IFR's daily digest of views & news for capital markets professionals
DERIVATIVES: Sinking yields see exotic yen products return
Banks have returned to selling Japanese investors a breed of exotic long-dated structured products that inflicted hefty losses on many dealers in the 2008 financial crisis.
IFR Comment: Tapering QE in the context of dual mandate
When it comes to the tapering debate what we have is a picture of a Fed that lacks consensus. The most important core group led by Bernanke plays a pivotal role in mapping out a strategy and the testimony highlights that based on the Fed’s dual mandate there is some distance before the conditionality of tapering QE is met.
DERIVATIVES: Gold fall spurs hedging re-think
The recent sharp drop in the price of gold may encourage miners that are feeling the squeeze on their margin production costs to undertake a dramatic u-turn and open up hedge books once again, although bank overtures are likely to meet stern resistance from clients after years of shunning hedging programmes.
IFR Comment: Too many one-way bets, tapering/China an excuse
In an attempt to rationalise the price action it is easy to blame the data out of China overnight, Fed tapering debate or even the lack of any new initiatives from BoJ. But the simple truth is likely to be that the market was positioned one-way and it creating a scramble to cut exposure making a correction look a lot more frightening.
On sequels, selloffs, tightening cycles and the Force
Same movie, different script? The one way traffic which we have been watching for the best part of six months suddenly hit the buffers in a twelve-hour period with some unsettling words from Federal Reserve President Ben Bernanke and a less than sparkling HSBC Manufacturing PMI out of China which, at 49.6, indicates actual contraction. However, it was the Nikkei that took it on the nose.
UK regulator fines JP Morgan £3m for bad advice
(Reuters) - Britain’s Financial Conduct Authority (FCA) said it has fined JP Morgan £3.08m for being unable to show it was giving clients the right advice.
Japan joins global risk parade
The Nikkei’s drop is an overdue correction, says Breakingviews, but the sell off is down to US and China concerns. Being a safe haven has its drawbacks.
BONDS: Malaysia leads way in Basel III debt
Malaysia is poised to play host to Asia’s first public issue of loss-absorbing bank debt since the region began the transition to Basel III standards earlier this year.
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IFR Comment: Fed tapering bar higher than thought
The key takeaway from Bernanke’s testimony is that the near-term bar for tapering is a little higher than we were led to believe by recent Fed speakers.
Japan rates may torpedo recovery
Spiking interest rates in Japan threaten to undermine, and possibly end, the recovery being engendered by Abenomics.
IFR Comment: BoJ - Flexibility and frequency
Governor Kuroda, after the BoJ meeting, says the central bank will react to JGB moves with flexibility in pace and frequency of purchases. This is largely consistent with what we’ve seen most recently with the BoJ willing to conduct greater buying than was expected in order to put a lid on volatility. But this almost implicit strategy of frontloading purchases does not sit comfortably with a desire to maintain its plans to buy around ¥50trn in debt annually.
Portugal plunders pension fund to tackle debt cliff
The Portuguese government plans to tap nearly all of its state-owned pension fund to ease it over the hump of a hefty €27.5bn of financing needs over the next two years, according to domestic news reports.
On the EU, Swiss secrecy, Soviet-style sins and Apple
Swiss Invest strategist Anthony Peters compares the EU’s strong-arming of Switzerland over banking secrecy with Moscow’s Cold War treatment of Eastern Europe… and other taxing matters.
UK regulator says satisfied with Lloyds, RBS capital plans
(Reuters) - Britain’s financial regulator said it had finalised capital requirements for Royal Bank of Scotland and Lloyds Banking Group and was comfortable with their plans.
IMF urges Britain to do more to boost growth
(Reuters) - Britain’s government should spend more now to fund investment and steer its economy back to recovery, the International Monetary Fund said on Wednesday, a call unlikely to be heeded by finance minister George Osborne.
From this week's IFR Magazine
Released on Fridays
16:00 London / 11:00 New York
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Upfront
Emerging into the mainstream
Bankers who work in emerging markets debt have long argued that it is not a niche product that’s here today, gone tomorrow, but a richly nuanced, sophisticated and dynamic asset class.
Top News
Record trades as EM goes mainstream
By raising a combined US$14.25bn in one day, Brazil’s Petrobras and Indonesia’s Pertamina underscored the enormous bid for emerging market credits. The two oil trades generated nearly US$60bn in demand between them, endorsing the asset class’s place in a global credit market that was once the sole domain of G7 borrowers.
Yield frenzy propels peripheral funding
Concerns at the start of the year that the eurozone’s flagging peripheral countries would struggle to fulfil their hefty funding programmes in the capital markets were quelled last week, after Spain and Italy passed the halfway mark of their scheduled 2013 funding with oversubscribed benchmark deals.
Foreign banks see red in China
The many global banks that have established securities joint ventures in China knew their investment would take time to pay off. The latest numbers, however, show that process may be taking longer than expected.
New CDS trigger event to tackle bail-in
ISDA is consulting on a proposal to add another credit event for financial CDS, in order to adapt to sweeping changes in regulation that will give supervisory authorities the power to bail in the debt of floundering institutions.
Tesla's dual offering heads to US$1bn
Tesla Motors always was, and will be for some time, a story stock requiring investors to whole-heartedly embrace founder Elon Musk’s long-term vision to justify current valuations. Fresh off its first-ever quarterly profit, the electric car maker not only enlisted a legion of supporters but drew in some critics in the process by securing more than US$1bn of fresh equity.
Commerzbank rights issue defies gravity
Hedge funds were caught short in the first stage of Commerzbank’s €2.5bn rights issue as the sale of ex-rights shares by the government did not provide the expected opportunity to close positions. Shorting Germany’s second largest bank by assets was a popular and easy trade in recent weeks, but its success in driving the share price down by nearly 30% took it to a valuation level that generated real interest from long-only investors.
Fitch throws CMBS hand grenade ahead of SEC meeting
Fitch shook up the US securitisation market last week when, on the eve of a long-awaited US SEC public roundtable on credit rating industry reform in Washington DC, it issued an unsolicited comment lambasting the Triple A ratings given by two of its rivals to a new single-asset CMBS linked to a trophy Manhattan office building.
French plot secured lending fusion to fund SMEs
The Banque de France and the large French banks are working on fusing securitisation and covered bonds to boost access to funding for the country’s SMEs, creating a mechanism to help banks use their SME books more efficiently at the repo window. BNP Paribas, Credit Agricole, Natixis, Societe Generale and possibly others are working on the proposals.
Ally removes ResCap obstacle
Ally Financial is finally able to move forward with plans for an IPO to pay off the remaining US$11.1bn of bailout money it still owes the US government, now that it has reached agreement with its bankrupt mortgage subsidiary Residential Capital.
Hedgies gear up to enforce workouts
Lawyers are seeing a marked increase in queries from hedge funds regarding the best choice of legal mechanism to cram down minority lenders in different jurisdictions in restructuring situations. The cash-rich funds are piling into the debt of potentially distressed names such as Frans Bonhomme, which entered talks with lenders last week.
All-Asia buyout buoys confidence
The all-Asian line-up of arranging banks and sponsors on the US$890m leveraged buyout of Chinese software and IT firm AsiaInfo-Linkage is a first in the region. The US$330m debt package underlines the development of Asia's loan market and a growing acceptance of Chinese buyout structures.
SEC revises CDS cross-margin approach
A heated disagreement over CDS margin requirements is edging towards a conclusion after the SEC presented a new proposal to the Interc ontinental Exchange and a handful of CDS clearing banks relating to cross-margining of single-name and index CDS positions.
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IFR Germany Special Report 2013
Germans like to think of their economy as the “engine” of the eurozone: when it comes to bailouts for countries such as Cyprus it is to Berlin that its currency partners turn. But this role of eurozone champion, and backstop, is not universally appreciated by either the German electorate or those of the rescued countries.
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