Fixed Income Roundup: No Consensus on Returns and Risk

Fri, 04/13/2012 - 09:50 EDT - Seeking Alpha

CFA Institute

By CFA Institute:
by Jason Voss, CFA
As I have stated for the previous two months, investors and, consequently, journalists have largely moved on from the European Sovereign Debt Crisis. While in the last week fears of Spain's mounting economic problems -- as logged by feet-on-the-street protests, uncertain statements from the Spanish government, and increasing bond yields -- have seemingly reinvigorated fears of a European implosion, the fact remains that investors are emphasizing other things. Furthermore, there seems to be no global consensus on what the direction of returns and risks will be. The following important stories emphasize this point:

My feeling as to the most important story of the past month is the increasing amount of primary market debt financing done by European businesses. Historically, businesses looked to intimate banking relationships in order to raise capital. Unfortunately, the result of this incestuousness is that sovereigns, banks, and businesses in Europe have highly

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Rwanda Is Spain Even As PIMCO/Blackrock Cut European Exposure
When Spanish bonds traded at yields above 7% last Summer, the world's central banks went into a whirlwind to proclaim that these levels did not represent reality (in spite of the depression-era style economic data the nation was spewing). Fast forward nine months, the data is worse and getting worserer but yields - through the guiding hand of Draghi, the self-referential buying of domestic banks, and the BoJ's risk-is-no-object reach for anything non-JPY denominated - have crushed to 4.3% pre-crisis levels.
The BoomBustBlog Pan-European Distressed Asset Acquisition Initiative
Believe it or not, we actually have a mini-bubble within this bubble crash as vulture investors fight for the scraps disgorged by indebted sovereigns and over-leveraged banks.
Europe's Ass Backwards Plan to Stimulate Lending
Please consider the ass backwards Measures to Stimulate Bank Lending in the EMU. The European Central Bank may announce a range of measures tomorrow to stimulate bank lending, said three euro-area officials with knowledge of policy makers’ deliberations.
Why Cyprus is Important
European officials have impressed upon investors that the tail risks of a EMU break up have receded markedly. Some officials talk even that the crisis is over. The premium Italy, and to a less extent, Spain, pay over Germany have narrowed to levels that had previously thought possible only if the ECB were to make good on its promise of unlimited (ex ante) purchases. There have been some signs that foreign investors are participating in the primary and secondary sovereign European bond market. Ireland is returning to the capital markets.
Full Spanish Bailout Coming Up; New Record High Yields on Spanish Bonds; Misguided Faith in Can-Kicking
Inquiring minds are watching the implosion of Spanish bonds. Spain 10-Year Government Bonds Spain 2-Year Government Bonds
EU Throws Spain Two Deathlines; Spanish 10-Year Yield Tops 6.7%; ECB Rejects Madrid Ponzi Refinancing Scheme
EU Throws Spain Two Deathlines; Spanish 10-Year Yield Tops 6.7%; ECB Rejects Madrid Ponzi Refinancing Scheme The markets are reeling in the wake of rejection of Spain's Ponzi Recapitalization Scheme by the ECB according to the Financial Times.
Italy’s sovereign debt rating downgraded
Standard & Poor’s has downgraded Italy’s sovereign debt rating one notch to A from A+, having considered the country’s “weakening economic growth prospects” and the Italian government’s limited ability to respond to events. Commenting on the news, economic think tank Re-define, warns: “Italy is now struck in a self-fulfilling downward spiral from which it is unlikely to be able to extract itself without external help.”
Official Denial Signals Spanish Bailout Imminent; Dreadful Result in Spanish Bond Auction, 6.975% Yield on 10-Year Debt; Merkel says "ECB Cannot Solve Euro Crisis"
The ECB stepped into the fray once again today but the the results of the Spanish debt auction today speak for themselves. The rate on 10-year bonds is close to touching the 7% mark. The BBC reports on the "Dreadful Result" The Spanish government sold 3.56bn euros (£3.04bn; $4.79bn) worth of bonds out of a maximum target of 4bn euros. The auction attracted bids worth 1.5 times the securities offered. The so-called bid-to-cover ratio was down from 1.8 in October.
Gold and dollar pop on euro debt crisis
Article written by Prieur du Plessis, editor of the Investment Postcards from Cape Town blog.This post is a guest contribution by Dian Chu, market analyst, trader and author of the EconMatters blog.
Would Another European Managing Director At The IMF Be The Answer For Greece?
By Simon Johnson; for more on related issues, see my new Bloomberg column on the IMF succession. For more background on the IMF, see Tuesday’s Planet Money Podcast. Greece has no good options. Without question, Greece brought debt problems on itself – this is the consequence of politicians using irresponsible fiscal policy to win elections.

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Fixed Income Roundup: No Consensus on Returns and Risk

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