And so FT Alphaville comes across “TENDER OFFER MEMORANDUM — INVITATION FOR TENDER IN RESPECT OF BONDS OF THE HELLENIC REPUBLIC”: the official launch of Japonica Partners’ eye-catching attempt to buy up to 10 per cent of Greece’s restructured bonds, in a kind of Dutch auction.
And there’s one very important point here. Read more
Business Insider suggested the ascent of US real yields was possibly the most important development in the market right now. We don’t disagree.
As we noted, it represents the market’s reconnection with disinflationary reality. The smoke and mirrors are fading. What is worrying, however, is that a move of this size has been prompted by simple talk of tapering. If that’s what tapering does, what will the first hint of a proper QE exit inspire?
As a result, it’s unlikely that an outright QE exit is viable at this stage. The deflationary consequences (which include the chances of a major market-sell off) would arguably be too large. Given that let’s analyse what the move in real yields really signifies. Read more
By now, everyone knows Tuesday was a big day for the EM bond market. But has the market really taken stock of how ‘bad’ things are?
Bloomberg reports on Thursday that this is probably the biggest drop in creditworthiness for emerging-market borrowers since the credit crisis started. Worse still, it is deepening. This they say is because speculation is intensifying (no-doubt among the buy-side) that central banks will scale back record stimulus**. Read more
Yes yes — suddenly, a bad last day of May for the stock market:
Gary Jenkins from Swordfish Research is having a moment; but it’s an interesting moment. On Monday he wrote:
“A while back I said that everything was now a credit and at the time that seemed a fair appraisal of the situation… However the market moves quickly and it is probably fair to say that right now everything is a rate product.*”
(The Co-Op bank, he says in the footnote, being the exception that proves the rule.) Read more
An upgrade in this environment is apparently stupidly effective. Here’s Greece’s 10-year bond yield tumbling a full one per cent the day after Fitch upgraded it to to B- from CCC, and said the outlook was stable:
This Fobor based paragraph is from a Bank of America Merrill Lynch note published earlier in the month which the FT’s Robin Wigglesworth brought to our attention:
In a world of zero rates, where $19.4 trillion of government bonds (that’s 48% of the total market) is trading below 1%, it’s little wonder the “lust for yield” is as strong as it is.
Japanese government bonds have kept stumbling. Small beer anywhere else in the world, but considering the policy experiment ongoing over there it’s worth keeping an eye on.
We’re not too excited yet but here’s a chart of five and ten year yields and some speculation anyway… Read more
…the UK is a must to avoid. Its Gilts are resting on a bed of nitroglycerine. High debt with the potential to devalue its currency present high risks for bond investors. In addition, its interest rates are already artificially influenced by accounting standards that at one point last year produced long-term real interest rates of 1/2 % and lower. Read more
When James Mac is away, the bloggers will play, but this is a rather serious tale. It relates to the nationalisation of SNS Bank, inclusive of its holding company SNS Reaal.
The above video tells the story of one investor in SNS Bank subordinated bonds. Read more
The EU’s Council and Parliament agreed on the text for two-pack laws on “enhanced surveillance” of sovereign bailouts on Thursday. It should be on the books soon.
So, if what happened in Greece last year was “exceptional and unique”… Read more
The political picture in Italy is looking deeply uncertain. We all know that.
But what’s possibly more interesting is the scale of the market reaction to that uncertainty. Read more
So, you’re wondering what kind of crisis Cyprus is. And you’ve watched the success of Nicos Anastasiades in the presidential elections so far. Anastasiades is not the kind of guy to demonise creditors for the sake of it, but he will have tough negotiations ahead of him of he wins. Read more
With all the excitement about ‘the great rotation’, it often feels that the debate focuses too much on analysing the recent flows, and less about the greed/fear dynamics driving them.
It’s been well documented that bond holders are increasingly frustrated by the miserable yields on offer in the fixed income markets, and are apparently flocking into the ‘cheap’ equity markets. We’ve already voiced our scepticism about the scale of this flocking. Yet what’s potentially also underestimated is the degree of skittishness by bond holders when the stock markets show signs of a wobble. After all, a lot of capital in fixed income got there after investors were burnt in the early 2000s. This loss aversion shouldn’t be underestimated. Read more
The ‘great rotation’ from bonds into equities: a few weeks ago it was looking like it might be seriously on. Even Albert Edwards sort of kind of said equities were cheap. And Ray Dalio said it is happening, too.
But there are a bunch of reasons why it doesn’t seem to be quite such a sure thing, at least for now. Read more
Click for details. The Greek PSI bond buyback now closes at 12pm London time on December 11.
Now, is this supposed to be a veiled threat if investors choose not to tend their bonds? From the Greek debt office chief, Stelios Papadopoulos: Read more
Oh dear, Mongolia’s new dollar bonds “tentatively nicknamed Genghis Bonds” (h/t Katie Martin) have been hit by some shocking, hard to predict, political instability.
One of the members of Mongolia’s fragile coalition government has ordered its ministers to leave their posts, a move that has sent the country’s bonds into a tailspin and could threaten the passage of crucial legislation.
And the Societe Generale strategist (who says he will “resurface on the buy side early next year”) is going out in style — taking a leaf from the book of the order Blattodea.
From Dylan Grice’s last Popular Delusions note:
All good things come to an end, sadly. So it is with my time here alongside Albert, Andy and the rest of the gang at SG. I’m signing off, checking out, moving on to pastures new. It’s been a wonderful time. But after three years of trying to sound clever it’s time for me to do something altogether more difficult, and actually be clever. So early next year, I will join a small but outstanding investment practice. Naturally, I hope it will be a great success. But what makes a great success? Since there are few more accomplished species on earth than the lowly cockroach where better to start looking for an answer?
And this one might prove more precipitous than its famous US cousin.
From the FT’s Ben McLannahan:
In an echo of worries in the US over the $600bn of spending cuts and tax increases due to take effect in January – the so-called fiscal cliff – Japanese politicians are at loggerheads over a bill that would allow the government to borrow the Y38.3tn ($479bn) it needs to finance this year’s deficit.
We’re feeling very nostalgic. From the WSJ:
Euro-zone countries are considering a proposal that would see Greece cut its debt by buying back bonds held by private creditors at a discount.
The exercise–one of a number of options being studied–could persuade the International Monetary Fund to sign off on a loan payment desperately needed by the debt-laden country and keep Greece’s bailout on track for the medium term, two officials with direct knowledge of the discussions said Thursday.
Oh dear. Terrible pun.
Anyway — debt management trial balloon du jour? Read more
For all the talk of heightened inflation expectations on the back of QE3, Morgan Stanley analysts remain unconvinced.
The truth, according to them, is that central bank action is having less than its desired effect. In fact, inflation expectations have remained well behaved if not subdued. Read more
It sounds almost pleasant if you ignore the gritted teeth and the fact we don’t know how much they actually paid (our emphasis): Read more
Spain has tipped a toe into the 10yr debt market and found the water isn’t as cold as it once was. They managed to get away a larger than planned issue of €3.9bn 3yr and €859m 10yr paper on Thursday with borrowing costs on the longer term paper falling markedly alongside decent demand.
However, the 3yr stuff was a new issue with the yield coming in near enough to this year’s average while the offering of the 10yr paper was small and oh-so-cautious. Read more
Reuters: 19-Sep-2012 10:41 - GERMANY SELLS 4.084 BLN EUROS IN TOP-UP OF 2-YEAR SCHATZ AV YIELD 0.06 PCT
That’s Germany selling 2yr paper at a POSITIVE yield for the first time since June, having got rid at zero-yield in August. Investors also bid 2.1 times the amount allotted, the most since January. Read more
At a time when traditional dealers are being squeezed by growing regulatory burdens — think Basel, TRACE and the Volcker rule — the incentive to hold market inventory is diminishing.
Not only is it expensive and risky to manage bonds, equities or commodities, there’s the fact that the old models push the boundaries of what’s acceptable in terms of principal risk and proprietary trading. Read more
Draghi-day has dawned.
We have a fair idea about what is going to be announced – if the leaks are to be believed we should expect unlimited, sterilised purchases at the short-end, no yield caps, conditionality and a solution to seniority - but there are plenty of grey areas remaining. Read more
Draghi-day is just around the corner and JPM’s Malcom Barr is of the opinion that the ECB might just kick off its move by purchasing short-dated Portuguese sovereign debt.
Heck, why not? The arguments to intervene are simple enough. Read more
Here’s an interesting exercise in eurozone sovereign credit, courtesy of Francesco Garzarelli of Goldman — click charts to enlarge: