Moscow doesn’t send tanks into revolting former vassals any more. It sends dollars.
For anyone who decides to follow the money when it comes to Ukraine’s split between the EU and Russia, the consequences can sometimes be grimly surreal when it gets to the prosaic matters of bond finance. Read more
A lesson in African sovereign debt disclosure courtesy of Mozambican Tuna and brought to you by Bloomberg:
Two months ago, Credit Suisse Group and VTB Capital financed a flotilla of tuna boats for Mozambique, then packaged the debt into notes for overseas investors. It turns out the fleet also includes anti-pirate patrol boats, according to the French Foreign Trade Ministry. They are capable of being equipped with 20mm cannons and military drones, according to Stratfor, a global security advisory firm. Credit Suisse is adamant that its funding wasn’t used for armed boats.
“We are not involved in Icelandic banks,” an Elliott spokesperson said.
Yes, that’s an on-the-record statement from the notoriously publicity-shy hedge fund. The Icelandic banks part is going to need some explanation. Read more
So what have the retail investors been up to? Buying stocks! But, even with yields down low and no-where to go, they are yet to break the bond buying habit.
The PRA works with the FCA and the FRC to improve the quality and usefulness of information disclosed on firms’ safety and soundness… Consistent with that, we will work with the FCA and the FRC to review the extent to which there is scope to extend bondholder influence over banks, with a view to bringing forward recommendations in due course…
– Bank of England (and Prudential Regulation Authority) response to the Final Report of the Parliamentary Commission on Banking Standards
Alternatively… the PRA need look no further than the wreckage, on Monday, of the Co-operative Bank’s plan to deliver the £1.5bn recapitalisation they ordered.
Plan B (for Bondholder) has taken over. Read more
From the Orders of the Supreme Court on October 7:
This is a defeat for Argentina. Any legal setback is. But it’s also perhaps not the end of the prospect (however distant) of Justices Scalia, Ginsburg et al debating the pari passu saga. Read more
Is this hundreds of basis points safer than the Greek government?
You might well ask. Read more
Monday — The Co-operative Bank takes flak from yet another group of its bondholders for refusing to consider any sort of Plan B in getting them to share the burden of recapitalisation.
Friday — It starts considering Plan B. Read more
We hear that this year’s exodus from the US muni bond market by retail investors, nervous about the coming bond pain (from higher rates and Detroit nerves rather than predictions of default and disaster), has fixed income hedge funds dipping into the $4tn market.
Hence positive momentum for muni’s last week, which Citi declared was “swimming against the bond fund tide”. Read more
For the Co-operative Group, there is only one plan for fixing its bank’s embarrassing £1.5bn capital shortfall. Plan A.
Plan A is an exchange offer to holders of Co-op Bank’s subordinated bonds for more senior debt, plus shares in a public listing, alongside a stake taken by the Group. Bondholders said they need more detail about the haircut involved. But they’ve already been told to take it or leave it.
Well, increasingly — and therefore interestingly for the bail-in era — they’re doing neither, and preparing their own Plan Bs… Read more
In particular, the recapitalisation plan is subject to finalisation and its implementation is subject to a number of inherent risks. Risks include a failure by bondholders to participate in the Exchange Offer, a legal challenge by affected Bank bondholders to the Exchange Offer and a failure by, or inability of, The Co-operative Group to make its proposed contribution…
Failure to implement the recapitalisation plan may result in regulatory intervention that could reduce or eliminate the value of the equity and modify, reduce or eliminate debt payment obligations.
– ‘Cautionary Statements’, The Co-operative Bank plc Interim financial report 2013
That’s the official version of the Co-op Bank warning to subordinated bondholders to swallow conversion of their debt into equity, in order to ensure its £1.5bn capital rescue. The unofficial version, from the mutual whose model was once lauded by politicians? “There is no plan B”.
Well, the bondholders are starting to think of Plan C. Read more
Sounds impressive, doesn’t it — more than $100bn in investor money has sploshed over to the US stock market since the start of 2013, according to EPFR and BNP Paribas:
1986: In a note headlined ‘Bond Wars’, Bill Gross lightheartedly suggests the Force is with PIMCO, much as it was with Luke Skywalker in the fictional Star Wars films.
(If inaccurately — Gross called the Force “really the intuition handed down to [Skywalker] through generations of previous starfighters”. Nah.)
2013: In a note headlined ‘Bond Wars’, Bill Gross says “PIMCO will not go down at the Somme.”
Really. Read more
Did you forget that Japonica’s offer to buy up a huge chunk of the Greek bond market still exists?
It might be easy to. They’ve just extended the deadline again by another month.
For holders tendering at a 15 percent to 20 percent large block illiquidity discount to observed bid-ask midpoint prices, the Acquirer reserved the right to reimburse up to 50 percent of the cost of independent fairness opinions. These fairness opinions specify the range of the double discount in the current market and are an industry best practice. The double discount includes the discounts for large blocks of fixed income securities and for highly illiquid fixed income securities.
The chart is from Credit Suisse Trading, which notes that June’s bond fund outflow of roughly $60bn represents the largest monthly fund flow — in or out, equity or bond — of any kind since records began in the early 1990s. Read more
Merrill Lynch’s Michael Hartnett sure knows how to grab the readers’ attention…
Not long now until the US Court of Appeals for the Second Circuit finally makes its ruling on trickier parts of the Argentina pari passu case. No later than early July, probably. Can’t wait.
Argentina couldn’t wait. The government filed its long-expected cert petition to the Supreme Court this week, mostly in order to complain about the federal-law implications of the Second Circuit’s original ruling in October 2012. There’s lots of outrage about ‘sovereign property’ and the US Foreign Sovereign Immunities Act.
But one Taiwanese development bank and its Caribbean island borrower, fighting each other over $32m of defaulted loans in The Export-Import Bank of the Republic of China v Grenada, really couldn’t wait… Read more
Now north of 2.5 per cent:
The level of debate for a lot of money in emerging markets on Thursday must have been whether or not to hide under the desk with a bottle of bourbon. So, kudos to Olgay Buyukkayali and Tony Volpon, top EM strategists at Nomura, for standing back and raising the tone a little…
The bank’s published a debate between the two about the sell-off. Tony’s vaguely bearish and Olgay’s vaguely bullish. But that doesn’t do justice to what’s quite a nuanced debate on EM: Read more
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