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derivatives

US companies are scared of risk

Happy Halloween. Five scary charts that Freddy Krueger would be proud of.

M&G and bondvigilantes.com proudly present the scariest charts on the global economy. Some will make you laugh, some will make you cry. You will be amazed, you will be enchanted, you will be mystified, you will be amused. Of course, the following is not for the faint of heart. You have been warned.

  1. Companies are scared of risk

There has been a glut of corporate bond issuance since the financ…

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Le cocktail économique explosif français : croissance en berne, manque de compétitivité et tour de vis budgétaire.

This post was originally published on 5.10.2012 in English and has been translated for our French readers.

Depuis le début de l’année 2011, la croissance économique de la France s’est révélée extrêmement décevante, en passant d’un rythme annuel de près de 2,5 % à tout juste 0,3 % au second trimestre 2012. Certes tous les pays de la zone euro ont été à la peine durant cette même période, mais la…

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The toxic French economic cocktail: weak growth, poor competitiveness, fiscal tightening.

Since the start of 2011 French economic growth has been extremely disappointing, falling from an annual rate of nearly 2.5% to just 0.3% in the second quarter of this year.  Of course the whole Eurozone has seen weakness over the period, but French growth has lagged that of the “core” over the period.  German GDP growth was at or above 2% for all but the last two quarters, and now stands at 1%….

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If sovereign CDS is no longer an effective hedge then who’s in trouble?

Current plans are for Greek restructuring to be ‘voluntary’, which means that it would fail to trigger CDS (see here).  CDS is supposed to be the cost of insuring against default.  If Greek restructuring fails to trigger CDS, then CDS would lose its credibility as an effective hedging instrument against sovereign default.  Such actions would  have absolutely huge implications as all the banks w…

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Mummies’ boys – the number 1 variable for predicting Eurozone sovereign stress?!

I was reminded today of the tongue-in-cheek chart that we put on this blog a year ago showing the close correlation between sovereign 5 year CDS (i.e. the cost of insuring governments against default) and the percentage of men aged 25-34 who still live with their parents within the Eurozone founder member countries (credit to JP Morgan).  This was a prompt to do an update, and the outperformanc…

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Who owns sovereign credit default swaps and why it matters

Guest contributor – Tamara Burnell (Head of Financial Institutions/Sovereign Research, M&G Credit Analysis team)

The Bank for International Settlements (BIS) recently released some fascinating data on the country risk exposure of global banks. For the first time we got some insight into not only which banks own Greek and other peripheral European sovereign, bank and corporate debt, but also who…

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UK inflation shocking?

UK CPI inflation jumped from 4.0% to 4.5%, versus expectations of only a slight increase to 4.1%.  Core CPI, which strips out food and energy prices, soared from 3.2% to 3.7% and is now at easily a record high (data goes back to 1997).  One bank called the inflation numbers shocking, arguing other economies aren’t seeing anything like this surge in core inflation, UK monetary policy is too loos…

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So we’re all being financially repressed in the developed world – but does that really mean poor bond returns? (+ competition time)

I attended an interesting lecture last year by Carmen Reinhart (hosted by RBC) where she predicted an era of negative real returns for investors in developed market sovereign bonds.  This was due to what she termed ‘financial repression’, as the authorities in richer countries struggle with the huge debt burden.  Financial repression is loosely taken to be things such as greater financial regul…

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AIG woes highlight the curse of the football sponsors

First Man Utd drops points to Arsenal, and then Man U’s shirt sponsor AIG admits that losses on credit derivatives were $4.88bn in October and November, four times worse than the company had previously stated. AIG’s auditor, PricewaterhouseCoopers, found “material weakness” in AIG’s accounting treatment of credit derivatives. AIG’s shares fell by 12% on Monday, the biggest one day fall in the c…

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Now we know how much &#39AAA&#39 rated CDOs are really worth

Carina Ltd, a CDO managed by State Street, is being liquidated after the credit quality of its collateral fell below predetermined levels, allowing senior note holders to force a fire-sale of assets. Carina was originally a $1.5bn CDO when it was launched in September 2006, and is the first CDO to begin unwinding since the credit crunch began. The rating on an AAA rated portion of the CDO was d…

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