Ireland is downgraded by S&P

We wrote about this in the past, the risk associated with a ratings downgrade to the country, and here it is laid out in plain English.

A downgrade on our rating from AAA to AA+ has the effect that everybody knows about, raising debt is more expensive, so in the past if we had to pay (for instance) 150 basis points over base to clear bond issuances then a downgrade will have you paying (for instance) 180 basis points as the market views your nation as being a higher risk [bear in mind that AA+ is not a ‘likely defaulter’ rating].

However, this has already been priced into our bonds for the most part as they all had to offer higher than average margins to clear, what the downgrade does do though, and the bit that I don’t see in the press and can’t figure out why, is to cause the enforcement of automatic international treasury rules.

What does that mean? It means that there are institutions the world over that have money …

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Ireland is downgraded by S&P

We wrote about this in the past, the risk associated with a ratings downgrade to the country, and here it is laid out in plain English.

A downgrade on our rating from AAA to AA+ has the effect that everybody knows about, raising debt is more expensive, so in the past if we had to pay (for instance) 150 basis points over base to clear bond issuances then a downgrade will have you paying (for instance) 180 basis points as the market views your nation as being a higher risk [bear in mind that AA+ is not a ‘likely defaulter’ rating].

However, this has already been priced into our bonds for the most part as they all had to offer higher than average margins to clear, what the downgrade does do though, and the bit that I don’t see in the press and can’t figure out why, is to cause the enforcement of automatic international treasury rules.

What does that mean? It means that there are institutions the world over that have money …

Read More

The name is 'Bond', 'Failed Bond', UK Economy 'Shaken', but not stirring.

The UK had a failed bond offering last week and that is giving the world some indication of the state of the UK economy. They have failed in their bond auction, something that has not happened since the mid 90’s, the cover gap was 0.93 which is markedly less than the 0.99 cover failure the UK witnessed in the 90’s.

Where to? Where will the bond market go? Where will currencies go? What is going to happen next?

I think you can take this domino and walk through the path it might take. A failed bond means that the UK will have to offer more interest in the future to attract investors, how can you do this? Well, you can continue to print money (which they are effectively already doing), and this will devalue your currency (which is happening already). With a devalued currency and more money you can thus pay off the higher rates you promised in your bond …

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The name is ‘Bond’, ‘Failed Bond’, UK Economy ‘Shaken’, but not stirring.

The UK had a failed bond offering last week and that is giving the world some indication of the state of the UK economy. They have failed in their bond auction, something that has not happened since the mid 90’s, the cover gap was 0.93 which is markedly less than the 0.99 cover failure the UK witnessed in the 90’s.

Where to? Where will the bond market go? Where will currencies go? What is going to happen next?

I think you can take this domino and walk through the path it might take. A failed bond means that the UK will have to offer more interest in the future to attract investors, how can you do this? Well, you can continue to print money (which they are effectively already doing), and this will devalue your currency (which is happening already). With a devalued currency and more money you can thus pay off the higher rates you promised in your bond …

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Treasury outlook, what to expect on the bond market

Charles Diebel of Nomura Internation on his outlook on the treasuries. There has been talk for some time of a treasury bond bubble forming, the scope and depth of this can only be expressed over time, however, the money that has flown out of equities and property must have flown somewhere and perhaps the treasury ‘flight to quality’ is actually going to be the stimulus that caused the treasury bubble to form (if there is one).  The talk of inflation – according to Mr. Diebel- is more of a 2010 story than one of 2009, however, as per our comments in the past, if you are considering a fixed rate mortgage you will have to do so ahead of the curve in order to gain an upperhand on inflation.

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Want to play a part in recovery? Buy our bonds…

I can’t really describe the trepidation of Tuesday, you see, so much hinged on Wednesday that I actually lost sleep over it. What was on Wednesday? The NTMA issuance of €4 billion in Irish Government Bonds.

The way it stood was this, the CDS (credit default swap) spread on Ireland was 400 basis points and that was almost 300 basis points in of a Bund spread (comparing ours v.s. ze Germans), and the auction was going to go one of two ways, either firstly, it would succeed, albeit at high margins, or secondly (and what had me worrying) was that it would fail, then Ireland would be seen as lacking creditworthiness and billions would flow out of the nation in an instant.

I think it’s important to qualify some of this. For starters the fear began due to the CDS spreads, institutional investors use credit default swaps to protect them from a reference entity (in this …

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Market based solutions to the financial crisis

If you want to nationalise a bank then you are putting it into the hands of the state, therefore the taxpayer, so how can you be fair to the people of a country when you nationalise a bank while also giving the shareholders and bondholders some opportunity at redeeming at least a portion of their money, and most importantly, how do you do this with a market based solution? Is there a market based solution?

Currently the answer has been to take the good, the bad, and the ugly onto the national balance sheet. Is this really what the taxpayer wants? Instead would it be better if they only took the good assets – thus protecting the tax payer, and left all of the toxic debt to the bond and shareholders and let them see what they can get out of the remaining assets?

They may not be getting protected (shareholders/preference shareholders/bond holders) but when was it a taxpayers responsibility to protect investors of any firm? It certainly is not in …

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Hedgefunds agree that more transparency is required

Hedge funds, often portrayed as murky operations managing billions upon billions and working offshore with managers earning €100,000,000 a year. The truth is a little different, like in any industry the very top people make exceptional livings doing what they do, the average hedge fund is based around people working hard, and trying to ‘hedge’ their bets, or the bets of their clients.

However, this week at a hearing on the Hill, while being grilled by Congress they agreed that they “see the benefits greater transparency can bring to maintaining stable economies and a healthy global financial system”. It is probably worth talking about hedgefunds and what they do.

The concept is relatively simple, you buy long and short positions. ‘Long’ means that you buy it because its a good stock, or it has good dividend or it is undervalued etc. it is based on the same traditional reason you would buy any stock. ‘Short’ is the reverse, you can buy and sell shares, you can also sell and then buy, …

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