As we all know by now, providers of swap-backed ETFs have no obligation to collateralise funds with anything resembling the indices being tracked.
It’s all okay, because the collateral is marked-to-market every day, and (in Europe at least) there’s a neat swap in place which ensures that any variance between the collateral held and the performance being promised to investors is temporarily guaranteed by the credit integrity of the swap provider. (At least until the whole thing is reset and re-collateralised with fresh assets to make up for any shortfalls.) Read more
A counter-intuitive headline, to be sure, given that Greece has just one publicly outstanding covered bond left (but over €12bn of ‘retained’ covered bonds used as fodder for central bank liquidity).
Hidden in the details of Greece’s planned privatisation fund are a few interesting tidbits. For a start, it looks like the fund will be able to issue bonds, possibly with a Greek government guarantee. It could then use proceeds from issuance to buy back debt, offer exchanges or set-up other guarantees. Read more
Earlier, we considered whether the Republic of Greece is turning into a giant collateralised debt obligation.
This is because proposals to have the EFSF back a Greek government bond buyback appear to introduce some element of collateralisation to Greece’s debt. Although it’s all very complex – and we could be wrong. Read more
One way to think about EFSF-financed Greek bond buybacks is as an informal exercise in a collateralisation and tranching of sovereign debt.
An exercise, in short, in converting a country into a collateralised debt obligation. Read more
Here’s something to ponder while we wait for the European Commission’s consultation document on haircuts for senior investors in Europe’s banking debt.
It’s what all this talk of Basel III — plus burdensharing, CoCos and bail-ins has been leading up to — one almighty hike in financials’ funding costs and retrenching banks. Read more
FT Alphaville has talked about the vaporisation of unsecured lending in Europe, as well as the consequent impact on quality collateral via the rush towards collateralised lending.
But in case you didn’t believe us, here’s the news straight from the horse’s mouth via the ECB’s Euro Money Market Survey 2010: Read more
Marco Bianchetti, a senior quantitative analyst in market risk management at Intesa Sanpaolo Bank, has a very intriguing piece out in this month’s Risk Magazine.
It’s highly technical, but the main point is that swap pricing has changed significantly since the beginning of the crisis, largely because the industry has found itself having to adopt a “double curve-single currency” framework. Read more