An earlier guest postby Manmohan Singh, senior economist at the IMF, argued that it is not likely that the market will be allowed to bid for the entire Fed balance sheet, as repo rates need to be contained before lift-off. In this follow-up he suggests that the Fed’s RRP (reverse repo program), if done in size, will rust the market plumbing. Views expressed are his own and not that of the IMF or IMF policy. Think of the bilateral repo market via the analogy for old clothing trade: Typically, merchants in developed countries shrink wrap old clothes in shipping container sized bundles (under pressure) and send the plastic wrapped block to poor countries. There, a clothing broker buys it, and resells it by weight to jobbers. So if the block weighs 500 pounds and they sell it in 10 pound lots, all 50 people gather around. But some people pay slightly more to be at the front of the crowd, and some pay slightly less to be at back. Then the jobber pops the bundle open with a big knife and the shrink wraps literally explodes; everyone gathered around jumps for the best pieces.
The IMF has picked its week to publish another paper on changing its sovereign debt restructuring policy… Although the paper released on Friday — which follows an initial review last year — isn’t about Argentina, pari passu, and holdout issues. It’s about Greece.
Earlier this month South Korea sold $1bn of US dollar denominated debt due in June, 2044. Issued at a spread of 72.5 basis points over a 30-year Treasury, eager buyers have since pushed the spread down to just 46 basis points. Such is the demand for income in any form. Some might wonder if there will be periods in the 2020s, or 2030s even, when the owner of such a bond might wish they had bought, for only half a percentage point less, securities which trade in a market of far greater depth.
A tick up in sovereign bond yields has followed Friday’s late announcement by the Portuguese Constitutional Court that some budget austerity measures are a no-no, for violating principles of equality and proportionality. Benchmark 10-year yields rose 7 basis points to 3.72 percent, according to Reuters, with weakness also seen in other euro zone peripheral government bonds. The FT notes the need for tax rises and, while the country has exited the official bailout programme, there are still risks to a further package of rescue loans.
There was no bald supervillain stroking a white cat, but other than that the City of London hosted a conspiracy theorists’ perfect scenario yesterday: a meeting organised by the Rothschilds, sponsored by the Rockefellers and with managers of $30tn, or more than a tenth of all financial assets worldwide, in the room. Even the British royal family was represented, essential for any decent conspiracy, although usually Prince Philip is preferred to the Prince of Wales. Perhaps there were shape-shifting reptilians present, as per David Icke. But if so, they were keeping their heads down: rather than discussing how to rule the world, the focus was on “inclusive capitalism”.
The currency devaluation and official borrowing (to help finance a still-wide government deficit) are expected to push public sector debt up to 57 percent of GDP… – IMF announcement of $17bn loan programme for Ukraine Although don’t worry — that’s a whole 3 per cent before a unique debt threshold clause conceivably allows the Russian government to convert $3bn of Ukrainian bonds, which it owns, into demand money.
From the National Bank of Ukraine: 15.04.2014 press release The National Bank has passed the decision to temporarily disconnect 14 banks from the System of Confirming the Agreements in the interbank foreign exchange market. The regulator resorted to this measure given the actions undertaken by these banks in the foreign exchange market that have a destabilizing effect on of the hryvnia exchange rate and create negative expectations about the future hryvnia exchange rate dynamics.
Here’s where another €2bn or so of freshly-issued Greek bonds would go. Chart via Citi: And that’s after the largest sovereign debt restructuring in history. Bracing isn’t it? And yet maybe Greece is better off paying up to issue a bond to private bondholders on Thursday. In the long run, it could well beat taking ‘free’ money from the Troika.
Holcim and Lafarge outline cement merger deal || BlackRock positions potential successors to Fink || Dropbox and Square raise new credit facilities || Nigeria almost doubles GDP in recalculation || Former adviser attacks European Commission over austerity || Markets
UK car sales hit decade high as demand zooms higher || Erdogan pushes for Turkey central bank to cut interest rates || Tesco’s finance director to leave || Anadarko to pay $5.15bn in pollution case || M Stanley hits back over Flash Boys row || BofA in talks to pay $800m in credit card case || Markets
This year’s IMF-World Bank Spring Meeting is likely to include discussion of proposals to change the fund’s policy on sovereign debt restructuring. Gabriel Sterne, senior economist at Exotix with IMF experience, and Charles Blitzer, Principal at Blitzer Consulting and a former IMF staff member, argue in favour of a case-by-case approach. _______________
Why is the euro so strong? There are plenty of reasons, but one additional factor has been confirmed by the latest data on global foreign exchange reserves: central bank buying. The euro’s share of global reserves, which dropped sharply when the single currency’s future was in doubt, has now been recovering for three consecutive quarters, according to quarterly figures published by the International Monetary Fund.
IMF pledges $14bn-$18bn rescue package for Ukraine || Ofgem orders probe into UK energy market || Fed rejects Citi’s 2014 dividend and stock buyback plans || UBS suspends six more forex traders || Fed stress test results to hit RBS’s Citizens division hardest || Markets
What to do when your creditor invades? Beyond its occupation of Crimea, Russia remains a lender to Ukraine — even as IMF teams ponder the Kiev government’s financial sustainability. Mitu Gulati, a law professor at Duke University, considers both sovereigns’ options. ________________
Markets: Disappointing economic data from Japan and a further decline in China’s currency had Asian equities falling out of favour on Friday. The renminbi, which is tightly guided by the Chinese central bank, has fallen as much as 0.83 per cent against the US dollar. This is the currency’s ninth day of declines. (FT’s Global Markets Overview and FastFT)
This post by Gavyn Davies has been cross-published at Gavyn’s own blog. The crisis in the emerging markets’ “fragile 8″, which threatened to sweep all before it a few weeks back, seems to have settled down almost as quickly as it erupted onto the scene. Investors are already asking whether it is now safe to enter the undoubted attractive valuations in the emerging world.
This is a guest post by Manmohan Singh, a senior economist at the IMF. Views expressed are his own and not those of the IMF. The idea of eliminating the present wedge between Fed’s reverse repo program (RRP) floor and the interest on excess reserves (IOER) is intriguing because such a change would only allow the Fed to set the price on such operation (P), and would leave the market to determine the quantity of reserves (Q) on Fed’s balance sheet (Gagnon/Sack proposal).
IMF expected to upgrade UK growth forecast to 2.4% || Tax crackdown on digital companies to be dropped || Elliott Associates increases stake in Celesio || Vladimir Antonov to be extradited to Lithuania || British internet providers rebuff attempt by govt to impede access to unlicensed gambling websites || Bankers prepare to list high street retailers || Wells Fargo bans employees from lending own money via P2P || Markets
US Congress agrees broad spending deal || Investment banks hail victory in Basel battle || Google makes bold bet on internet of things || Ashmore fund manager suffers $3.5bn of outflows || Fannie Mae warns of fall in US house prices || Sales surge at online retailer Asos || UK inflation slows to hit 2% target || Markets