Archive for the ‘Sovereign Debt’ Category

Notes From Underground: Brazil goes; New Zealand goes; and the ECB and England will hold steady tomorrow

June 9, 2010

Tonight, we got word that the Central Bank of Brazil raised their lending rate another 75 basis points to 10.25 percent. This was widely anticipated, especially after yesterday’s strong GDP numbers. Furthermore, the RBNZ raised rates another 25 basis points to 2.75 percent in a move that was not widely anticipated, which put a bid to the Kiwi dollar. The global growth story is definitely favoring the Asian and BRIC countries, while the developed economies are struggling to overcome the tremendous debt loads that carried their economies following the economic downturn from 2001-2003.


Notes From Underground: European Financial Stability Facility is born in an effort to relieve European labor pains

June 8, 2010

The new Special Purpose Vehicle (EFSF) was explained in greater detail today but is still not totally clear as to its operation. What we do know is that the EFSF will be able to lend to troubled nations at a much better rate then the stressed debtor would be able to borrow on its own. The facility will be backed by the pro-rata guarantees in reference to its capital base and weighting in the ECB. By clubbing together, the Europeans will be able to issue joint bonds backed by lots of collateral, thus giving credibility to the EFSF. It is believed that the EFSF will be AAA-rated because of the underlying soundness of the non-profligate. Also, the fund can only be tapped by  the nation in stress after it has agreed to substantial changes in their economy in order to correct the imbalances.


Notes From Underground: Friday’s Jobs report sent the market into a JOB-like state

June 6, 2010

The unemployment report in the U.S. was much weaker than the White House pre-supposed. Yes, the Census created 400,000-plus  jobs, but somebody forgot to tell the president that while 400,000 jobs is a nice headline number, the market was looking for more growth from the private sector. Prior to the jobs number, the Canadian data was released and that was stronger than anticipated but the unwind of risk couldn’t help the LOONIE.


Notes From Underground: NEWSFLASH-we are downgrading FITCH!

May 30, 2010

We couldn’t resist taking this shot at the late-Friday news that Fitch downgraded Spanish debt to AA+ from AAA, which left us dazed and confused. Why did this ratings agency decide to release this on the Memorial Day weekend when the markets were thin and subject to a very volatile reaction? This decision is not of consequence as S&P downgraded Spanish debt in April. Could this ratings release not have waited until Tuesday when the markets were back at full strength and had deeper liquidity? Would Fitch’s reputation have suffered if they had waited another few days to make this inconsequential change?


Notes From Underground: Just when the market thought it was safe to rally … SAFE is rumored to signal OUT

May 26, 2010

We thought we were finally getting a little relief rally in the equities, with a thaw in the Libor/OIS and the EURO FX market attempting to hold onto its late gains of yesterday, when rumors about the Chinese State Administration of Foreign Exchange (SAFE) wanting to dump euro-denominated assets. There was no name to the spokesperson who made the statement. We are very skeptical of this rumor because if the Chinese were serious about wanting to dump euro debt, we doubt they would announce their intentions. As we mentioned yesterday, it was the Chinese deciding not to buy Greek debt that set the current debt crisis into motion. Adding to the euro’s problem was the 5 year BOBL auction in Germany that did not get the fulfillment of BIDS, thus a “failed” auction.


Notes From Underground: Hazy Global Outlook

May 21, 2010

Yra Harris talks about the markets on CNBC.

Click on the image to watch Yra talk financial reform and sovereign debt markets on CNBC’s “Squawk on the Street.”

Notes From Underground: The Germans took the low Autobahn

May 18, 2010

We will not publish again until Thursday night but before today, but here is something to tide you over.


Notes From Underground: How one would go about the sterilization of the European quantitative easing

May 17, 2010

In the latest tales of Jean Claude Trichet, the ECB’s sovereign bond purchases is not a real quantitative ease because the large liquidity addition is to be cleaned up quickly so as not to be inflationary. When the FED and the Bank of England did its QEs, there was no talk of STERILIZATION because the financial systems were in desperate need of large doses of liquidity. Bernanke and company are now trying to figure out ways to free up the FED balance sheet with talk of reverse repos, term deposits and, most significantly, the selling of MBSs into the market. The BOE has not even contemplated removing the QE and they allude to the idea that another £25 billion may be added as a precaution.


Notes From Underground: Lib/Dems and the Labors of a HUNG Parliament lasting more than 24 hours

May 10, 2010

First things as usual are European.The Eurozone financial package was greeted with enthusiasm but the effects of the Champagne wore off and all the market was left with was bubbles in the air. We are not certain how large the “bailout” is, but it seems to consist of €440 billion of loan guarantees for governments that run into severe difficulties. There’s a €60 billion balance of payments facility and the IMF has agreed to add an additional €250 billion.


Notes From Underground: Employment numbers were robust … YADA YADA YADA

May 7, 2010

Both Canada and the U.S. reported strong job numbers and the market paid heed for a very short period of time. We are focused on credit for that is where the markets are focused. The global markets are enamored with the possibility of combined action by the G7 members, especially with the ECB leading the way by providing a massive dose of short-term liquidity to remove the pressure on the LIBOR rate–European Banks are having funding problems on the overnight markets.