Posts Tagged bond
Euro Area Backs Greek Aid, Looks to New Bailout
Posted by Oksana Grebenjuk in Favourites, Trading Markets on Июль 4th, 2011
The euro area approved its share of a 12 billion-euro ($17.4 billion) aid payment for Greece and pledged to complete work in the coming weeks on a second rescue package for the cash-strapped nation to prevent a default.
Finance ministers agreed to disburse 8.7 billion euros of loans under last year’s 110 billion-euro bailout by July 15, rewarding Greek Premier George Papandreou for pushing an extra austerity plan through parliament. The International Monetary Fund is due to provide the rest of the July aid installment, the fifth under the 2010 package.
The spotlight now turns to a second bailout to which banks and insurers plan to contribute following German demands for taxpayer relief. Euro-area governments and investors will provide 70 percent of new aid that may total as much as 85 billion euros, with the IMF offering the rest, Thomas Wieser, an Austrian Finance Ministry official, said on June 30.
“The Greek authorities provided a strong commitment to adhere to the agreed fiscal adjustment path,” the 17 euro-area finance chiefs said in an e-mailed statement yesterday after a conference call that was joined by the IMF’s acting chief, John Lipsky, and European Central Bank President Jean- Claude Trichet. “The precise modalities and scale of private- sector involvement and additional funding from official sources will be determined in the coming weeks.” Read the rest of this entry »
Standardizing AAA
Posted by Oksana Grebenjuk in Investing on Июль 1st, 2011
For many years, a AA-rated municipal bond did not have the same risk of default as a AA-rated corporate bond. In fact, the corporate bond was about 6 times more likely to default.
Over the last two years, credit rating agencies have standardized the municipal and corporate rating scales. This was a substantial change for the municipal bond market and had the effect of raising the credit rating of thousands of municipal issues. Many don’t understand why this large structural change was made, so I thought it would be helpful to share the history.
Many professionals within muniland have said that a substantial amount of “granularity” was lost in the municipal rating scale when it was equalized with the corporate bond scale. A municipal bond previously rated A2 was likely moved four notches up the rating scale to Aa1. This has the effect of “bunching” municipal ratings into a tighter band than they had previously been in, and it obscured the prior “granularity” that the muni scale had.
In May 2009 Congressman Michael Capuano, a Democrat representing the Eighth Congressional District of Massachusetts, introduced H.R. 2549 the Municipal Bond Fairness Act. Prior to joining Congress, Mr. Capuano served as mayor and alderman of Somerville, Massachusetts. Read the rest of this entry »
Google enters the bond market
Posted by Oksana Grebenjuk in Favourites, Fund Markets on Май 18th, 2011
Google plans to raise cash by selling bonds for the first time in the company’s history, the Internet search giant said Monday in a filing with the Securities and Exchange Commission.
Google (GOOG, Fortune 500) declined to comment about the size of the offering but news reports peg it at roughly $3 billion in short-to-medium term notes. The bonds are expected to be priced by market close Monday.
The company said it plans to use the proceeds to fund «general corporate needs and to repay the company’s outstanding commercial paper.»
Credit rating agency Moody’s gave the offering an investment grade ‘Aa2′ rating, citing «Google’s substantial financial flexibility as well as its conservative financial philosophy.»
Google currently sits on $36 billion in cash and short-term securities. But the bulk of that cash is tied up in overseas accounts, making it expensive to tap in the United States since Google would have to transfer and pay tax on the funds. Read the rest of this entry »
The Real Reason Gas Prices Are Soaring
Posted by Oksana Grebenjuk in Trading Markets on Март 31st, 2011
Have you ever wondered why when you go to the gas station to fill up the family car, the price of gas at the pump has just jumped 25 cents a gallon over the past three days? Perhaps you thought the oil companies were just being greedy. Or you believed the nightly news pundit who said that gas prices went up because the crisis in Libya was affecting supplies of oil. One professional oil trader says that you’d be wrong on both counts.
Dan Dicker, who has spent nearly three decades in the oil market, has a profoundly disturbing explanation of why the price of oil, and the gasoline that comes from the crude product, has risen so dramatically in recent months. It turns out, Dicker says, that the price has nothing to do with supply and demand for oil. It’s the financial market for oil, filled with both professional speculators and amateur investors betting on poorly understood oil exchange-traded funds, who have ratcheted up the price of gas to such sky high levels.
«There is no supply issue going on here — what you have is the perception of the possibility of a supply issue,» Dicker says. «A whole bunch of people are pouring money into an oil market trying to take advantage of what they perceive to be a real risk in supply. It’s a marketplace that I argue should not be allowed to be wagered on like a stock or bond.»
Dicker notes that Libya produces only 1.3 million barrels of oil a day, just a tiny fraction of the world oil market. Even if Libyan crude were lost to the world market in the current turmoil, and there is no sign that it is, Saudi Arabia has 5 million barrels a day to use in case of an emergency. Read the rest of this entry »
Why inflation hurts more than it did 30 years ago
Posted by Oksana Grebenjuk in Budget on Март 21st, 2011
Inflation spooked the nation in the early 1980s. It surged and kept rising until it topped 13 percent. These days, inflation is much lower. Yet to many Americans, it feels worse now. And for a good reason: Their income has been even flatter than inflation.
Back in the ‘80’s, the money people made typically more than made up for high inflation. In 1981, banks would pay nearly 16 percent on a six-month CD. And workers typically got pay raises to match their higher living costs. No more.
Over the 12 months that ended in February, consumer prices increased just 2.1 percent. Yet wages for many people have risen even less — if they’re not actually frozen. Social Security recipients have gone two straight years with no increase in benefits. Money market rates? You need a magnifying glass to find them.
That’s why even moderate inflation hurts more now. And it’s why if food and gas prices lift inflation even slightly above current rates, consumer spending could weaken and slow the economy.
Consumer inflation did pick up in February, rising 0.5 percent, because of costlier food and gas. Still, looked at over the past 12 months, price increases have remained low. Problem is, these days any inflation tends to hurt. Read the rest of this entry »
Chinese Express Wary Faith in Fannie, Freddie Debt
Posted by Oksana Grebenjuk in Trading Markets on Февраль 15th, 2011
China’s government, one of the biggest holders of debt from Fannie Mae and Freddie Mac, voiced confidence that Washington would continue to stand behind the obligations of the U.S. mortgage giants after the Obama administration outlined options for phasing them out.
The statement by the State Administration of Foreign Exchange, or SAFE, the arm of China’s central bank that manages foreign-exchange reserves, reflects Beijing’s continued concern about perceptions within China of the safety of its U.S. investments. Most of China’s $2.85 trillion in reserves is invested in dollar assets, and while China doesn’t disclose the size of its holdings of Fannie and Freddie securities, past records show it owning hundreds of billions of dollars of debt from them and other U.S. government-linked agencies.
Chinese officials have raised concerns about the possible impact of U.S. policy on the future value of China’s dollar holdings, saying loose monetary policy could hurt the value of U.S. assets. But the government has also rejected rumors that it has lost money on its existing holdings of Fannie and Freddie debt.
The Obama administration on Friday issued a white paper on plans to reduce U.S. government involvement in the mortgage market, including an eventual phaseout of Fannie and Freddie, which the government took over in 2008. But the White House’s report emphasized that it «will not waver from its commitment» to ensuring that the two «have sufficient capital to honor any guarantees issued now or in the future and meet any of their debt obligations.»
SAFE’s statement, posted on its website Saturday, said the White House plan «has aroused widespread public interest and concern that our foreign-exchange reserve investments could be damaged.» The statement said China has not had losses on its Fannie and Freddie holdings, and added that SAFE «took particular notice that the U.S. government’s commitment to support [Fannie and Freddie] hasn’t changed.» Read the rest of this entry »
Municipal bonds turn bearish as yields rise
Posted by Oksana Grebenjuk in Fund Markets on Ноябрь 24th, 2010
Yields on municipal bonds has risen recently, with long-term yields rising more sharply than those on the short-end since the beginning of the November.
R.J. Gallo, senior portfolio manager and head of the municipal bond investment group at Federated Investors, noted that the 30-year, AAA-rated municipal yield rose 76 basis points through November 17, producing a loss of about 6 percent for the 22-years-and-longer portion of the Barclays Municipal Bond Index.
Similarly, the 10-year AAA muni yield rose 50 basis points and the 5-year yield rose 28 basis points over the same period, producing estimated losses on the corresponding portions of the Barclays index of 2.5 percent and 1 percent, respectively.
“We believe a sharp deterioration in the balance of supply and demand for municipal securities are driving this bear steepener,” Gallo said. “Uncertainty about whether the popular Build America Bonds (BABs) program… will expire at the end of this year has prompted a near-term supply surge. Meanwhile, investor demand has slowed due to a number of factors, including an increase in investors’ risk appetite, the Fed’s new quantitative easing program (QE2), calendar effects and, to a lesser degree, concerns about municipal credit quality.”
Initiated as part of the February 2009 federal stimulus bill, the BABs program provides municipal issuers with a cash rebate subsidy equal to 35 percent of a bond’s coupon rate on taxable securities, allowing issuers to offer taxable bonds without fully paying the higher interest cost. Read the rest of this entry »
Turnaround In U.S. ISM Contradicts Analysts Best Guess
Posted by Oksana Grebenjuk in Fund Markets on Ноябрь 4th, 2010
Fixed income trading got off to a blistering start in a week where news events are likely to determine the fortunes for bond prices for the remainder of 2010. The first in a series of critical surveys showed the Chinese manufacturing expansion continued and is likely to be followed by more of the same around the world extending also to the service sector.
And while the diffusion indices are a positive influence on risk sentiment they will not be enough to stop more quantitative easing from either the Fed or the Bank of England. Markets continue to rally ahead of the FOMC statement precisely because the central bank’s action is a growth-positive event. On Friday the October jobs report may yet show a deeper thaw in the labor market if the latest initial claims reports are anything to judge by.
Eurodollar futures – The December 10-year note futures contract has erased an initial 10-tick gain, currently sitting at 126-10 to yield 2.61%. The manufacturing sector picked up steam throughout October with the ISM survey rising further into expansion territory rather than falling. The FOMC’s two-day meeting starts on Tuesday and markets may be slow until then. For now the bias is towards lower yields in anticipation of a large amount of quantitative easing. Ever since the Fed said it would survey market participants over their sense of direction in light of the magnitude of the actions of the central bank, dealers have geared up for more rather than les. Eurodollar futures have also pared earlier gains once again with implied yields now higher lower by a couple of pips across the curve. Read the rest of this entry »
Surety Bonds: Investments That Protect Investments
Posted by Oksana Grebenjuk in Investing on Ноябрь 2nd, 2010
Anybody who contributes their time, effort, and, of course, finances to a project feels more confident about the decision if the commitment can somehow be assured. When it comes to finances — whether personal or corporate — surety bonds provide this guarantee. Most industries in America utilize surety bonds to provide protection for those investing in business deals, as well as those who might be vulnerable after a contractual agreement has been made.
Surety bonds essentially work as a legal contract between three parties:
1. The Principal: the entity required to purchase the bond to guarantee the quality of work to be done
2. The Obligee: the entity that requires the bond to protect its interests
3. The Surety: the agency that issues the bond to the principal and assures the obligee with a financial guarantee
The bond is written to assure the obligee that the principal will fulfill all duties appropriately, whether developing construction projects, collecting debts, or signing official documents as a notary. If the principal fails to uphold the guarantee outlined in the bond’s language, then the obligee can make a claim on the bond. If the principal is unable to compensate the obligee, the surety will be held accountable for reparation, whether achieved financially or otherwise. Read the rest of this entry »
Are There Bubbles All Around?
Posted by Oksana Grebenjuk in Investing on Октябрь 26th, 2010
One thing we learned in the 1990s and the 2000s is that there can be asset bubbles in the economy without growth in either money stock variables or increases in consumer (flow expenditure) price inflation. The financial system seems to be flexible enough so that it can leverage up where it wants to even though monetary policy and consumer spending seem to be «in control». This is the lesson of modern «financial engineering.»
However, the monetary statistics are not benign for most of the time period from January 1961 up to September 2008. During this time period, the monetary base which is supposedly under the control of the Federal Reserve System rose at a compound annual rate of slightly more than 6%. Total credit during this time period rose much more rapidly. Consequently, the United States experienced a period if «credit inflation» that dominated everything going on during this 47 years or so. This secular inflation drove the financial innovation that took place as the whole financial system took on more-and-more leverage and more-and-more risk.
Since September 2008, the Federal Reserve has caused the Monetary Base to increase explosively by more than 130%. However, the banking system is not lending and much of these funds seem to have ended up on the balance sheets of the banking system. Excess reserves in the banking system went from about $2 billion in August 2008 to almost $1.2 trillion in February 2010. Excess reserves for September 2010 averaged slightly below $1 trillion.
Even with all of these excess reserves, the current concern is whether or not the economy will go into a period where prices actually decline. That is, might the United States be headed for a period of deflation? Read the rest of this entry »
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