So here it is — the fifth Chinese rate hike since October last year.
As Reuters reported on Wednesday: Read more
German financial consultant Achim Dübel doesn’t mince his words.
Last week he spoke to a group of European politicians, including representatives from the UK, Spain and Germany, to talk mortgage reform. In particular, he was presenting a new paper, written together with Marc Rothemund, and published by the Centre for European Policy Studies (CEPS). It’s a big deal given the current consumer protection debate on European mortgages, and the European Commission’s recent interest in the cost and benefits of various mortgage credit policies. Read more
Price action in the Norwegian krone on Tuesday:
Hot on the heels of the BIS’s annual report – criticising how prolonged low interest rates can create ‘distortions’ and threaten ‘price stability’ — comes this presentation from Citigroup’s credit team.
The bank’s credit strategists Hanz Lorenzen and Matt King have some simple advice for investors seeking to deal with modern (QEased) markets; “what feels wrong is probably right.” Read more
Those low interest rate u-Zirpers at the BIS are back.
The Bank for International Settlements, often known as the central banker’s bank, seems to share little in common with its low interest rate-advocating cousins in places like the UK and the US. In fact, the latest annual report from the BIS is fairly scathing when it comes to prolonged easy monetary policy. Read more
Up until April this year, US banks had a nice little earner.
As Freakonomics explained, big banks were able to borrow cash from the Fed funds or repo market for say, 15 basis points, posting US Treasuries as collateral, and then deposit the cash received with the Federal Reserve overnight at 25bps, earning some 10bps. The FT has estimated that since late 2008, this risk-free arbitrage may have netted America’s banks as much as $200m in profits. Read more
Notice anything in the below chart, of five-year CDS for Spain, Japan and Australia?
Your extend and pretend datapoint du jour, right here folks.
On Monday, Moody’s released a report advocating more disclosure of loan modifications within British Residential Mortgage-Backed Securities (RMBS). The UK’s Financial Services Authority already said something similar last month, when it issued its first Prudential Risk Outlook. Read more
Here’s something to throw the Bank of England’s will to withstand high UK inflation (and low interest rates) in surprising, sharp relief.
It’s a new finding by the Institute for Fiscal Studies, connected to a study of inflationary effects on low-income households over the long term: Read more
During the Spanish boom of 2004-2008 the country started construction of about 3.26m new houses, according to Nomura’s figures, and sold about 2.86m in the Costa Brava beach house craze.
By the end of 2009, however, the financial crisis had erupted and left Spain with a stock of unsold houses of almost 700,000. By 2010, the number of new houses being sold had dropped to 200,000. Read more
Some graphics from Danske Bank to ponder ahead of the ECB’s Thursday meeting:
There’s the effect of rising European Central Bank rates on households in the periphery, and there’s the effect of two-tiered rate markets on periphery banks:
US money market funds are struggling to make returns after short-term interest rates fell to record lows in the wake of regulatory changes and a big decline in Treasury bill issuance, the FT reports. The recent drop in rates has compounded the already low level of returns money market funds have made since the Federal Reserve set overnight rates in a band of zero to 0.25 per cent in December 2008. The low interest rate environment means a growing number of funds are losing business and coming under mounting pressure to consolidate. The Investment Companies Institute calculates that last year the industry waived $4.5bn of fees to maintain the fixed $1 per share net asset value of funds. See also FT Alphaville posts. Read more
It’s a moonless night in October, 2008.
A hooded figure turns the corner of Threadneedle Street. It’s Fred Goodwin, head man of the languishing British bank, RBS. He glances behind him. No one’s there. With a sigh of relief he pulls open the heavy door and disappears into the warm welcoming light of the Bank of England. Read more
China’s consumer price index rose 5.3 per cent in April, lower than March’s 5.4 per cent increase but still higher than expected, the FT reports. Food prices also rose faster than during the first quarter at 11.5 per cent, compounding political sensitivities. Industrial output nevertheless fell in tandem with producer prices, indicating that the four interest rate hikes since October are cooling growth. However, fixed-asset investment has ballooned 25.4 per cent so far this year, indicating that domestic demand cannot support growth, Bloomberg reports. If fixed-asset investment falls, the central bank may even begin cutting rates by the end of the year, Reuters says. Read more
Code word time again. Trichet at Thursday’s ECB rates decision (held, at 1.25 per cent) presser:
With interest rates across the entire maturity spectrum remaining low and the monetary policy stance still accommodative, we will continue to monitor very closely all developments with respect to upside risks to price stability. Read more
Basel III. Accounting. Mortgage-Backed Securities. Yawn.
But wait — Basel III’s attempt to incentivise banks into managing their interest rate risk could be about to permanently alter the way banks handle some $1,480bn worth of MBS, or 11 per cent of their assets. Read more
The ECB announces its monetary policy decision on Thursday and is widely expected to keep rates unchanged at 1.25 per cent.
What’s much less clear is whether President Trichet will use the phrase “strong vigilance”. Read more
The mortgage market — lurching from one risk to another, right?
No sooner had Fitch Ratings gotten more comfortable with credit losses than it starts warning on interest rate risk. It’s kind of back to the future for the Mortgage-Backed Securities (MBS) industry too. Because before the financial crisis, rate shifts were really the things keeping investors up at night. Read more
Cezmi Dispinar points to the below slide from a presentation by Heiner Flassbeck over at NachDenkSeiten. It’s all in German, and it’s about eurozone monetary policy, but stick with it!
… the tightening cycle at the ECB that is.
China raised interest rates for a fourth time in five months on Tuesday, highlighting Beijing’s push to reduce bank lending, rein in inflation and slow growth, the FT reports. The central bank said the official one-year lending and deposit rates would increase by 25bps from Wednesday, raising the deposit rate to 3.25% and the lending rate to 6.31%. Analysts said the rise came sooner than many anticipated and suggested that consumer price data for March, due next week, are higher than expected. China’s inflation rose an annual 4.9% in February, the same as in January. But politically sensitive food prices accelerated and producer prices increased 7.2% - the most since October 2008. The WSJ cites economists saying China may be nearing the end of its tightening efforts. Read more
Boring title, we know. But stick with us ’cause there’s all sorts of thematic points in here — from sovereign debt crises to the weakness of short-term financing to interest rate shocks.
After the financial crisis, governments sought to avert depression by bailing out their banks and upping their spending. Fast forward a couple years and now you’ve got all these heavily indebted countries — the UK, the US, Japan — who will be fighting to shrink their debt burdens in the near future (hopefully). Read more
Ireland has made an unwelcome name for itself as a country where a state and financial system have become most uncomfortably entwined — the sovereign-bank loop on steroids, if you will.
Just think of that Emergency Liquidity Assistance (ELA) which sees the Irish central bank accepting far dodgier collateral in return for loans to banks than the European Central Bank’s own-brand of repos. Or the Eligible Liabilities Guarantee (ELG) scheme — in which the Irish state guarantees certain bank deposits plus new bank debt securities issued with a maturity of up to five years. Or Irish banks issuing Ireland-guaranteed (i.e. ELG) bonds to themselves to use as collateral at the ECB’s facilities. Read more
The European Central Bank faces an international backlash this week, when, in spite of the eurozone debt crisis, it is expected to raise interest rates and to consider ways of weaning the weakest banks off its offers of unlimited liquidity, the FT says. Plans by the ECB to tighten monetary policy before the US Federal Reserve and Bank of England were criticised at the weekend as premature and potentially dangerous by economists. For instance, Bloomberg reports that Ernst & Young said a rate rise “could potentially endanger the fragile economic recovery in the eurozone.” Greece’s finance minister also voiced concern. Read more
We have all the tools we need to achieve a smooth and effective exit at the appropriate time.
Friday’s decent jobs report and accompanying hawkish cacophony have encouraged further talk about when the Fed will raise rates and revert to a place called normalcy. Read more
*WARNING*
This is another dose of Taylor Rule-based eurozone interest rate hindsight. But it’s a dose of interest rate hindsight that comes with a bit of foresight too — given the market is positioning for a rate rise by the European Central Bank sometime this year. Read more
Older entries
1Bernanke weighs in on robot wars; brings Keynes for backup
2Secret liquidity and Scottish independence
3Spain's awful unemployment
4S&P 2,100, by Goldman Sachs
5Pump up, debase
Show more6Buyback to enrich
7Collateral crunch-counting gets sophisticated
8Everlasting credit, the long view
9Apple Operations International, facts (?) du jour
10In which the FTSE puts the crisis behind it
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