Returning to that theme of sticky risk, the search for yield and returns and what happens when the Federal Reserve et al point towards the exit, here are some charts of the divergence between fundamentals and markets courtesy of Matt King at Citi.
The point, as ever, is that while the Fed is handing out donuts then you want to grab your share. But everyone has been eating free food for a long time now, and there are a lot of fat and happy credit investors to fit through the door when the donuts run out… Read more
Our broad US outlook for 2014 is that it represents an inversion of the situation from the start of last year: while the conditions for economic growth in the US now seem better than they were then, the prospects for debt and equity markets are much more complicated.
It’s easy to understand this flipped dynamic in equities. After a 30 per cent return in the S&P 500 last year, stocks are widely thought to be either fairly priced or perhaps a little overpriced, making it tough to know what happens next. Read more
From where this blogger is sitting WMPs do a pretty good job of summing up the different ways of looking at what is going in China at the moment. On the one hand you have those who see WMPs more as “off-balance-sheet deposit rate liberalisation, with a twist of risk” which are a useful tool on the liberalisation path, and on the other hand you have the Weapons of Mass Ponzi-focused brigade. Read more
We don’t know exactly what next year’s Asset Quality Review will involve yet, but we are starting to get a picture of what investors think about the ECB’s forthcoming burrow through bank balance sheets.
In short, given that it might not be all over until the end 0f 2014, everyone is feeling pretty good about the banks right now, and that might explain a surge of appreciation for European stocks. Read more
On the danger or not of China’s inflation rate:
Is this hundreds of basis points safer than the Greek government?
You might well ask. Read more
We missed this speech by Lord Hope, the former Deputy President of the UK Supreme Court, last week. Shame.
It covers the plight of Rangers Football Club, the Insolvency Act 1986; why legal textbook writers don’t have to be dead before you can cite them any more; and the implications of the court’s May decision in the Eurosail case — one of the most important judgments for securitisation law in years. Read more
These sorts of charts have been bothering a lot of people lately, including us:
This one, via UBS’ George Magnus, shows China’s debt back near a 2009, stimulus-era ratio. Only, this time, it’s without the stimulus-era boost to the economy. Read more
Every strategist around, it seems, was expecting an increase in China’s growth rate after the recent credit surge. Of course… it didn’t happen.
Yet much of the reason for those expectations of credit tightening are still there: credit really surged, particularly in March. Read more
Enjoy! Some 148 pages of accounting-for-loan-losses reading:
It’s the IASB’s latest version of its attempt to make banks recognise “lifetime expected” losses on loans or bonds as soon as there are “significant” signs of a credit going bad, instead of waiting until it’s too late and risking a sudden wave of defaults. Read more
The CLO kind of got off lightly in Fed governor Jeremy Stein’s “Overheating in credit markets” speech.
Makes sense, given what Stein was mostly talking about — places in the market where the yield chase could be relying on assets that in turn rely on short-term funding. In other words, leverage that turns “overheating” into a supernova. Read more
Taken together, the policy vol crunch and regret factor must be putting the remaining bears in a paroxysm of remorseful fear.
He’s very quotable, Nomura’s Kevin Gaynor. Read more
Plenty of analysts and pundits have gone to the trouble of explaining the challenge confronting savers in the current low-yield environment…
But how many of them go to the trouble of putting on a barbecue to illustrate various credit strategies one may respond with? Read more
Ireland: Eurostat is withdrawing a specific reservation, expressed in April 2012, on the data reported by Ireland, relating to the statistical classification of National Asset Management Agency Investment Limited (NAMA-IL). On the basis of documents provided by the Central Statistics Office of Ireland, NAMA-IL is majority privately-owned, following the sale by Irish Life of its stake in NAMA-IL to a private investor. This is a necessary condition for a special purpose entity to be classified outside the General Government sector, pursuant to Eurostat’s decision of 15 July 2009 on public interventions during the financial crisis.
That’s from Monday’s Eurostat release on European government debts and deficits. Monday, perhaps not coincidentally, also saw names put on the announced sale of Irish Life’s 17 per cent stake in Nama Investment Ltd. Read more
A safe assets-themed argument in three charts, from Barclays’ latest global outlook. (Click to enlarge)
In the States, we’re still picking our jaws off the floor from the lowest CCC-rated issuance yield on record, earlier this week.
In Europe… Societe Generale’s credit strategists have an interesting round-up: Read more
US banks as one of the last big carry opps, really? Chart via Ralph Axel at BofA Merrill Lynch:
Here’s a call from Sober Look on Tuesday — Germany’s growth might be on the cusp of going negative:
So much for the hopes and dreams of German decoupling from the Eurozone’s economic troubles. How things have changed in just six months… Germany’s growth trajectory is now converging with the rest of the euro area’s weakened economic conditions. Read more
So farewell then, 10 per cent Fannie and Freddie senior pref dividends.
Here’s an interesting exercise in eurozone sovereign credit, courtesy of Francesco Garzarelli of Goldman — click charts to enlarge:
JP Morgan’s second-quarter 10-Q is out – and so is its restated filing for the first quarter.
Of course, the bank has already opened the kimono (as Jamie Dimon might say) on the unwinding – and transfer to its investment bank – of the synthetic credit trades built up by its Chief Investment Office. Read more
What would you think if this headline graced your inbox?
Managers triumph at credit event of the year Read more
We’ve discussed MMT’s recent foray into the mainstream, and the confusion it has consequently courted.
But that’s the funny thing about the theory. It is naturally divisive because most of the time it fails to communicate its message succinctly. Which is weird, since the premise is actually fairly simple to understand. We’d say it’s akin to looking at an autostereogram. Once you get it, you never see things quite the same way again. But at the same time, try as they might, some people will never be able to see the image. Ever. Read more
A five-page article in the Washington Post by Dylan Matthews over the weekend, finally thrust the theory of Modern Monetary Mechanics into the mainstream.
This was exciting news for fans of the alternative economic school, more popularly known as MMT, which asks people to think of money, credit and tax in a completely different way to what is usually considered conventional in economics. Read more
RTRS-KAZAKH BANK BTA IN OFFICIAL DEFAULT ON $2 BLN 2018 BOND AS JAN.3 COUPON FUNDS NOT RECEIVED-CREDITORS CITE EUROCLEAR
January 17 marked the end of the grace period for BTA’s missed coupon payment. Creditors wanted this coupon paid before opening talks. Therefore — this Kazakh bank’s second, fractious, complicated debt restructuring bid just passed a point of no return… Read more
We missed this earlier — these are Societe Generale credit strategists’ 2012 forecasts for supply of bank and corporate bonds issued in euros.
Spot the odd (shrunken) one out? Read more
What are chances of a soft landing for the Chinese economy? Pretty slim if you ask über bear Albert Edwards.
The Société Générale strategist reckons “blind faith” in the competence of the Chinese authorities to guide the economy to a soft landing is misguided. He says: Read more
Clearly, gaining $1.9bn in revenue from your own credit spreads blowing out must be the trophy asset for the A/W ’11 US bank earnings season…
Citigroup’s Q3 results, out on Monday (total revenue $20.8bn): Read more
Some very interesting proposed changes to Standard & Poor’s rating methodology for CDOs made of stuff like ABS, in the following request for comment, we think:
Standard & Poor’s Ratings Services is requesting comments on proposed changes to the methodologies and assumptions it uses to rate collateralized debt obligation (CDO) transactions backed by structured finance (SF) securities… Read more