This is what you get when you try to sidle up to some market pricing alongside a giant ball of money.
It’s to be read while keeping an eye on the property market — What’s that? Property prices for Tier 1 and 2 cities are still rocketing and mortgages are up 75 per cent year on year in q1, you say? — and the rise of defaults in the corporate bond market.
Are you a bank agonising over whether to keep your triple A-rated covered bonds as part of your liquidity buffer or send them to the European Central Bank? Not sure what to do with your AA-rated non-financial euro corporate debt?
Then you need this handy table from BofAML’s structured finance guru, Alexander Batchvarov. Read more
According to the list of emerging and frontier sovereign debt covered by the specialists at Exotix (and Exotix cover a lot) the 10 per cent foreign-currency yield might be dying out (click to enlarge):
The Spanish auction results are out…
RTRS -SPAIN SELLS EU5.64 BLN OF BILLS VS MAXIMUM TARGET OF EU4.5 BLN Read more
The price action in on Italian bonds on Monday, that is.
There was a rather concerning auction of Spanish bills on Tuesday morning. Rarely does the front-end of the curve get this much attention.
Via Reuters: Read more
Italian bond yields are falling — the 10-year’s below 7 per cent:
Yield, like love, can cause trouble when you search too hard for it.
Paul Fisher, executive director for markets at the Bank of England, on Wednesday gave a speech surveying the current state of financial markets. Read more
Uh oh. This is worrying.
From Standard Chartered’s latest credit research report on Friday: Read more
It’s the clash of the high-yield press releases this Wednesday.
Here’s Standard & Poor’s, with a new high-yield report published at 9.55am London time: Read more
After numerous false starts, China appears to be buying fewer US assets.
At least, according to the analysts over at Standard Chartered. Read more
AIG is back on Wall Street.
Fresh from failing to acquire its own portfolio of dodgy deals from the Federal Reserve — AIG’s Mortgage-Backed Securities (MBS) were acquired by the US central bank during the crisis and transformed into Maiden Lane II — the bailed-out insurer has a new strategy to lure investors to its stock after last month’s ‘re-IPO.’ Read more
Prices on a key subprime bond index have doubled since the low of the financial crisis they helped cause, as investors search for yields from subprime and RMBS, reports the WSJ. Prices have risen from 30 cents on the dollar to roughly 60 cents. As part of the quest for yield, investors are also seeking nonagency bonds, which are not backed by Fannie Mae or Freddie Mac, in addition to subprime. A revival in jumbo mortgages with lower interest rates also reflects investors’ return to the market. The Fed’s sale of Maiden Lane II portfolio assets will increase investor interest, with four major life insurers considering purchases, sources told the Journal.
Here’s an interesting view.
Is the search for yield getting in the way of all rational sense in the market? Read more
A pullback in yields and the dollar is giving a lift to risky assets, though an eye remains toward the eurozone fiscal saga and the run-up in bond yields that have been crimping seasonal bullishness, the FT reports. The FTSE All-World equity index is flat, following a soft showing in Asia, but the S&P 500 index has reached a new 26-month high at 1,243, up 0.6 per cent on the session. An eagerly anticipated auction of Spanish debt has provided ammunition for stabilisation of the euro. Madrid managed to secure €2.4bn of funding from the sale of 10- and 15-year bonds. There was decent demand, though only after yields were pushed sharply higher to reflect investors’ concerns about the country’s budget difficulties. But the euro has managed to climb to flat, helped by a strong German manufacturing survey. News that the European Central Bank will almost double its capital to €10.76bn in order to help it combat market volatility also provided support.
What does this chart mean to you?
A plan for a plan is not a plan, says HSBC on Friday.
And this is the reason why QT is the risk now, not QE. Read more
The market for Collateralised Loan Obligations — those sliced and diced business loans — may have only just reopened, but boy, has it evolved!
News came on Tuesday that JP Morgan is revising the $400m CLO arranged for Apollo Management; reducing the triple A-rated tranche by $1.75m, and increasing the triple B-rated tranche by $4m. The reason, presumably, is investor demand for those riskier, higher-yielding, slices. The structure should now look like this: Read more
A data point, in the relentless search for yield.
The bottom tranches of Granite — the mortgage securitisation vehicle of Northern Rock — crossed the 50 price level for the first time last week. This is, quite literally, the detritus of the Asset-Backed Securities world. A mezzanine tranche, in the master trust of a nationalised bank. There’s a rock bottom joke there somewhere. Read more
There was a nifty little Morgan Stanley note recently which took on all that ‘stocks are dead, long live bonds’ investor sentiment.
Nifty, because the bank did note short-term support for a return to equities (buybacks, bond bubble bursts) but remained cautious on long-term trends, further into the decade. Read more
Having told investors to buy up high-yielding Irish sovereign debt in September, Nomura’s analysts have come up with more discerning approach to protecting yield in a world of low, QE-struck core rates.
Buy Spain. Read more
Oh look, another European debt auction that was never going to fail.
Results from Wednesday’s Portuguese debt auction, via Reuters: Read more
This was an interesting Greek debt revelation on Tuesday:
(Reuters) – Foreign investors bought most of Greece’s issue of 3-month T-bills auctioned on Tuesday, the head of the country’s debt agency (PDMA) told Reuters. Read more
In common with many investors, pension funds have a problem, which can be summed up in the following two graphics from UBS:
The world has become full of risk-averse investors, and stocks will suffer, says FT Alphaville. Wait — let’s edit that. The world has become full of yield preservers, and they will suffer stocks. Or — as is current fashion — stock dividends. However, there’s something of a temptation to equate dividends to buying stocks outright. But according to Lombard Odier, even though dividend yields are now reaching 10 year bond yield levels in the US, it’s a dangerous temptation. Read more
The bright side of bulging peripheral bond-bund spreads, courtesy of the strategists at Nomura (emphasis ours):
…as central bank policy provides more substantial support for the economy – especially via extensions of QE and liquidity measures – we see increasing carry opportunities in higher-yielding assets, e.g. investment grade credit and lower credit government bond and swap curves (EM and peripheral Europe)…
With the S&P 500 up nearly 4 per cent in two days, commodities prices firming, better-than-expected economic data, and core bond prices under pressure, some analysts are (already) seeing a rebound in risk appetite. Indeed, if US non-farm payrolls data for August — due later on Friday — reassure markets, as expected, the risk bulls will probably come out in full force.
All the more curious, then, that the “safe-haven currency”, the yen, is still riding strong, down from last week’s 15-year highs of nearly Y83 to the dollar but still hovering around Y84.38 — despite Japan’s latest political turmoil, constant threats of currency intervention by officials and lacklustre economic data. Read more
Time for some more flashing warning signs, just in case anyone was getting bullish and considering catching a falling knife.
This time the signals are in Europe, where debt market stress is rising again, says RBS. Read more
Bond yields are falling, falling, falling . . . but global equity markets simply don’t seem to care, says FT Alphaville. Global stock prices have rallied 6 per cent over the past six weeks, while global bond yields have fallen a collective 25 basis points, according to Citi research. That’s rather contrary to their relationship over the past decade, or so. And yet, we have seen divergences before — specifically in the dreary days of 2009. Read more