Monthly Archives:

February 2007

Codswallop – Aaa ratings all round

The credit rating agency Moodys this week released the initial output from its widespread review of the banking sector. Whilst the expected outcome had been for a number of banks to benefit from upgrades to their ratings, the market was taken aback by the initial set of rating revisions. The process is set to take place over seven weeks and will cover approximately 1,000 deposit taking banks in… Read the article

The long term effects of PE

Private Equity (PE) funds have been in the news for all sorts of reasons recently. On the one hand these ‘locusts’ are under attack from unions, but on the other they are praised by the head of the CBI. While there may be changes to their regulation or disclosure requirements, one thing is certain: the amount of money they have raised and continue to raise will make them a significant influence… Read the article

Record bank lending – inflationary pressures remain

Not since I began working in the City in the mid 1980s can I remember seeing an economic data release come out so many billions higher than market expectations. Yesterday morning, it was announced that so-called M4 lending, which is the amount of money in loans that is pumped out by banks, jumped to a new record of £31.7bn in January. A survey of economists had predicted a figure of £11.8bn – t… Read the article

Headwinds facing the US Mortgage Market?

US sub-prime mortgages, those mortgages targeted at consumers with impaired or low credit ratings, have been the talk of the bond markets last week. The sub-prime market has grown significantly in the last few years spurred on by favourable circumstances including a falling unemployment rate, generally rising house prices and ever more accommodative lending practices. That willingness amongst l… Read the article

February’s Inflation Report – another hike to come, but greater uncertainty

The latest Bank of England Inflation Report shows that the MPC believes that one more rate hike (to 5.5%) should be enough to send CPI back down below the target (2%) by the 2009 horizon date. We know this because the Bank shows where it projects rates to be on the basis of both unchanged rates (5.25% – CPI slightly higher than target), and market expectations of rates (a hike to 5.5% by mid 20… Read the article

Hooks in the record books

A triple-C rating (CCC) is known as “the hooks” in junk bond parlance. Sounds a bit better than Moodys who define them: “…to be of poor standing and are subject to very high credit risk”. Despite that definition they have been doing very well over the last couple of years and yesterday the average spread on European bonds rated CCC & below reached 359 basis points, the lowest on record. To put … Read the article


Defaults are few and far between in the European High Yield market at the moment but we have another today as Schefenacker, a German auto supplier that makes mirrors and lights, has announced a financial restructuring. Holders of the €200m bond issued in February 2004 have been offered 5% of the equity.

This should serve as a reminder to the current jubilant credit market that companies can go…

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MPC and ECB: rates unchanged. And British Gas cuts energy prices

No rate hikes from either the Bank of England or the European Central Bank today, in line with the market’s expectations. The MPC will have seen January’s inflation data (out next week), so it’s therefore unlikely (though not impossible) that CPI rose above December’s 3% level and into the territory where Mervyn King has to write a letter to the Chancellor. In fact today’s news that British Gas…

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The Sainsbury Rollercoaster

Friday’s statement from a group of private equity houses that they were “in the preliminary stages of assessing” a possible offer for Sainsbury saw its shares rally 17% and the CDS market jump from spreads in the mid 27 bps out to 75 bps. CDS (credit default swaps) reflect the cost of ‘insuring’ against an issuer defaulting on its debt – the higher the risk of credit deterioration, the higher …

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Putin: "A gas OPEC is a good idea. We will think about it."

Friday’s Wall Street Journal lead on Putin’s response to Iran’s suggestion that the gas-producing nations set up a cartel similar to that run by the oil producing nations. Russia and Iran have the world’s largest proven gas reserves, with a world share of over 40%. Given that Europe gets a quarter of its natural gas from Russia this is a concern for inflation – the natural gas price is already …

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