Summary & Views: Ok, the German bond auction is some sort of a game-changing event. Either the market is staying away from the low yields, or scared of Germany picking up the bill, or maybe even not picking up the bill. Perhaps alphaville got it right with their view of eurocrats keeping the repo rates artificially low (below in German bond auction links). Barroso’s eurobond proposal was immediately shot down by Merkel, and not much is heard from the extended IMF lines, probably built to handle the possible and very poorly hidden bailout by the ECB.
Whatever the reason, the market is signaling there is enough debt out there already. A realistic bond yield level (without QE and given the growth- and debt prospects) for Germany would be somewhat higher. That would mean Germany would be unable to act as a credible backstop, even if it wanted to.
Why I'm doing this? It has been four months since I begun writing this blog. I started because I have too much time (looking for work) and want to make sure I follow the markets. It is one thing to state that you are following the markets and quite another to actually being able to show something for it, something like this blog perhaps. This crisis is the greatest show on earth, and I am having hell of a time following it. I hope some of you are enjoying this blog as well.
My idea is to curate anything but the mainstream media - blogs, investment bank research, think tanks, IMF publications and academic journals for stuff that is timely and interesting. My background as a derivatives broker and a journalist hopefully helps in selecting insightful, entertaining and value-adding articles. What are the price drivers? The consensus view is easy to find out, but how about the next big idea or the quiet signals that have not yet surfaced? I hope I can help you with these questions, at the same time trying to understand just a little bit more myself. Just a little bit more, just a little bit before everyone else.
- MoreLiver
Recap 23-Nov – Global Macro Trading
FX option vols – Saxo
Markets Live – alphaville FT
Debt crisis: live – The Telegraph
EZ crisis Live blog – The World / FT
EURO CRISIS
Understanding the Problem, Understanding the Solution, and Understanding Who is to Blame are Three Different Things – Mish’s
Comments on Simon Tilford’s and Philip Whyte’s excellent report, agrees on much, but Mish believes the only true solution is breakup. Who is to blame: The rules of the Maastricht Treaty were known by everyone at the outset and there were many architects of the Euro idea including Jean-Claude Trichet… Moreover, countries could have accepted or rejected the treaty. Every country had a vote.
Whose Debt Am I? – Peter Tchir / TF Market Advisors
First the EFSF had trouble raising money. Then EIB spreads widened. Then EXPT got crushed. And now Germany struggled to raise money.
The euro crisis: Faster toward the end – Free exchange / The Economist
Spain’s and Germany’s bond auctions, European banks, CEE trouble, recession in Europe and China(?), but the upside: The stunning German bond-market failure may shock leaders their into recognising their own great vulnerability and pushing for bold initiatives to slow the crisis. The problem is that matters rapidly seem to be spinning out of the control of fiscally-limited governments. It will take the power of the printing press to stop the panic.
The euro zone crisis: What safe haven? – Buttonwood’s / The Economist
There is an awful sense of a slow motion disaster in the markets at the moment, with every day bringing some herald of bad news.
The most recent EU plan was too little, too late and involves too much wishful thinking. Even if the plan could be implemented then there’s no reason to believe that it would work.
The wise person’s reaction to the casino is not to go there. The next best course is to plan an early night. Leave while you are ahead, and if you cannot do so, accept a small loss. If the eurozone had quickly recognised defeat in Greece, it would have suffered a manageable failure and learnt an important lesson for the future. Instead it has followed the martingale. As the size of the bet grows after a run of losses, the commitment to do what it takes becomes steadily less credible.
CDS indices hit records while uncleared sovs spike – alphaville / FT
what the CDS market will look like in a couple of years’ time. A lot more governmental for one. Which is why it should be particularly concerning to central counterparty-loving politicians that CDS on western European sovereigns are not currently cleared.
what the CDS market will look like in a couple of years’ time. A lot more governmental for one. Which is why it should be particularly concerning to central counterparty-loving politicians that CDS on western European sovereigns are not currently cleared.
All European CDS Now Triple-Digit Offered – ZH
What Will the Euro-Zone End Game Look Like? Here’s the Optimistic Take – MarketBeat / WSJ
It essentially involves Germany and other core euro-zone members giving up some of their sovereignty and embracing fiscal union. Is this likely? We have no idea.
Introducing EZ Stabiliteeeeee bonds… – alphaville / FT
The EC proposal on EZ bonds, for entertainment and historical purposes only, as:
The EC proposal on EZ bonds, for entertainment and historical purposes only, as:
However, treaty changes take a while; often years. Berlin may prefer this road, but it could well prove far too long.
GERMAN BOND AUCTION
The bund that broke the Bundesbank – alphaville / FT
It is the Bundesbank which is cornering the bund market on purpose. And it’s doing so to ensure that the one last repo rate in Europe that can be controlled remains suppressed. The rate is important to suppress because almost all interbank funding is now done on a secured basis against the best quality collateral.
It is the Bundesbank which is cornering the bund market on purpose. And it’s doing so to ensure that the one last repo rate in Europe that can be controlled remains suppressed. The rate is important to suppress because almost all interbank funding is now done on a secured basis against the best quality collateral.
Is the German Bund Rally Coming to an End? – The Source / WSJ
Roundup of comments: Germany perhaps not a safe haven, low yields diminish demand, euro project scares
Roundup of comments: Germany perhaps not a safe haven, low yields diminish demand, euro project scares
The ECB and the core want the borrowers to make good through a lot of belt tightening. The periphery says it can’t pay. Either the lenders at the core have to eat their losses through defaults, which means banks going bust, or the losses have to be spread across savers, which means inflation… While there are only reluctant buyers, no one’s been too keen to sell German debt. Yet. But investors may well start changing their minds when they start to realize the size of the eventual bill Germany faces.
The centre is not holding: German bond auction falls short – Saxo Bank
What the German bond auction disaster means – Credit Writedowns
German 10-year bond auction a "disaster" – Reuters
Germany’s Bond-Auction Fail: Here’s What It Means – MarketBeat / WSJ
FINANCIALS
The euro crisis: The screw tightens – Free exchange / The Economist
But billions of euros are flooding out of Europe’s banking system through bond and money markets. At best, the result may be a credit crunch that leaves businesses unable to get loans and invest. At worst, some banks may fail—and trigger real bank runs in countries whose shaky public finances have left them ill equipped to prop up their financial institutions.
Eurozone banks stressed by anxious governments – Robert Peston / BBC
Well, it is moot whether what may eventually force eurozone leaders into bold, evasive action to solve the eurozone crisis is a run on a government, or a run on banks, or some combination of the two.
Well, it is moot whether what may eventually force eurozone leaders into bold, evasive action to solve the eurozone crisis is a run on a government, or a run on banks, or some combination of the two.
Bondholders Lose Status – The Source / WSJ
The U.K. is almost certain to introduce bail-in bonds under its next round of bank reforms recommended by the Independent Commission on Banking, joining Germany and Denmark. The European Commission consulted on the matter this year and is finalizing proposals for broader legislation on bank recovery and resolution plans.
US to conduct stress tests against euro collapse scenario – euobserver.com
Dexia’s midnight liquidity – alphaville / FT
Dexia has used, apparently as of November 2011, some €30-40bn of our old friend, Emergency Liquidity Assistance (ELA).
Dexia has used, apparently as of November 2011, some €30-40bn of our old friend, Emergency Liquidity Assistance (ELA).
Dexia Talks Face No ‘Insurmountable’ Problems, Frieden Says – Businessweek
Dexia SA will sell its Luxembourg unit within days and doesn’t expect talks about the government- backed funding of the remaining assets to face “insurmountable difficulties,” Luxembourg Finance Minister Luc Frieden said.
PIIGS/BF
The Italian crisis – Unicredit and Intesa Sanpaolo under pressure – Saxo Bank
Default risks for major Italian banks at all-time high. In the last month credit default swap (CDS) prices on Unicredit and Intesa Sanpaolo (Intesa) (two major Italian banks) have risen by more than 50 percent.
The price of credit-default swaps can be used to estimate the probability of sovereign default. This column examines the case of Italy, looking at how default risk varies across maturities and how this has evolved since January 2011. It suggests that markets are pricing in a heightening of risk two years from now – mostly probably due to political tensions and the risk of deadlocked reform.
Belgian bond costs soar after government talks fail – euobserver.com
Markets are fed up with the 500+ days of negotiations… While the rest of European countries had to apply austerity measures, Belgium remained oblivious to the EU’s call but the EC has sent an official request to Brussels about the 2012 Belgian Budget. The deadline is clear, all the budget documents are to be delivered on December the 15th 2011. And this budget will be an austerity budget...
Fitch Pours A-98 Gasoline On The European Fire, Threatens AAA Rating Of Parent France – ZH
France can’t absorb more shocks without undermining AAA
France can’t absorb more shocks without undermining AAA
EMERGING
Croatian banking: blame the parents – beyondbrics / FT
UniCredit and Intesa SanPaolo control Croatia’s two largest banks, together making up nearly 50 per cent of bank assets, and Italy is a major trading partner for the Adriatic ex-Yugoslav country.
Don’t expect a full blown interest rate cut. But cutting reserve requirements amounts almost to the same thing, as Beijing can order commercial banks to increase or rein in lending as it wishes.
Frontier markets: eurozone hostage – beyondbrics / FT
Gabriel Sterne, Economist, Exotix Limited: From Dubai to the Dominican Republic; from Senegal to Sri Lanka; frontier after frontier has exhibited the same pattern in response to Euro-related news, as the chart below shows. Prices go down on heightened Italian fears, up on hopes of a big bazooka, and down when the EFSF’s main weapon turns out to be less “big bazooka”
Gabriel Sterne, Economist, Exotix Limited: From Dubai to the Dominican Republic; from Senegal to Sri Lanka; frontier after frontier has exhibited the same pattern in response to Euro-related news, as the chart below shows. Prices go down on heightened Italian fears, up on hopes of a big bazooka, and down when the EFSF’s main weapon turns out to be less “big bazooka”