Category: Debt

IMF chief warns Greece: ‘A debt is a debt’

20-Jan (AFP, via YahooFinance) – IMF chief Christine Lagarde on Monday warned of “consequences” if European countries try to renegotiate their debts, ahead of Greek elections which an anti-austerity party is tipped to win.

“Collective endeavours are welcome but at the same time a debt is a debt and it is a contract,” the International Monetary Fund’s Lagarde told the Irish Times during a visit to Dublin.

“Defaulting, restructuring, changing the terms has consequences on the signature and the confidence in the signature,” she said.

[source]

Posted in Debt, European Debt Crisis |

Warnings Grow Over Emerging Market Debt

20-Jan (Wall Street Journal) — A rapid build up of U.S. dollar debt in emerging economies is increasing the links between monetary policy in major economies with that in the developing world, posing a growing risk as the direction of interest rates diverge between major central banks.

Global investors have rushed to buy into an unusually large amount of U.S. dollar debt sold in emerging economies since the global financial crisis, and into advanced economies that were not hit by the crisis, the Bank of International Settlements said in a working paper on Monday.

But this “implies that the monetary policy of the Federal Reserve or the ECB is transmitted directly to other economies,” the BIS said. And, borrowers can choose to borrow in dollars instead of their domestic currencies, so they “side-step their own central bank’s monetary policy.”

[source]

Posted in Central Banks, Debt, Monetary Policy |

WSJ Survey: 2015′s Biggest Risk? Economists Look Across the Pond

15-Jan (Wall Street Journal) — The grass is sometimes browner on the other side.

The survey of economists done this month by The Wall Street Journal shows a very sunny view of the U.S. economy. But a look across the pond has the forecasters seeing dark clouds.

Of course, global worries are nothing new for economists in the WSJ survey. For most of the past year when asked about the biggest downside risk to the outlook, the majority of economists have pointed to global risks. That has encompassed the flareup between Russia and the Ukraine, China’s economic slowdown, a possible financial crisis in Japan.

In January, foreign affairs continued to be the top concern, with exactly half of the respondents naming some type of an international risk. Even cheap oil—seen as a boon to the U.S.—is viewed as a bad global sign. “The oil price collapse signifies that China is in a deep hole,” said Rajeev Dhawan of Georgia State University.

Some forecasters remain on high alert for problems in China and Japan, as well as the uncertainty over geopolitical tensions (the survey was conducted from Jan. 9-13, right after the Paris massacre).

This month, though, the attention to Europe’s economic problems was more pronounced than usual, with 11% of respondents specifically mentioning euro zone issues, including a possible Greek exit from the eurozone and inadequate policy moves from the European Central Bank.

[source]

PG View: I bet none of the participants foresaw the SNB abandoning the franc peg.

Posted in Debt, Economy, Geopolitical Risks |

Next Greek Premier Says Economic Data “Shamefully Embellished” To Look Better

13-Jan (ZeroHedge) — The Greek general election is just around the corner, and as expectations for a Greek overhaul, if not outright Grexit, rise so does the rhetoric by the man who, barring an act of god or Diebold, will be the next Greek premier: Alexis Tsipras, who some see as the catalyst for a Grexit, while others describe as merely yet another apparatchik of the Troika. Overnight Tsipras wrote an op-ed article in Germany’s Handelsblatt newspaper, summarized by Bloomberg, in which he said the notion that Greece’s economy has stabilized is an “arbitrary distortion of the facts.” He said that while the economy grew 0.7 percent in the third quarter, the recession isn’t over because of 1.8% deflation.

Psst: whatever you do, don’t call it deflation. “Negative Inflation” is the preferred nomenclature, or better yet: “Joyflation.”

Some of his other pearls: “We’re facing a shameful embellishment of the statistics to justify the effectiveness of troika policies.”

…The truth is that Greece’s debt cannot be repaid as long as our economy is subjected to constant fiscal waterboarding,” Tsipras said in Handelsblatt.

Sorry, the truth is that Greek debt cannot be repaid, period.

[source]

Posted in Debt, European Debt Crisis |

Russian Debt Safer Than U.S.? So Says China Rating House Dagong

09-Jan (Bloomberg) — A currency crisis, recession and plunge in the price of its key export don’t mean Russia is any less creditworthy than the U.S., according to one of China’s biggest debt-rating companies.

Just the opposite — it’s a better credit risk, says Dagong Global Credit Rating Co. The firm, which downgraded U.S. government debt in October 2013 to A-, today said it has decided to maintain Russia’s rating at A with a stable outlook.

“The debt repayment environment has somewhat deteriorated but is expected to stabilize in the medium term,” Dagong said in an emailed statement regarding its assessment. “As the economy stabilizes and the monetary policy normalizes, the domestic credit environment will gradually recover.”

[source]

Posted in Debt |

Russia downgraded one notch by Fitch

09-Jan (Financial Times) — Russia’s sovereign rating was downgraded one notch to ‘BBB-’, the last level above junk, on Friday by Fitch Ratings as the country’s economic outlook continues to worsen and oil slides.

The agency blamed a deterioration in both crude oil prices and the rouble, coupled with a steep rise in interest rates, for its move. Russia’s economy has stalled since Western nations sanctioned the country over its annexation of Crimea and for nurturing separatists in Ukraine’s industrial heartlands.

Fitch, which projected the economy would contract by 4 per cent in 2015, left maintained its negative outlook, indicating it could downgrade Russia’s rating further.

[source]

Posted in Debt, Economy |

National Debt: $18,091,316,381,602.62

PG View: And let us not forget this mind-numbing number…

Posted in Debt |

Germany Open to Possible Greek Euro Zone Exit

05-Jan (Der Spiegel) — There was a time when Germany feared the consequences were Greece to leave the euro zone. Now, though, with Greek elections approaching, Chancellor Angela Merkel is willing to accept a “Grexit” should a new leftist government in Athens demand concessions.

At midnight, Lithuania’s days without the euro came to an end. As the calendar flipped to 2015, the countdown clock hanging over the entrance to the country’s central bank hit zero and fireworks shot into the air above the city palace in Vilnius. People celebrated in the streets and in the bars of the Lithuanian capital as a euro symbol was projected onto the facade of the city’s neoclassical cathedral. Not long later, Prime Minister Algirdas Butkevicius withdrew a 10-euro note from a cash machine decorated especially for the occasion.

Lithuania is now the 19th member of the euro zone. The country’s currency, the litas, is history, making way for the “euras,” as the European common currency is known in the country.

In Greece, meanwhile, 2,000 kilometers (1,243 miles) to the south, a different kind of countdown is proceeding apace. In contrast to Lithuania, however, the days being counted could be the final ones in the country’s participation in the euro zone. On Jan. 25, Greek voters will be heading to the polls for parliamentary elections. Should the leftist alliance Syriza win, as polls show it might, the euro could soon be history in the country.

Some five years after its outbreak, the euro crisis is returning to its geographic starting point. Once again, Greece is providing the stage for a conflict that is much more significant than the country itself. And once again, the North-South conflict’s focus is the German-designed austerity and reform program that all crisis countries have had to adopt in order to become eligible for billions in bailout money from EU funds.

[source]

Posted in Central Banks, Currency Wars, Debt, European Debt Crisis |

Beware Euro Complacency on Greek Exit

05-Jan (The Wall Street Jpurnal) — The eurozone is playing with Greek fire again. One suggestion is that, unlike in 2011 and 2012, the region is now strong enough to withstand a Greek exit from the euro. That is a dangerous idea.

Greece’s elections, due Jan. 25, are being painted as a renewed referendum on whether the country remains in the single currency. That probably overstates the risks: the left-wing Syriza party, leading the polls, isn’t campaigning for an exit and a majority of Greek voters want to keep the euro. But a victory for Syriza, which wants Greece’s debt burden to be eased, will lead to tricky negotiations with the rest of Europe. If those negotiations become a standoff, events might yet conspire to propel Greece out of the euro.

To be sure, there is little sign of worry in financial markets over this risk, in sharp contrast to previous debates about “Grexit”. Greek bonds have collapsed, but 10-year yields for Italy and Spain are well under 2%; for Portugal they have fallen under 2.5%. Contagion is noticeable by its absence. But the decline in yields is a response to the prospect of the European Central Bank buying eurozone government bonds, an event that is much more likely than a Greek exit.

[source]

Posted in Debt, European Debt Crisis |

‘Grexit’ may be manageable, but Berlin wants Athens to stay

05-Jan (Deutsche Welle) — Speculation has grown in Germany that politicians are considering a Greek exit from the eurozone. The one thing that they agree on is that if Greece is to stay, it must comply with the terms of its bailout.

The conjecture was sparked by a report published in the online edition of the German newsmagazine “Spiegel” on Saturday, which said that Chancellor Angela Merkel now believed that the eurozone could cope with Athens leaving the common currency, a scenario popularly dubbed a Greek exit or “Grexit.”

The report said both the chancellor and her finance minister, Wolfgang Schäuble, believed that the eurozone had implemented enough reforms since the height of the eurozone crisis in 2012 to make a potential Greek exit manageable.

[source]

Posted in Debt, European Debt Crisis |

Euro falls to nine year low; Greece and ECB in focus

05-Jan (Reuters) – The euro hit a near nine-year low on Monday as markets bet the prospect of inflation across the region turning negative and political uncertainty in Greece will force the European Central Bank to launch quantitative easing.

European shares were under pressure after the Athens bourse slumped again and, amid yet another hefty slide in oil prices,

Wall Street was expected to open lower too.

The euro fell as low $1.18605 EUR= overnight, its weakest level since March 2006, and was struggling at $1.1895 as U.S. trading began to gather momentum.

Investors taking a punt that the ECB will open up a bond-buying program as the U.S., UK and Japanese central banks have done were emboldened by an interview with ECB president Mario Draghi in German paper Handelsblatt on Friday.

He said the risk of the central bank not fulfilling its mandate of preserving price stability was higher now than half a year ago.

[source]

Posted in Central Banks, Currency Wars, Debt, Economy |

Europe Braces for Economic Fallout as Greece Heads to Early Elections

29-Dec (New York Times) — Governments and investors across Europe braced for renewed economic upheaval on Monday after the Parliament in Greece failed to avert an early general election, reviving the toxic debate over austerity as the way to cure the Continent’s economic woes.

Senior European Union officials immediately urged Greek voters — now headed to the polls on Jan. 25 — to focus on continuing the policies that have enabled the country to ride out its previous monetary crisis and remain part of the eurozone, and that have begun to restore the country’s battered reputation for fiscal management.

But with household incomes down by a third from what they were before the policies were adopted, and unemployment higher than 25 percent, polls have indicated support for Syriza, a leftist party that opposes the deep budget cuts Greece has made in recent years as a condition of financial bailouts.

Syriza has said it wants to renegotiate the two bailouts, worth 240 billion euros, or about $292 billion, obtained from Greek’s so-called troika of lenders — the European Commission, the European Central Bank and the International Monetary Fund — since 2010, and get its creditors to write off some of Greece’s crippling debts.

[source]

Posted in Debt, Politics |

Senate passes spending bill, ends government shutdown threat

14-Dec (Reuters) – The U.S. Senate on Saturday passed a $1.1 trillion spending bill that lifts the threat of a government shutdown as Congress attempts to wrap up a two-year legislative session marked by bitter partisanship and few major accomplishments.

The Senate’s 56-40 vote sends the measure to President Barack Obama, who is expected to sign it into law before federal spending authority expires at midnight on Wednesday.

Passage of the 1,603-page bill was a long, tough struggle in the Senate and the House of Representatives marked by bitter disputes over changes to banking regulations and Obama’s recent executive order on immigration.

[source]

Posted in all posts, Debt, Politics |

Italy’s Long-Term Credit Rating Cut by S&P on Economic Weakness

05-Dec (Bloomberg) — Italy’s long-term credit rating was lowered by Standard & Poor’s, which cited weak growth prospects and high public debt.

The New York-based company revised its unsolicited long-term rating to BBB- with a stable outlook, from BBB.

“The downgrade reflects the recurrent weaknesses we see in Italy’s real and nominal GDP performance, including its eroded competitiveness, which are undermining the sustainability of its public debt,” S&P said today in a statement. “We expect the Italian economy to exit recession in early 2015, although we forecast only a modest GDP recovery of about 0.2 percent, compared with our previous forecast of 1.1 percent for next year.”

[source]

PG View: Europe’s fourth largest economy is now one-notch above junk.

Posted in Debt, Economy |

Only Yesterday – How The Federal Debt Went From $1 Trillion To $18 Trillion in 33 Years

by David Stockman, Former Director of the Office of Management and Budget
05-Dec (Zero/hedge) — In the great fiscal scheme of things, October 22, 1981 seems like only yesterday. That’s the day the US public debt crossed the $1 trillion mark for the first time. It had taken the nation 74,984 days to get there (205 years). What prompts this reflection is that just a few days ago the national debt breached the $18 trillion mark; and the last trillion was added in hardly 365 days.

…Two thing are therefore evident.

The first is that massive monetization of the public debt cannot go on much longer or the monetary system will be destroyed. That’s what being stuck on the so-called zero-bound really means. And that’s why the lunatic money printing in Japan is a sign that the end of the monetization era is at hand.

In the case of Japan, the largest debtor government in the world has already destroyed its own bond market—-the BOJ is the only bid left at 0.4% on the 10-year JGB. And the BOJ is now fast deep-sixing the yen, as well.

Secondly, the US nominal GDP has been growing at less than 4% annually for the last decade, and, in a deflationary world, it has no chance of breaking away from that constraint. Accordingly, the ridiculously optimistic rosy scenario currently projected by CBO does not have a snowball’s chance of materializing over the next decade. Rather than $8 trillion of cumulative baseline deficits over the next ten years as projected by CBO, the current policy stalemate in Washington—that has been running for 30 years now— will generate at least $15 trillion of new public debt in the decade ahead.

Yes, add that to the nation’s current mountain of public debt and you get to $33 trillion by 2024 or so. And then also recognize that the giant financial bubble and vast malinvestments generated by the worlds central banks over the last two decades now guarantee a long spell of global deflation.

Accordingly, US nominal GDP will be lucky to reach $24 trillion by that same year. The math computes out to a public debt equal to 140% of GDP. For all practical purposes, it means an endless fiscal crisis lurks in the nation’s future.

[source]

Posted in Debt, Economy |

Total US Debt Rises Over $18 Trillion

01-Dec (ZeroHedge) — Last week, total US debt was a meager $17,963,753,617,957.26. Two days later, as updated today, on Black Friday, total outstanding US public debt just hit a new historic level which probably would be better associated with a red color: as of the last work day of November, total US public debt just surpassed $18 trillion for the first time, or $18,005,549,328,561.45 to be precise, of which debt held by the public rose to $12,922,681,725,432.94, an increase of $32 billion in one day.

It also means that total US debt to nominal GDP as of Sept 30, which was $17.555 trillion, is now 103%. Keep in mind this GDP number was artificially increased by about half a trillion dollars a year ago thanks to the “benefit” of R&D and intangibles. Without said definitional change, debt/GDP would now be about 106%.

[source]

Posted in Debt |

Congress has 2 weeks to avert a government shutdown

01-Dec (AP, via NPR) — Lame-duck lawmakers return to Washington on Monday facing a stacked agenda and not much time to get it all done before the new Congress convenes in January and a Republican takeover is complete.

Their to-do list includes keeping the government running into the new year, renewing expired tax breaks for individuals and businesses and approving a defense policy measure that has passed for more than 50 years in a row. They hope to get it all done in two weeks without stumbling into a government shutdown.

…The No. 1 item is preventing a government closure when a temporary funding measure expires on Dec. 11. The House and Senate Appropriations committees are negotiating a $1 trillion-plus spending bill for the budget year that began Oct. 1 and are promising to have it ready by the week of Dec. 8.

[source]

Posted in Debt, Politics |

Japan downgraded by Moody’s amid rising fears over debt

01-Dec (BBC) — Moody’s has cut Japan’s credit rating by one notch over rising doubts about its ability to reduce debt levels.

The decision by the ratings agency sent the yen to a seven-year low against the US dollar.

The downgrade comes less than a two weeks before a snap general election called by prime minister Shinzo Abe.

His economic stimulus policies and a decision to delay a second sales tax rise will be among the key campaign issues.

Japan’s public debt is twice the size of its economy. Some commentators doubt whether Mr Abe’s strategy will revive the economy and restore the country’s battered public finances.

[source]

Posted in Debt |

German bond yields to trump Japan as ECB battles deflation

By Ambrose Evans-Pritchard
14-Nov (Telegraph) — German bond yields are to fall below Japanese levels and plumb depths never seen before in history as Europe becomes the epicentre of global deflationary forces, according to new forecast from the Royal Bank of Scotland.

We are seeing `Japanification’ setting in across Europe,” said Andrew Roberts, the bank’s credit strategist. “We expect 10-year Bund yields to cross the 10-year Japanese government bond and we are amply positioned for such an outcome.”

Mr Roberts said it is a “weighty win-win” situation for investors. If the European Central Bank launches full-blown quantitative easing, it will almost certainly have to buy large amounts of German Bunds, and these are becoming scarce.

“Net supply in Germany is zero since they are in budget surplus this year and next, and they have written a balanced-budget amendment into their constitution. There are simply fewer and fewer Bunds to buy, and everybody wants them,” he said.

It is assumed that if the ECB buys sovereign bonds, it will have to buy them evenly in accordance with its capital “key”. This implies that 28pc would have to be German debt.

…Mr Roberts said ECB chief Mario Draghi is a “super-dove” who has to disguise his views but is in reality leading the North’s hawkish bloc by the nose. “He has to tread a bit more delicately given sensitivities in a couple of Teutonic countries. This year, for all the talk of QE being a step too far, they have actually already been easing aggressively. They are not sitting on their hands,” he said.

[source]

Posted in Central Banks, Debt, Monetary Policy, QE |

U.S. 10-Year Treasury Yield Falls Below 2%

15-Oct (The Wall Street Journal) — The Benchmark U.S. 10-year Treasury bond yield dropped below 2% on Wednesday for the first time in 16 months as anxiety over the global economic outlook intensified.

The 10-year note’s yield fell to as low as 1.858%, the lowest intraday level since May 2013, according to Tradeweb, representing the latest leg of a monthslong slide that has caught many investors by surprise. Yields fall as prices rise.

Tumbling yields came as investors rushed into ultrasafe U.S. government debt. A round of U.S. economic releases Wednesday added to concerns over the global economy as they raised the question whether the U.S. growth could withstand the impact from a faltering economy in Europe.

[source]

Posted in Debt |

WSJ Breaking: The ten-year yield on U.S. Treasurys dips below 2% for the first time since June 2013

Posted in Debt |

Greek bond yields pass 7% as worries return

14-Oct (CNBC) — Greek government bond yields shot up on Tuesday, amid growing concerns about Athens’ plans to leave its bailout program ahead of schedule.

The yield on benchmark 10-year notes hit 7.118 percent on Tuesday morning, passing the 7 percent mark for the first time since March.

It comes after Prime Minister Antonis Samaras won a confidence vote in parliament early Saturday, with the backing of all 155 conservative and Socialist lawmakers in his coalition. He called the poll to force lawmakers to back his plans to exit its international bailout program ahead of schedule.

Greece is hoping to leave its bailout program early and meet its funding needs through the debt markets, rather than call on the “Troika” organizations running Greece’s bailout program– the European Commission, European Central Bank (ECB) and International Monetary Fund (IMF) —for more assistance.

[source]

Posted in Debt, European Debt Crisis |

Treasury prices surge amid global growth concerns

14-Oct (MarketWatch) — Treasury prices jumped Tuesday, sending yields sharply lower as bond traders fretted about the pace of global growth. Those concerns heightened after a measure of German economic sentiment turned negative for the first time in nearly two years and the German government slashed its growth forecasts for 2014 and 2015. The 10-year U.S. Treasury note, which falls as prices rise, was down 11 basis points on the day at 2.194%, according to Tradeweb. The 5-year note yield sank 12.5 basis points to 1.432%. The 10-year German bond fell 5 basis points to 0.842%, on track to close at a fresh record low.

[source]

Posted in Debt |

Low rates are jamming the economy’s vital signals

by James Grant
12-Oct (Financial Times) — It will take many cranks on the interest-rate winch before the Federal Reserve lifts borrowing costs off the floor. The intended consequences of ultra-low interest rates are seemingly benign. It is the unintended ones that make the mischief.

Rock-bottom rates themselves are hardly new. Victorian creditors suffered under them. As Walter Bagehot quipped in 1852 about John Bull, he “can stand many things, but he can’t stand 2 per cent”. What is new today is the overlay of officially sponsored bull markets on governmentally suppressed interest rates. To muscle up stock prices (and bond and real estate prices) central banks have been pushing down the cost of capital. It is a species of price control.

True, many people today are richer thanks to the new monetary experiments – “learning by doing”, as former Fed chairman Ben Bernanke candidly characterised them. Even a profligate state can afford to finance its burgeoning public debt at interest costs of 2 per cent or less. The financial classes, especially, have gained by zero per cent funding costs and purely nominal junk bond yields. Savers have suffered, yet – remarkably enough – they have mainly suffered in silence. So much for the immediate, seemingly wholesome consequences of interest rate control. Just over the horizon are the consequences that the mandarins did not think of.

[source]

Posted in Debt, investments |

U.S. National Debt: $17,824,071,380,733.82

Posted in Debt |

Gross Exposes $42 Trillion Bond Market’s Key Flaw in Exit

01-Oct (Bloomberg) — One man shook a $42 trillion bond market last week, highlighting just how vulnerable bond prices are to shocks.

Bill Gross’s surprise departure on Friday from Pacific Investment Management Co. sparked selloffs in some of his biggest wagers, such as inflation-protected U.S. government bonds. The most-traded assets quickly recovered after the exit of the star trader, who dominated the $2 trillion asset manager’s investment strategy. But the less-traded ones are still feeling the effects, according to David Leduc, chief investment officer at Standish Mellon Asset Management Co.

“What you’re seeing most of is a lack of liquidity in the bond market,” said Christopher Orndorff, a money manager at Western Asset Management Co. “When you get a dislocation like this, it tends to exacerbate price movements maybe more than what you’d have seen 10 years ago.”

[source]

PG View: The massive bond market is built on a foundation of sand. The relative illiquidity of the market of late is a direct result of the faux liquidity provided by global central banks in recent years.

Posted in Debt |

The End of Monetary Policy

28-Sep (MauldinEconomics) — The Organization for Economic Cooperation and Development has a marvelous website full of all sorts of useful information. Let’s start by looking at inflation around the world. This table is rather dense and is offered only to give you a taste of what’s available.

What we find out is that inflation is strikingly, almost shockingly, low. It certainly seems so to those of us who came of age in the ’60s and ’70s and who now, in the fullness of time, are watching aghast as stupendous amounts of various currencies are fabricated out of thin air. Seriously, if I had suggested to you back in 2007 that central bank balance sheets would expand by $7-8 trillion in the next half-decade but that inflation would be averaging less than 2%, you would have laughed in my face.

…Gross domestic product around the developed world ranges anywhere from subdued to anemic to outright recessionary:

The G-20 itself is growing at an almost respectable 3%, but when you look at the developed world’s portion of that statistic, the picture gets much worse. The European Union grew at 0.1% last year and is barely on target to beat that this year. The euro area is flat to down. The United Kingdom and the United States are at 1.7% and 2.2% respectively. Japan is in recession. France is literally at 0% for the year and is likely to enter recession by the end of the year. Italy remains mired in recession. Powerhouse Germany was in recession during the second quarter.

Let’s put those stats in context. We have seen the most massive monetary stimulation of the last 200 years in the developed world, and growth can be best described as faltering. Without the totally serendipitous shale oil revolution in the United States, growth here would be about 1%, or not much ahead of where Europe is today.

[source]

PG View: Mauldin’s insights about deflation, anemic growth and rising debt levels are supported by The Geneva Report that also came out this week. In combination, the two reports should illicit a level of concern among investors that should prompt defensive portfolio adjustments that very-well should include gold.

Posted in Central Banks, Debt, Deflation, Economy, Monetary Policy |

Mass default looms as world sinks beneath a sea of debt

29-Sep (Telegraph) — As if the fast degenerating geo-political situation isn’t bad enough, here’s another lorry load of concerns to add to the pile.

The UK and US economies may be on the mend at last, but that’s not the pattern elsewhere. On a global level, growth is being steadily drowned under a rising tide of debt, threatening renewed financial crisis, a continued squeeze to living standards, and eventual mass default.

I exaggerate only a little in depicting this apocalyptic view of the future as the conclusion of the latest “Geneva Report”, an annual assessment informed by a top drawer conference of leading decision makers and economic thinkers of the big challenges facing the global economy.

Aptly titled “Deleveraging? What Deleveraging?”, the report points out that, far from paying down debt since the financial crisis of 2008/9, the world economy as a whole has in fact geared up even further. The raw numbers make explosive reading.

Contrary to widely held assumptions, the world has not yet begun to de-lever. In fact global debt-to-GDP – public and private non financial debt – is still growing, breaking new highs by the month.

[source]

Posted in Debt, Economy |

Germany Secures Record Low Funding Cost at Bond Auction

17-Sep (The Wall Street Journal) — Investors paid a hefty price tag for the privilege of buying German government debt on Wednesday, in a fresh sign of how the European Central Bank’s monetary easing policies are upending the region’s bond markets.

The German Finance Agency sold €3.341 billion ($4.33 billion) of a September 2016-dated treasury note at a record low average yield of -0.07%, the Bundesbank said. That effectively means investors have paid to buy the debt for the first time since December 2012. At its previous similar sale in August, Germany sold debt for a 0% yield.

“Negative auction yields even in the two-to-three-year part of the German curve are a good illustration of the current depressed interest rate environment,” said Jan von Gerich, chief strategist at Nordea. The decline in yields is likely to continue as the full range of ECB easing measures emerges over time, he added. Bond yields drop when prices rise.

[source]

Posted in Debt |

JGBs fall as yen weakens; 10-yr yld hits 2-month high

10-Sep (Dow Jones) — TOKYO–Japanese government bonds softened for a second day Wednesday as the yen weakened against the dollar.

Taders said that Japanese sovereign debt came under selling pressure after the yen fell to nearly a six-year low against the greenback and U.S. Treasurys fell overnight. Some investors also took profits ahead of the end of the first half of the fiscal year in September, they said.

The benchmark 10-year JGB yield was up 1.5 basis points at 0.540% as of 0600 GMT, after touching 0.545% during afternoon trading, its highest level since July. Lead December JGB futures finished down 0.15 at 145.65.

Market participants also paid attention to a speech by Bank of Japan Deputy Gov. Kikuo Iwata to business leaders in northwestern Japan, after market participants said that the central bank likely bought short-term Japanese government debt at a negative yield Tuesday.

Mr. Iwata said that it was “not a problem” for the bank to buy JGBs at a negative yield, but did not say whether or not the bank actually bought debt at negative yields.

“Even though long-term yields are far from zero, this showed that even if yields fall in the course of the Kuroda BOJ’s quantitative and qualitative easing, that won’t -at least now – result in restrictions on policy,” said Mitsubishi UFJ Morgan Stanley Securities strategist Naomi Muguruma.

Strategists say the BOJ’s stance of allowing purchases of Treasury discount bills at negative rates will likely keep short-term rates pinned down.

[source]

PG View: Buying a bond with a negative yield goes against every tenet of investing. This is going to end badly…

Posted in Currency Wars, Debt |