The Bond Trap

"The American financial establishment has an incredible ability to celebrate the inconsequential while ignoring the vital. Last week, while the Wall Street Journal pondered how the Fed may set interest rates three to four years in the future (an exercise that David Stockman rightly compared to debating how many angels could dance on the head of a pin), the media almost completely ignored one of the most chilling pieces of financial news that I have ever seen. According to a small story in the Financial Times, some Fed officials would like to require retail owners of bond mutual funds to pay an "exit fee" to liquidate their positions. Come again? That such a policy would even be considered tells us much about the current fragility of our bond market and the collective insanity of layers of unnecessary regulation."

http://www.europac.net/commentaries/bond_trap

Five explanations for Greece’s bond yield

"The biggest news in the sovereign debt world this week has come from Greece, which managed to sell some €3 billion in new 5-year bonds at a yield of just 4.95%. This is not what you might expect, given the macroeconomic situation:

Greece’s debt currently stands at about 320 billion euros, or 175 percent of GDP. It is rated nine notches below investment grade at Caa3 by Moody’s. Standard and Poor’s and Fitch rank Greece six notches below investment grade at B-.

So, how does one explain investors’ appetite to buy this debt at such low yields?"

http://blogs.reuters.com/felix-salmon/2014/04/11/five-explanations-for-greeces-bond-yield/

Lessons from the Greek PSI

"Lesson 4 (Biggest Lesson of Them All): Prolonging an unavoidable debt re-structure makes the problem far, far worse, especially when a bailout is given in order to shift bad assets from the banks’ books to the taxpayers on condition of austerity that causes both the private and the public sectors to shrink. Introducing a PSI after this sinister error is implemented, while exempting the official sector that implemented it (including the ECB’s SMP bond purchases), is to add insult to injury. And to make a much larger OSI more pressing and more painful for future governments around Europe."

http://yanisvaroufakis.eu/2014/03/12/lessons-from-the-greek-psi/

The Mystery of Treasury Yields and Stock Market Valuation

Krótki tekst dla wszystkich rozważających decyzje inwestycyjne w oparciu o mnożniki agregowane dla całego rynku.

"The relationship between the 10 year treasury yield and the PE ratio on the S&P 500 is unstable overtime.  In theory, investors should pay more for stocks when rates are low and less for stocks when rates are high.  However, the equity risk premium tends to cloud the relationship between treasury yields and the PE ratio, and empirically speaking the relationship between stocks and interest rates is much looser than we would like to think."

http://www.zacks.com/stock/news/110396/The-Mystery-of-Treasury-Yields-and-Stock-Market-Valuation

Surprise - US Policy Reduces Trading Volumes AND Liquididty In The US Treasury Market - BRAVO

"The US Federal Reserve Bank has been easing quantitatively (QE) for 4 years now, since 2009.  Over this period, average daily trading volume in the US Treasury market has reduced from 500bln 10yr equivalents per day to 350bln 10yr equivalents.  350bln 10yr equivs may still seem like a big number...but this is a 30% decrease in trading volumes, and that is a reduction not only in volume, but liquidity.  Some readers out there might think"so what?" or "whats the big deal if the US Treasury market is less liquid than it used to be?"  The answer rests in the ultimate lenders of capital, and the structure of the Treasury market which is of great concern to participants of this market.  Investors (yes, a rarely used word these days) prefer to invest in assets that are liquid, especially when that asset is designated as a "risk free" asset.  Liquidity = ability to enter / exit at tight spreads without affecting the market price for the security.  (...)

The market is a discounting function, in that it discounts future expected values in the current price of assets.  This means that ultimately, when the market realizes that the Fed cannot exit its QE position (i'm amazed this hasn't happened yet), the discounting function requires the price of UST debt to drop, yields to rise, and the currency to cheapen.  And here is where the Fed holding a sizable portion of all outstanding UST debt becomes both a problem, solution, and problem again."

http://govttrader.blogspot.com/2013/11/surprise-us-policy-reduces-trading.html

Sovereign precariousness

"Bond spreads, along with their close cousin credit default swaps, are a beautifully linear measure of sovereign default risk. They go up in a straight and steady line: the higher the number, the riskier the country is perceived to be. And so they’re normally the first and last place that people look when they’re interested in the chances of any given country defaulting.

But of course the world isn’t quite as simple as that, and — as we have learned the hard way — it’s the unexpected defaults which are the most damaging. (...)

What we did was to take a country’s primary deficit — the amount it needs to borrow every year to finance its operations — and add on its total annual debt service. We then took that number and divided it into the country’s total foreign reserves, to get an idea for the length of time that sovereign reserves would be able to fund not only operations, but also all of the country’s debt service requirements.

The results are quite startling.(...) Japan would have only about 14 days."

http://blogs.reuters.com/felix-salmon/2013/11/02/chart-of-the-day-sovereign-precariousness-edition/

Polska łaskawie godzi się wyemitować kolejne obligacje

"Dziś mieliśmy w Polsce okazję zaobserwować po co rząd emituje obligacje. Szeroko rozpowszechniona wiedza mówi o tym, że emituje po to aby finansować deficyt budżetowy, inaczej mówiąc – rząd nie ma wyjścia i musi emitować obligacje, bo inaczej zabraknie mu pieniędzy. Czyli jest w sytuacji dość przymusowej i trudnej.

Jest jednak jeszcze jeden powód, który czasami staje się nawet powodem najważniejszym. Rząd emituje obligacje, bo są one potrzebne na rynku. Inwestorzy bardzo chcą, żeby rząd je wyemitował. To oni są w sytuacji przymusowej i trudnej, a nie rząd. Rząd jest w sytuacji dość luksusowej. Co więcej czasami rząd jest na tyle uprzejmy, że konsultuje z rynkiem to jakie konkretnie ma obligacje wyemitować. Tak właśnie dzieje się dzisiaj w Polsce."

http://rafalhirsch.blogspot.com/2013/08/polska-askawie-godzi-sie-wyemitowac.html

Bond Rating Agency Decided To Try To Rate Some Bonds

"What does a AA credit rating mean? The intuitive answer is something like “it means that the rating agency rating the thing thinks it has a probability of default no higher than X% and no lower than Y%,” where X and Y are the boundaries of AA- and AA+ respectively, and sure, that’s about right. But there’s an important loophole there which is that each rating agency can set X and Y to be whatever they want."

"Not really however they want, though, since issuers hire ratings agencies to rate bonds, and if you rate everything CCC you won’t get asked to rate anything, and if you rate everything AAA you also won’t get asked to rate anything, because it turns out that a AAA rating from Joe’s Optimistic Ratings Shack doesn’t actually help sell bonds. The trick is to be roughly in line with peers, but with enough apparatus and fiddling and occasional divergence to make it look like you’re engaged in an exercise with some intellectual integrity rather than just copying off someone else’s test."

http://dealbreaker.com/2013/08/bond-rating-agency-decided-to-try-to-rate-some-bonds/

Papiery dłużne Ameryki Łacińskiej na TOPIE

Interesujący artykuł na temat obligacji skarbowych i obligacji przedsiębiorstw krajów Ameryki Łacińskiej. Szczególnie ciekawe jest to, że inwestorzy nie zwracają uwagi na ratingi (które są najczęściej poniżej klasy inwestycyjnej), nie przykładają też wielkiej uwagi do polityki i problemów rządzących. Siłą jest przede wszystkim stopa zwrotu, która mimo wszystko nie jest DUŻO większa od stóp procentowych krajów rozwiniętych. Mimo to papiery cieszą się wielką popularnością.. 

"(...) Kolumbia przeprowadziła emisję dziesięcioletnich obligacji o wartości 1 mld dol. dla zagranicznych inwestorów. Oprocentowanie sięgało zaledwie 2,7 proc., co oznacza 88 punktów przebicia w stosunku do dziesięciolatek amerykańskich, a jednak nadsubskrypcja była trzykrotna."

"Oprocentowanie wynosiło 4,2 proc., czyli zaledwie 110 punktów bazowych więcej niż podobnych obligacji emitowanych przez amerykański Departament Skarbu. Mimo to nadsubskrypcja była dwukrotna."

LINK: http://www.obserwatorfinansowy.pl/forma/analizy/papiery-dluzne-ameryki-lacinskiej-na-topie/