials… (Hat-tip Bondscoop)
The question was asked if it made sense for Treasury to permit bids and awards at negative interest rates in marketable Treasury bill auctions.
The Italian bid, redux
We’re sticklers for this stuff — but it’s an important point by Societe Generale’s analysts on Tuesday: (click charts to enlarge)
There’s your exosphere-thin trading in Portugal at the moment, incidentally…
Rabobank says go Dutch
(We’ll get our coat)
Since there’s a question-mark over who’s going to buy the circa €200bn of fresh eurozone sovereign debt being sold in the first three months of 2012…
We were piqued by Rabobank’s Richard McGuire and Lyn Graham-Taylor argument on Friday that picky investors should look at the Netherlands.
The Italian bid
Apparently, the European Central Bank bought unusually large amounts (at least €1bn) of Italian debt on Thursday. Just as well?
Stefano Di Domizio of Lombard Street Research wants more:
Screaming call for the ECB to step up bond purchases
The above is a chart by Di Domizio showing how Italian bonds’ bid-offer spreads have diverged from the yield spread to German debt.
Keep calm and call the War Loan
(Alternative title: Financial repression meets the History Channel?)
Telling the UK government to issue 100-year bonds clearly wasn’t out-of-the-box enough for Societe Generale’s rates strategist Julian Wiseman.
Banks, bezzles, and ECB liquidity
Quote du jour from an excellent IFR article, doubting the Sarko trade:
With bank debts coming due and most firms unable to raise fresh funds in bond markets – which remain largely closed – bankers say it is much more prudent to use ECB loans to pay off their own creditors rather than speculate that European governments pay back all their debt.
Yes! We have no collateral today
Didn’t think the quality collateral scarcity issue was a big problem?
Seems the fast diminishing pool of ‘risk-free’ assets is a big enough issue to have the Basel Committee on Banking Supervision completely change its mind on the role of government bonds in its new banking rules.
Manufacturing quality collateral
Regulators are demanding that banks set aside larger amounts of high-quality liquid assets to help them withstand periods of market stress.
The securities generally deemed acceptable are AAA-government bonds.
French bonds — some (parabolic) perspective
Chart of French 30-year bonds’ spread to German debt over the last five years (via Reuters):
We think it’s a good chart… because it shows that investors really, really want Bunds, and this is why spreads even among the AAA members of the eurozone are moving out so much.
Belgium joins the spread-betting party
The lashing of non-Germanic eurozone sovereign bonds continues – but at a slower rate in Belgium’s case.
Just shy of its euro-era high of 273bp over comparable 10-year Bunds on Thursday, the country’s 10-year government bonds were trading at 268bp over at pixel time:
The view from Rome
(Front-page headline from Il Sole 24 Ore. “HURRY”)
Although there’s a tiny amount of breathing room…
Italian bond yields were falling at pixel time — partly because everyone who had to sell because of the margin increases yesterday have already sold,
LCH Clearnet SA raises margin on Italian bonds
Note — this is not the margin call many were looking out for.
As we’ve explained, LCH Clearnet SA follows a different framework to LCH Clearnet Ltd — operator of the RepoClear service which applies the famous 450bps spread “trigger”
Dicing with debt, EFSF edition
If the thing set up to borrow for the eurozone can’t borrow then the eurozone is screwed.
That was the lament from the market when the EFSF decided to postpone on Wednesday its ‘no-grow’ €3bn 10 year deal to finance Ireland’s next bailout loan tranche due November 11,
Hello, Greek mopping-up law?
Reuters, on signs of a push to make Greece’s debt restructuring coercive rather than “voluntary”…
Athens could squeeze out bondholders by changing the law so that the terms of any untendered bonds would have the same terms as the new ones,
What is going on in Italian T-bills?
More to the point — this can’t go on, surely. The Italian 12-month BOT yield, via Reuters:
The yield has gone from 4 per cent on Friday to 5.4 per cent on Tuesday – ‘rallying’ to 5.1 per cent at pixel time on Wednesday.
The central bank cannot, will not hold?
These prices (for the 10-year Italian benchmark bond) are after the ECB intervened on Tuesday:
Ten-year Bund yield is below 2 per cent at pixel time. Despite it all, clearly the ECB is buying in strength.
The ECB is not here to save the world — redux
Weirdly, the ECB does seem to be here to play chicken with Silvio Berlusconi, though:
That’s the only reason we can give for Italian 10-year bonds yielding 6.1 per cent on Monday. The debt last reached this level before ECB intervention began in August.
How badly do you want EFSF first-loss protection?
The EFSF has opened the kimono a little on how it would work as a sovereign bond insurer. Answers from an updated investor Q&A — especially interesting ones have been bolded by us:
E11 – What will be the scope of the protection under option 1 [credit enhancement]?
The partial protection certificate will cover a portion of the principal value of the bond.
But what does Mrs Watanabe think?
Apparently Sarkozy has phoned Hu Jintao on Thursday, to beg er, ask China to wire cash through the EFSF. Somehow.
Shouldn’t someone also be calling Mrs Watanabe?
Japanese investors are among the biggest private sources of demand for euro-denominated debt outside the eurozone.
Building a better bank recap, discount curve edition
At some point on Wednesday, eurozone governments will say they want banks to find an unspecified amount capital, based on revised sovereign haircuts which… we still don’t know a lot about.
We know that sovereign bond positions will be marked down,
Writing down Greece at Deutsche, encore
Deutsche Bank’s third-quarter results, 2011:
- A €777m profit, double forecasts but down from €1.1bn in the second quarter (excluding charges from the Deutsche Postbank merger)
- Sales and trading revenue €1.9bn (Q2:
Eventually, French Spreads Fail (E.F.S.F.) — redux
Some nasty bond moves in the eurozone sovereign debt “senior tranche” at pixel time (also in CDS — chart via Markit)…
(DBR – Germany, FRTR – France, BELG – Belgium, UKIN – United Kingdom, included for solidarité)
Ten-year French government bonds have finally gone and done it – trading more than 100bps wider than German debt.
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,
IMF SPV — splatted
IMF European director Antonio Borges sallies forth to fix Europe’s sovereign debt crisis once mo — oh, hang on, oops:
Let me be clear about some earlier comments I made
The rest of it… is quite painful:
You can lever, but will you take the loss?
OK, you can’t lever the EFSF because the German government says no. Just no, no, no, no. Although even in the rare event that it changes its mind, there’s also this issue…
One of the problems with levering the EFSF by linking it to the ECB buying bonds,
Let them eat EFSF equity tranches?
Rather than start directly with the weekend rumour of using the European Central Bank to “leverage” the EFSF…
… instead we’ll start what the ECB has done with the current Greek bond swap (these are answers to questions from the official bond swap website):
When Italian bonds trade as risk assets
Well, they’ve been trading like it since (ooh) July, but the relationship becomes really obvious on a day like Thursday, when fears of a global slowdown hit home again.
For example, European stock markets have fallen around 4 per cent,
Operation sovereign debt net
From the ivory tower of academia has come a novel idea: why not just net away all those troublesome debt exposures?
For example, say Spain held Irish debt to the tune of €12bn and Ireland held €20bn of Spanish debt,