Tag Archives: bond

German bond yields on course for biggest weekly rise in a decade

 

German government bond yields jumped on Thursday as a rout in euro zone markets worsened, putting them on course for their biggest weekly rise in over a decade.

Yields on 10-year German bonds — the bloc’s benchmark — rose as much as 20 basis points to hit 0.799 percent, their biggest daily rise since the middle of 2012.

As of 0930 GMT, yields were up some 38 basis points on the week, set for their biggest rise seen since at least 2004, according to Tradeweb data.

Other euro zone government bond yields rose 4-15 bps.

Strategists said the market capitulation which started last week was sparked by easing deflation fears and investor weariness with ultra-low yields.

“It’s a historical move that we’re experiencing – a continuation of the move we’ve seen in the past few days,” said Jean Francois Robin, head of strategy at Natixis. “The macro picture is getting better in Europe.”

 

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    'It sounds far-fetched, I know,” I wrote in this column in December 2007. “But the ultimate victim of this subprime crisis could be nothing less than the single currency’s existence”. Reading it today, the above statement seems pretty reasonable. Many mainstream analysts now recognise the huge stresses imposed by the…
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  • 55
    Source : http://www.project-syndicate.org/commentary/ecb-eurozone-economic-union-by-mario-draghi-2015-1 There is a common misconception that the euro area is a monetary union without a political union. But this reflects a deep misunderstanding of what monetary union means. Monetary union is possible only because of the substantial integration already achieved among European Union countries – and sharing a…
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  • 49
    The past week saw a dynamic in financial markets that, not long ago, would have been deemed quite unusual: Prices of all kinds of assets, from safe government bonds to risky stocks, rose together. German bunds and U.S. Treasuries gained, pushing yields lower, as the Standard & Poor's 500 Index…
    Tags: market, bonds, bond, markets, historical, picture, rise, week, yields, government
  • 48
    Can you guess where most Chinese nationals are in Europe ? The answer is Italy. Who lives where in Europe? Nationalities across the continent mapped People of many different countries are now living in Europe, with the continent's residents coming everywhere from Jamaica to Tuvalu. Using data from 2011 censuses we have mapped…
    Tags: europe, data

Why you should care about bonds even if everyone is talking about stocks

The US stock market gets all the attention, but the bond market is where the real fortunes are made. Chris Arnade, a former bond trader, describes the unsmiling, powerful markets that move companies and governments

On Wall Street, nearly everybody trades either stocks or bonds. Stock traders are the smiling guys with short hair, button-up blue Brooks Brother shirts, and dark navy pinstripe suits. Bond traders are the same guys, only without the smile.

Stocks do well when the world is doing well and bonds mostly do well when things are going badly. This makes bond traders widely disliked. It is not cool to smile when things are going badly for everyone else.

I traded bonds for 20 years. During that time, countless friends, relatives, friends of relatives, drunk strangers and strange drunks asked me: “What stock should I buy?”

Nobody asked me about bonds. Maybe I should have smiled more.

Stocks seem easy. They are a single price that tells a story on how a company is doing: Apple at $100? Great! Bank of America at $15? Not so hot.

Bonds don’t seem easy. They have a yield, they have price, they have maturity, and they have a coupon. There are government bonds, there are corporate bonds, there are bonds issued by cities. Bonds are individual contracts to pay back a debt. They have a lot of moving parts.

Stocks are how you make money and bonds are how you borrow money. Everybody likes making money, nobody likes borrowing money.

bonds
Specialist Henry Becker, left, directs trading at the post that handles AIG on the floor of the New York stock exchange. Stocks extended their decline and bond prices jumped a day after Wall Street’s steady collapse on the week of the crisis.

http://www.theguardian.com/business/2014/nov/03/bond-market-matters-talking-stocks

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  • 52
    U.S. Treasury yields and other interest rates increased in the months leading up to the Federal Reserve’s December 2013 decision to cut back its large-scale bond purchases. This increase in rates probably at least partly reflected changes in what bond investors expected regarding future monetary policy. Recent research on this…
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  • 50
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  • 49
    The European Central Bank announced some measures to ease monetary policy two weeks ago. The euro had been on a downtrend since May and by these measures the ECB increased its support to the economy. The result? Two weeks later, EUR/USD stabilized just above 1.35. This week’s Eurozone economic calendar…
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  • 44
    When we wait for ECB and BOE we get this news : BANK OF GHANA RAISES BENCHMARK RATE BY 200BPS TO 18%    
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Why Are Bonds and Stocks Acting Strangely?

The past week saw a dynamic in financial markets that, not long ago, would have been deemed quite unusual: Prices of all kinds of assets, from safe government bonds to risky stocks, rose together. German bunds and U.S. Treasuries gained, pushing yields lower, as the Standard & Poor’s 500 Index approached its all-time high.

The movements continued to confound the once-traditional pattern, in which bond prices rise and stock prices fall when investors expect the economy to perform poorly, and vice versa. There are various explanations, some more consequential than others.

One interpretation is that investors expect hyperactive central bankers to remain their best friends, buoying markets with continued unconventional policies. Last week’s disappointing economic data out of the U.S. and Europe would support this view, putting pressure on the Federal Reserve and the European Central Bank to be more accommodative than they otherwise would.

By demonstrating a consistent willingness and ability to contain market volatility and bolster the prices of financial assets, essentially divorcing equity performance from that of the underlying economy, central bankers have managed to bring more money off the sidelines and into the market. Lower borrowing costs have also boosted companies’ actual profitability, allowing them to return more money to shareholders in the form of dividends and share buybacks, as has the notion that we are in a lower historical interest-rate paradigm.

That’s the optimistic view. It is also valid and, given how well it has played out, deeply entrenched in markets. But it may be only part of a less comforting explanation relating to the view that, at current valuations, bond investors may be reacting to something that the stock market has yet to recognize.

Bond investors tend to be more risk averse than equity investors, and thus reposition earlier in response to a higher probability of a market selloff. This is in part because they are more focused on the macroeconomic picture, and in part because bonds have a different risk-reward profile: They ultimately pay only their face value, whereas stocks can keep going up.

This interpretation is bolstered by the fact that the stock market is also subject to demand influences that could prove temporary. The boom in merger and acquisitions, for example, has pumped a lot of cash into the market, helping to push prices higher than what the performance of the economy would justify.

If this complementary interpretation is correct, it’s just a matter of time before the correlation between risky and riskless assets starts returning to its historical pattern. The hard part is specifying the timing, especially as it relates to a crucial psychological question: When will investors lose faith in central banks’ ability to keep bolstering the economy through higher financial asset prices?

To contact the writer of this article: Mohamed A. El-Erian at

M.El-Erian@bloomberg.net.

Source ::  http://www.bloombergview.com/articles/2014-08-18/why-are-bonds-and-stocks-acting-strangely

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    Bond investors hungry for yield have pushed further and further into high-risk territory and Pimco sees five warning signals that credit markets are getting overly frothy. "The lower reaches of the credit market have become particularly stretched," Christian Stracke, global head of Pimco's credit research group, said in a note last…
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  • 56
    (Reuters) - Argentina said on Tuesday it would meet with a mediator for the second time this week in the country's dispute with "holdout" investors, lifting market hopes for a deal needed to avoid another painful debt default. With the economy already in recession, President Cristina Fernandez's cash-strapped government has…
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The Bond Market Explained for Mohamed El-Erian

On Thursday Mohamed A. El-Erian was on CNBC`s Halftime Report and he said something that a lot of people have been saying regarding the bond market, and it needs to be cleared up, because the amount of poor understanding regarding the bond market by people who make their living, i.e., are in the financial market business is astounding. It is even more mind blowing given that Mohamed A. El-Erian actually worked at a Bond Firm in PIMCO, and helped manage Harvard` s endowment in the past.

http://www.econmatters.com/2014/08/the-bond-market-explained-for-mohamed.html

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Watchup :: Argentina to meet again with debt mediator, bonds rise

(Reuters) – Argentina said on Tuesday it would meet with a mediator for the second time this week in the country’s dispute with “holdout” investors, lifting market hopes for a deal needed to avoid another painful debt default.

With the economy already in recession, President Cristina Fernandez’s cash-strapped government has until July 30 to reach an agreement with hedge funds who refused to participate in the country’s earlier debt restructuring and have been suing for full repayment of sovereign bonds which Argentina defaulted on in 2002.

On Argentina’s local over-the-counter market, benchmark Discount bonds ARDISCD=RASL rose 1.60 percent to 88.65 while Par bonds ARPARD=RASL were up 1.32 percent to 49.90. Traders cited optimism over the talks as the reason for the climb.

Argentina’s cabinet chief Jorge Capitanich did not say whether the holdout funds led by Elliott Management Corp and Aurelius Capital Management would participate in Friday’s meeting. There was no immediate comment from the funds.

Other holdout investors with over $6 billion worth of unrestructured Argentine debt have started organizing negotiating committees, encouraged by Buenos Aires’ stated desire to settle with 100 percent of its creditors.

The government has said that settling with funds led by Elliott would carry the risk of opening Argentina to a slew of suits from other holdouts.

On Monday, Argentina’s Economy Minister Axel Kicillof spent four hours discussing the case in New York with the mediator, Daniel Pollack, who was appointed by U.S. District Judge Thomas Griesa to find common ground in the years-long dispute.

“It was agreed to continue this meeting on Friday,” Capitanich said. “It has been an intense dialogue.”

Kicillof flew back to Buenos Aires on Tuesday and described the session with Pollack as “an important advance”.

“We will go back on Friday,” Kicillof told reporters.

In the last few months Kiciloff has settled long-standing disputes with the Paris Club of creditor nations and Spanish oil major Repsol (REP.MC) in a bid to lure investors back to Argentina.

But his stance toward the holdouts was anything but conciliatory on Tuesday. “They are trying to extort a sovereign country,” he said in a statement on the presidential website.

Without a deal this month, a court ruling by Judge Griesa would prevent the country from making coupon payments to creditors who accepted a large writedown on their debt holdings after 2002. That would put Argentina in default.

PAYMENT IN LIMBO

More than 92 percent of creditors accepted less than 30 cents on the dollar in restructurings worked out in 2005 and 2010. The holdouts shunned those terms and sued for full repayment plus interest, but they say they are willing to negotiate with the government.

Judge Griesa blocked a June 30 coupon payment that Argentina tried to make on the restructured bonds, triggering the start of a 30-day grace period ending July 30.

Argentina is being pushed into talks after refusing for years to negotiate with the holdouts, portraying them as “vultures” circling the corpse of the country’s 2002 default as most bought the bonds in the secondary market at a discount.

Fernandez’s government says Griesa overstepped his powers by blocking the coupon payment.

Argentina published a two-page legal notice in the New York Times on Tuesday, saying it “duly deposited the amounts of interest due on the New Debt Securities issued within the framework of the 2005 and 2010 Sovereign Exchange Offers.”

It said that Bank of New York Mellon, the trustee bank, is required to distribute those funds to bondholders, calling BONY Mellon’s failure to do so a “violation of its obligations”.

BONY Mellon had no comment on the legal notices from the government. A source with direct knowledge of the situation said the bank will file a motion to Judge Griesa on Thursday seeking guidance on what it should do with the money.

(Additional reporting by Jorge Otaola and Richard Lough in Buenos Aires and Daniel Basesin New York; Editing by Andrew Hay)

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Wall Street’s Worst-Case Scenario: A Run on Bonds

All it takes is a few mouse clicks to buy shares in the Scout Unconstrained Bond Fund (SUBFX), an exchange-traded fund that tracks a concoction of debt tied to the government, financial firms, mortgage pools, and other entities.

And all it takes is a few mouse clicks to sell—something that has begun to worry Wall Street. Since the financial crisis, $900 billion has flowed into bond mutual funds and ETFs such as Scout Unconstrained, bringing the industry’s total holdings to $3 trillion. Fund investors who sell shares get their money back almost immediately, as if they were making a withdrawal from a money-market fund. The bonds that the funds own are far less liquid, often trading in telephone conversations or e-mails between brokers, away from exchanges. If too many people decide to get out of bond funds at the same time, the wave of selling could lead buyers to sit on their hands, bringing the system to a halt.

In the aftermath of the financial crisis, the Federal Reserve has kept short-term interest rates near zero to spur borrowing and boost economic activity. The unemployment rate has fallen to 6.3 percent, below the Fed’s target of 6.5 percent, and the central bank is curtailing its easy-money policies, reducing the amount of bonds it buys each month and getting closer to raising its benchmark interest rate. Economists surveyed by Bloomberg say rates could rise as soon as the end of this year.

http://www.businessweek.com/

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The Government Debt Ponzi

Dysfunctional Bond Markets – A Comparison of Yields

Below we show the 10 year government bond yields of three countries: Spain, Japan and the United States. Also shown are budget deficits and total public debt as a percentage of GDP. It would actually make more sense to look at deficits as a percentage of tax revenues. The comparison of debt to GDP seems not to make a lot of sense intuitively, as governments cannot pay their debts out of ‘GDP’, but only out of tax revenues (note also that there are slight differences in the GDP calculations).

Anyway, the point is mainly to compare the three countries, as both Spain’s and Japan’s bond yields essentially reflect zero risk at this point. In fact, investors seem to assume that the combination of inflation risk and default risk in Spain and Japan is lower than in the US, which strikes us as slightly absurd, if only for “technical” reasons. An overview of annual CPI rates of change is shown as well.  Also included above the bond yield charts are the credit ratings assigned by the three big credit rating agencies (in this order: S&P, Moody’s, Fitch).

http://www.acting-man.com/?p=31039

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European bonds signaling trouble?

The quick move higher in the yields of Europe’s weakest sovereigns from historic lows may be just the beginning and on the edges it could start to affect other low-rated credits where investors have hunted for yield—such as U.S. junk bonds.

Driven by speculation about the European Central Bank and selling by major investors, the prices of peripheral European bonds have been weakening since last week. As a result, the yields of sovereigns—Spain, Italy, Greece, Portugal and Ireland—have all moved higher, while the core German bund yield has edged just slightly higher.

The 10-year Spanish bond, for instance, was yielding 3.008 percent Tuesday, after reaching a low of 2.832 percent last Thursday, its lowest level in 20 years. As investors sell, Greece’s 10-year yield is creeping back toward 7 percent, after making a four-year low of 5.85 percent in April.

http://www.cnbc.com/id/101690083

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  • 73
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  • 73
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Would you buy a bond that outlives you?

Why would anyone want to buy a bond that last longer than they do?

These ultra-long-dated assets fell out of favor in the fallout from the financial crisis, as investors shifted to shorter-duration bonds to protect them against unpredictable spikes in interest rates. But now the “century bond” is returning to prick investor interest.

Canada has become the latest to sell long-dated debt, with its auction of 50-year bonds. At the sale of bonds maturing in 2064 earlier this week, the Canadian government doubled the minimum target size of the sale, raising $1.36 billion.

Century bonds tend to be issued by governments and well-established companies, but both have to pay a premium to investors over a 30-year bond, which tends to the longest dated debt available from most firms.

 

http://www.cnbc.com/id/101631721

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