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’Choose your own MBS accounting
Basel III. Accounting. Mortgage-Backed Securities. Yawn.
But wait — Basel III’s attempt to incentivise banks into managing their interest rate risk could be about to permanently alter the way banks handle some $1,480bn worth of MBS,
The ECB’s separation principle rules OK
The ECB announces its monetary policy decision on Thursday and is widely expected to keep rates unchanged at 1.25 per cent.
What’s much less clear is whether President Trichet will use the phrase “strong vigilance”.
Interest rate risk hurts — hurts like a 9 per cent market value loss
The mortgage market — lurching from one risk to another, right?
No sooner had Fitch Ratings gotten more comfortable with credit losses than it starts warning on interest rate risk. It’s kind of back to the future for the Mortgage-Backed Securities (MBS) industry too.
For you Southern Europe, ze inflation is over
Cezmi Dispinar points to the below slide from a presentation by Heiner Flassbeck over at NachDenkSeiten. It’s all in German, and it’s about eurozone monetary policy, but stick with it!
The chart shows unit labour costs — with the red line being Germany,
ECB hikes 25bps — and so it begins…
… the tightening cycle at the ECB that is.
The importance of debt maturity
Boring title, we know. But stick with us ’cause there’s all sorts of thematic points in here — from sovereign debt crises to the weakness of short-term financing to interest rate shocks.
After the financial crisis,
Greek and Irish interest rate stress tests
If this week’s mooted 25bps hike in ECB interest rates is the beginning of a trend, there’s already plenty of evidence it will damage private debt sustainability in the periphery.
More on all that public debt,
Greece and its most grim sovereign-bank loop
Ireland has made an unwelcome name for itself as a country where a state and financial system have become most uncomfortably entwined — the sovereign-bank loop on steroids, if you will.
Just think of that Emergency Liquidity Assistance (ELA) which sees the Irish central bank accepting far dodgier collateral in return for loans to banks than the European Central Bank’s own-brand of repos.
An exit strategy for the Fed
We have all the tools we need to achieve a smooth and effective exit at the appropriate time.
Ben Bernanke, Semiannual Monetary Policy Report to the Congress, March 1, 2011
Friday’s decent jobs report and accompanying hawkish cacophony have encouraged further talk about when the Fed will raise rates and revert to a place called normalcy.
Taylor-fied of eurozone interest rate policy
*WARNING*
This is another dose of Taylor Rule-based eurozone interest rate hindsight. But it’s a dose of interest rate hindsight that comes with a bit of foresight too — given the market is positioning for a rate rise by the European Central Bank sometime this year.
Being Ben Bernanke
April 27.
Mark the date in your diary.
It’s the Federal Reserve’s first quarterly news conference — Ben Bernanke’s chance to answer his critics and speak up for his policies (and opportunity for the fourth estate to indulge in a spot of Fed bashing).
Cable unwinds
The post budget sell-off continues, leaving cable close to an important support level at $1.5980.
Next stop $1.5750, according to chart watchers.
But does the weakness reflect worries that the
[Gavyn Davies] MPC still split in four directions
The minutes of the Bank of England’s MPC meeting in March released on Wednesday morning show that the committee lines up in exactly the same way as it did last month.
One member (Posen) wants to ease monetary policy,
Psst, chancellor
Ahead of this week’s ‘pro-growth’ but pro-austerity UK budget, comes a no-growth finding from the Institute for Fiscal Studies:
We are used to our incomes rising over time. Since 1961, median (middle) household income before housing costs in the UK has increased by 1.6% per year on average.
The need for an IOER-fed funds spread
Here’s an interesting view we caught sight of in Bank of America Merrill Lynch’s latest ‘US rates weekly’ note.
The Fed’s interest on excess reserve (IOER) policy — which currently pays out 25 bps
Greek debt: restructured
Given questions over Irish sovereign credit events (for which there’s full background here, via Lorcan)…
…Did anyone notice this weekend’s Greek debt restructuring?
It’s ‘only’ the official EU and IMF loans that have seen terms altered following Friday’s EU summit.
Japan’s earthquake markets, then and now
From Reuters’ financial graphics editor, Scott Barber:
And an FT Alphaville version of Friday’s immediate reaction:
Whither that bottom-right graph from the first collection? Here’s a clue.
How big the BoE’s interest rate bind?
Europe’s central bank is in a tight spot when it comes to rates and mortgages.
That much we know.
The ECB can’t raise rates without causing at least a degree of pain for home owners in the periphery — where most of local leverage is based on floating rates.
Trichet calls for a ‘quantum leap’ amid ‘strong vigilance’
Thursday’s comments from ECB President Jean-Claude Trichet have gone down a treat in the foreign exchange markets.
At pixel time the euro was headed straight through a bunch of moving averages while approaching the all important psychological $1.40 mark:
The third dissenter
The much-awaited February Bank of England minutes are out — and lo and behold — it looks like Monetary Policy Committee member Andrew Sentance was right.
They were more interesting than usual.
Meet the new club of dissenters in the Bank’s most recent rate decision (a hold):
Monetary policy in a time of natural disaster
Here’s a counter-intuitive policy suggestion, if ever there was one.
On Tuesday, after a 6.3 magnitude earthquake hit the New Zealand city of Christchurch, the swap market doubled-down on bets the country’s central bank would cut interest rates.
Japanese mortgages: rarer and riskier
By now you’ve perhaps heard about the ticking, aging timebomb underneath Japanese government bonds. Or predictions of a negative savings rate. Or sovereign downgrades.
But what of the super safe Japanese mortgage market?
In a note out on Wednesday,
Selling England by the pound…
… is the title of the 1973 album from ‘prog rockers’ Genesis, and it also sums up the UK’s inflation problem, according to Bank of England hawk, Andrew Sentance.
In a speech at the Institute of Economic Affairs ‘State of the Economy’ conference on Thursday,
Jumping JGB rates
Never short a Japanese government bond — no matter what you think of the country’s debt-to-GDP ratios, demographics, savings and the like. The JGB market can stay irrational longer than you can stay solvent etc.
Mervyn explains himself
What he actually said:
Dear Chancellor,
As I have described in previous open letters, three factors can account for the current high level of inflation: the rise in VAT relative to a year ago, the continuing consequences of the fall in sterling in late 2007 and 2008,
Dear Chancellor…
Time to get the quill out again, Governor.
From the Office for National Statistics on Tuesday morning:
So, that’s the fifth consecutive quarter that UK CPI inflation has remained above target and the 10th time Bank of England chief Mervyn King will have been forced to write to the Chancellor and explain why:
Has the Fed’s exit strategy been Basel-ed?
A piece of the Fed’s exit strategy in tatters because of Basel III? Perish the thought.
Yet RBC Capital Market’s Mike Cloherty certainly seems to think so in a short note published late on Thursday.
The Bank of England’s big dilemma
All eyes on the Bank of England ahead of Thursday’s rate decision.
With inflation persistently above the Old Lady’s target, and with a couple Monetary Policy Committee members voicing their dissent over recent rate decisions,
The inflation disconnect, charted
Atlanta Fed President Dennis Lockhart was talking about discrepancies between Americans’ view of inflation and that of the US central bank in his Tuesday ‘disconnect’ speech. But you can see that disconnect most clearly in the discrepancy between market interest rate expectations and the Fed’s actual rates.