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
Portrait of a returning peripheral sovereign, encore:
Speaking today, NTMA Chief Executive John Corrigan said that Ireland had made considerable progress in its phased return to the markets over the past year and, with the success of yesterday’s €2.5 billion syndicated bond sale, had eliminated the “funding cliff” presented by a €11.9 billion bond repayment due in mid January 2014. The NTMA intends to step up its re-engagement with the market during 2013 so that Ireland is positioned to successfully exit the EU/IMF programme. Its working plan is to raise €10 billion, subject to market conditions, of which one quarter has been achieved with yesterday’s bond sale. Mr Corrigan also said the NTMA would continue its regular auctions of short-term Bills, which recommenced in July 2012, with the first 2013 auction scheduled for Thursday 17 January. Read more
Frances Coppola has whipped up an absolutely fabulous commentary on the BIS paper on safe assets, which cuts straight to the point:
“the purpose of government debt is not to fund government spending. It is to provide safe assets.” Read more
A safe assets-themed argument in three charts, from Barclays’ latest global outlook. (Click to enlarge)
The US borrowed for 10 years at the lowest rate ever in Wednesday’s auction (technically a reopening of an existing bond). Read more
The latest sovereign to borrow at negative yields — France.
That’s German bund futures, on Wednesday. Fresh record. Read more
Floating Rate Notes
As noted in the February quarterly refunding statement, Treasury believes that there are benefits to issuing floating rate notes (FRNs). In recent weeks Treasury has received a significant amount of feedback on the topic, in part through a formal request for information published in the Federal Register. Read more
Or, imagine foreign holdings of eurozone sovereign debt turning back the clock some 15 years… to before there was a eurozone.
A few charts from Rabobank on Friday (click to enlarge): Read more
We hadn’t realised – Spain’s bond issuance calendar for this year is one of those landscape-adorned affairs which the Italians have been known to do.
Let’s start with “Federal Reserve Independence Day“ – March 4, 1951.
Nowadays… when financial repression is all the rage, people seem more interested in what caused the Fed-Treasury Accord of that year, rather than what happened after. Read more
The Spanish bonds mini-crisis continues this week, so we thought we’d mention an excellent note penned by JPMorgan’s Flows & Liquidity team last week.
It touches on this theme of Spanish banks being less able to manoeuvre their balance sheets into more purchases of government debt. And on other oddities related to ECB liquidity ops… Read more
From the UK Debt Management Office’s issuance plans for the 2012-13 fiscal year, released as part of the UK Budget documents…
In light of evidence of strong demand for gilts of long maturities and against the backdrop of historically low long-term interest rates, in 2012–13 the DMO will consult on the case for issuance of gilts with maturities significantly longer than those currently in issue, that is in excess of 50 years, and/or perpetual gilts. The consultation will build an evidence base to inform the Government’s decision on whether to issue such instruments. It will seek to establish the likely strength and sustainability of demand, the cost-effectiveness and risks of issuance, and the impact on market liquidity and the good functioning of the wider gilt market. Read more
Worried by the sudden rise in bond yields?
Fear not. On Friday, HSBC analysts provide us with a “what to do if bond yields rise” scenario map. Read more
We couldn’t not post the thoughts of Julian Wiseman, Societe Generale rate strategist, concerning HM Treasury’s trial balloon of a possible 100-year UK government bond.
Wiseman did after all think of it first. Read more
Or, taking consols, the War Loan, and all that UK sovereign debt jazz into the 21st century.
The latest from the Chancellor of the Exchequer ahead of the UK’s March 21 Budget, according to Wednesday’s FT (and leaving SocGen’s Julian Wiseman prescient): Read more
We think the following chart from Nomura’s Richard Koo on Wednesday is something that every inflationista and goldbug should study closely:
This’ll be a controversial argument about the Bank of England’s buying of UK government debt, we know… but it comes from Philip Rush of Nomura:
Aggressive quantitative easing brings [gilt] market capacity constraints into play. A renewed intensification of the sovereign debt crisis could cause this should one of QE’s reverse auctions fail. Tweaking maturity buckets or adding linkers could cure the constraints… Read more
Interesting exchange in the latest minutes of the TBAC – Treasury Borrowing Advisory Committee, which brings together primary dealers and US Treasury officials… (Hat-tip Bondscoop)
The question was asked if it made sense for Treasury to permit bids and awards at negative interest rates in marketable Treasury bill auctions. DAS Rutherford [Matthew Rutherford, Deputy Assistant Secretary for Federal Finance] noted that there were operational issues associated with such a rule change, but that the hurdles were not insurmountable. It was the unanimous view of the committee that Treasury should modify auction regulations to permit negative rate bidding and awards in Treasury bill auctions as soon as feasible. Rutherford noted that any decision on this policy change would likely be made at the May refunding. Read more
We’re sticklers for this stuff — but it’s an important point by Societe Generale’s analysts on Tuesday: (click charts to enlarge)
(We’ll get our coat)
Since there’s a question-mark over who’s going to buy the circa €200bn of fresh eurozone sovereign debt being sold in the first three months of 2012… Read more
Apparently, the European Central Bank bought unusually large amounts (at least €1bn) of Italian debt on Thursday. Just as well?
Stefano Di Domizio of Lombard Street Research wants more: Read more
(Alternative title: Financial repression meets the History Channel?)
Telling the UK government to issue 100-year bonds clearly wasn’t out-of-the-box enough for Societe Generale’s rates strategist Julian Wiseman. Read more
Quote du jour from an excellent IFR article, doubting the Sarko trade:
With bank debts coming due and most firms unable to raise fresh funds in bond markets – which remain largely closed – bankers say it is much more prudent to use ECB loans to pay off their own creditors rather than speculate that European governments pay back all their debt. Read more
Didn’t think the quality collateral scarcity issue was a big problem?
Seems the fast diminishing pool of ‘risk-free’ assets is a big enough issue to have the Basel Committee on Banking Supervision completely change its mind on the role of government bonds in its new banking rules. Read more
Regulators are demanding that banks set aside larger amounts of high-quality liquid assets to help them withstand periods of market stress.
The securities generally deemed acceptable are AAA-government bonds. Read more
Chart of French 30-year bonds’ spread to German debt over the last five years (via Reuters):
The lashing of non-Germanic eurozone sovereign bonds continues - but at a slower rate in Belgium’s case.
Just shy of its euro-era high of 273bp over comparable 10-year Bunds on Thursday, the country’s 10-year government bonds were trading at 268bp over at pixel time: Read more