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| While news, given crisis not crazy |
Today a lot more on the German bond auction, it was also covered extensively and commented by me on yesterday’s evening post. New page, About online. Happy Thanksgiving, I've included one upbeat and one downbeat video, so basically my position on TG is flat - I'm an European, after all!
– MoreLiver
Market Preview (24-Nov) – Saxo Bank
Danske Daily (24-Nov) – Danske Bank (pdf)
Markets Live – alphaville FT
Debt crisis: live – The Telegraph
EZ crisis Live blog – The World / FT
EURO CRISIS
Euro bonds: The tricky path toward greater fiscal integration, take two – Free exchange / The Economist
The first thing to note is the fantastically aspirational name these euro bonds are given: "stability bonds". The Commission has three proposals ranging along the continuum of moral hazard.
An alternative theory is that the imbalances were caused by internal policies – perhaps the creation of the euro and the gearing of monetary policy to German needs at the expense of the periphery? – which led to the severe internal imbalances. These imbalances created employment growth in the countries that suppressed consumption, and forced the countries that didn’t to choose between debt and unemployment. Of course since the latter countries had no control over monetary policy, the choice was largely made for them by the ECB with its excessively low interest rates, and their debt levels surged.
Why Not Pull the Trigger on Greek Default Swaps? – DealBook / NYT
what if European banks have all been hedging their sovereign credit-default swaps with each other?... what would the collateral posting requirements be for European banks if non-Greek sovereign debt was downgraded after the triggering of Greek credit-default swaps? What if we also add collateral posting requirements that result from European banks being downgraded?
what if European banks have all been hedging their sovereign credit-default swaps with each other?... what would the collateral posting requirements be for European banks if non-Greek sovereign debt was downgraded after the triggering of Greek credit-default swaps? What if we also add collateral posting requirements that result from European banks being downgraded?
(Part 1 here). The important feature of recent developments in the capital account is the sharp dropoff of the portfolio balance in September, just €31.5 bn over the last three months from €104.5 bn in the three months through August. This could be a one-off event; but the reduced foreign demand for EA assets could be problematic if a trend forms.
Irish Prime Minister Begs EU for Debt Relief in Disgraceful Performance – Mish’s
After Greece, Ireland asks for (partial) forgiveness. Expect others, notably Portugal, perhaps Spain to join this posse. As Mish says: Eventually, there will come a time when a populist office-seeker will stand before the voters, hold up a copy of the EU treaty and (correctly) declare all the "bail out" debt foisted on their country to be null and void. That person will be elected.
Week in Focus (18-Nov): Can the ECB save the euro zone? – Commerzbank
full note on scribd. Conclusion: ECB’s balance sheet can handle more bonds, and should the crisis intensify, it would probably increase its bond purchases.
The eurozone could learn from the experience of South Korea, which came through its crisis more quickly than anyone expected, combining sensible reforms with a rapid recovery. The key to the South Korean turnaround was a large depreciation of the currency, the won.
A $10 Trillion Asteroid Is Heading Toward The Eurozone – The Daily Capitalist
Sarkozy’s half-brother (MD of Carlyle): $10 trillion banking crisis that will probably end with a TARP type bailout and monetization of debt by the ECB
Sarkozy Warns of Euro Zone Collapse! Or, Rather, Sarkozy’s Brother Does. – MarketBeat / WSJ
Good story how the initial knee-jerk reaction was that it is the French PM speaking – continues with a story from Falkland war with a message of “Carrier Lost” on Telerate screen..
ECB will cut its main policy interest rate to just 0.5% by mid-2012, ECB could introduce more financing to banks and loosen collateral requirements, QE not probable as SMP is more “selective”.
GERMAN BOND AUCTION
What will the other national central banks make of this? And better yet, what will they do about it? If Germany is seen as being in direct violation of the Maastricht Treaty then the entire charade becomes a violation of such magnitude that all nations involved have to begin wondering why they’re abiding by the German austerity plan while also adhering to the German rule of no ECB engagement in periphery bond markets?
More on the German bond auction – Pragmatic Capitalism
Regardless of whether we deem this to be a “monetization” or a “suspect” response to their own illiquid bond auction, one thing is clear – the situation in Europe is deteriorating as even the most liquid of bond markets are now clearly at risk. The great irony here is that the arrangement in Germany allows them to intervene in their own markets while they frown on the idea of the ECB intervening in markets (although it’s still occurring).
Revisiting Today's "Failed" Bund Auction: Less Than Meets The Eye – ZH
"failed" Bund auctions happen all the time. SocGen’s analysis letter, today's pics are from here.
"failed" Bund auctions happen all the time. SocGen’s analysis letter, today's pics are from here.
German bunds: Fun with bunds – Free exchange / The Economist
Lorenzo Pagani, of Pimco's European government bond team: It is worth repeating that Finanzagentur always retains part of the bonds, so this part of the process is normal. Today the retention was larger than usual. This is probably due to low liquidity across market, lower incentive to place certain minimum size bids by dealers, and richness of bunds in general.
Is it time for Germany to hit the panic button? – Wonkblog / WP
And here’s the more disturbing question: Even if Germany does get freaked out and finally agrees to take bolder steps, the question is whether any course of action can salvage the euro zone at this point.
And here’s the more disturbing question: Even if Germany does get freaked out and finally agrees to take bolder steps, the question is whether any course of action can salvage the euro zone at this point.
Growing mistrust from investors seems apparent after what has been described as a "disastrous" government bond auction on Wednesday.
RBS’s Harvinder Sian: I essentially see much more market stress before Bunds are able to sustain a sell-off. More specifically: ECB capitulation not until things much worse, hard default in Greece, funds from periphery sales have to somewhere (=bunds).
German Bond Sale Spurs Worries – WSJ
Nice roundup of comments: year-end low liquidity, market already loaded with bunds, contagion spreading to core, the structure of German bond issuance (bonds auctioned, no syndicate of primary dealers)
When Bond Buyers Pull Out Their Calculators – Testosterone Pit
maybe the low yields, general uncertainty etc. but perhaps: Germany supporting others, not supporting others, printing, exit from EZ. This is almost exactly what I wrote yesterday.
German Bond Auction Fails – The Atlantic
At this point, the ECB is the only player left with clear and untapped intervention potential. But even that may be waning fast.
OTHER
London Banks Seen Rigging Rates for Decades Losing Credibility in Markets – BB
In a series of lawsuits filed in 2011 and now winding their way through courts in Europe and the U.S., investors have accused a number of banks represented on the Libor panel of distorting market prices by hiding the banks’ true borrowing costs since as early as 2007.
In a series of lawsuits filed in 2011 and now winding their way through courts in Europe and the U.S., investors have accused a number of banks represented on the Libor panel of distorting market prices by hiding the banks’ true borrowing costs since as early as 2007.
CDS, has many of the problems of a standardized, regular-way market: banks have bought a one-size-fits-all thing that may not protect them from some of their bespoke risks. But because it’s still in the infancy of realtime reporting and complete standardization, it’s easier to believe that it hides all of the scary features of an off-the-run, fully customized market where no one on the outside can ever know what risks might be hiding within.
Financial tsunami warning: credit edition – alphaville / FT
Citi: Tranche markets are a barometer of tail risk and are increasingly indicating systemic risk fears. If we consider the distribution of expected loss in the capital structure we can see that a considerable proportion of the risk has shifted to the senior portions relative to equity.
Citi: Tranche markets are a barometer of tail risk and are increasingly indicating systemic risk fears. If we consider the distribution of expected loss in the capital structure we can see that a considerable proportion of the risk has shifted to the senior portions relative to equity.
Interesting points
DIVERSION
The Commandant: A Master Interrogator Reveals His Secrets – Farnam Street
Stephens didn’t believe in violence, instead, he applied many forms of psychological pressure.