From this week's IFR Magazine
Released on Fridays
16:00 London / 11:00 New York
It’s no secret that many banks’ equity derivatives businesses have struggled to make money over the past few years. Rising cost bases have proved a drag, just as poor global growth prospects have ensured that equity weightings among institutional investors have slumped to all-time lows.
Extreme volatility in the Japanese government bond market could trigger a sell-off on a par with a market rout in the third quarter of 2003. That was when local banks and foreign investors were forced to dump their JGB holdings after heightened volatility caused the assets to exceed internal value-at-risk limits.
Investors betting on a continuation of Japan’s six-month runaway bull market suffered their biggest scare yet on Thursday as the Nikkei 225 lost more than 7% – its largest one-day loss in more than two years.
Goldman Sachs last week wrong-footed rivals by completing two sizeable follow-on block trades in one evening, overcoming the latest swoon in global stock markets and the ECM team’s own antipathy to such risk trades to deliver a tight pricing outcome on both deals.
The steady rise of global indices to multi-year highs has been accompanied by a growing fear of the correction that will follow.
China’s Hengan International Group printed Asia’s largest non-renminbi convertible bond in two years last week, raising hopes that even bigger fundraisings could follow.
Malaysia is poised to play host to Asia’s first public issue of loss-absorbing bank debt since the region began the transition to Basel III standards earlier this year.
The owners of OMX-listed Pandora last week took advantage of a remarkable 10-month run for the Danish jeweller’s stock, selling 10% of the company to raise DKr2.6bn (US$350m).
Deutsche Bank added yet more depth to the burgeoning bank capital market last week with the sale of a brand new structure for Tier 2 debt that should now pave the way for the bank to sell Additional Tier 1 bonds over the next 12 months.
Egypt will partly fund its rapidly expanding fiscal deficit by issuing bonds, starting with an Islamic bond issuance at the beginning of 2014, the country said, after a bitterly-contested sukuk law was signed off by the president earlier this month.
A strong following among US investors paved the way for Vedanta Resources to print the biggest ever high-yield corporate bond from Asia ex-Japan – beating its own record.
Plans to introduce loss-absorbing bank bonds in the Philippines have been put on hold after the central bank insisted that investors sign an additional disclosure confirming they understand the risks involved.
El Corte Ingles’ announcement that it is considering tapping the syndicated loan market for the first time as part of a €5bn debt restructuring has raised doubts among lenders over whether there would be sufficient appetite for such a deal.
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IN A WEEK that witnessed the remarkable spectacle of Anshu Jain, Deutsche Bank’s co-CEO, delivering his speech to the annual shareholders’ meeting in German – a painfully strangled version of the language of Goethe according to native speakers but hats off to him nevertheless for the ballsy effort – Morgan Stanley perhaps produced the bigger splash as the firm’s veteran head of fixed-income sales and trading Ken deRegt upped sticks and left the firm – again.
SO THE VERSION of events being touted by Japan bulls is that last week’s one-day 7.3% plunge in the Nikkei represented simply a pullback for a market that had put in its most supercharged performance over six months since 1953. This presents a major buying opportunity for those who believe “Abenomics” and the newly pugilistic Bank of Japan will drag Japan out of its two lost decades – or so the story goes.
NOT LONG AGO (though well before it was in all the papers) I commented on the slow but persistent revival of the CLO business. In a way, I’m not surprised. To call yields on vanilla credit anaemic would be generous. At the end of the day, no pension or annuity payout has been funded by beating some fatuous benchmark index. It is paid out of hard cash and what investors therefore need is a hearty inflow of dividends and coupons.
The ECB has achieved some successes over the past two years. Its liquidity injections stopped the bleeding in bank deposits, narrowed the gap in core-periphery bond yields, and made markets more resilient to shocks like Cyprus or Italy’s inconclusive elections.
We are now edging closer to a scenario where the reduction in excess liquidity could become an issue for the ECB.
Rising expectations that the US Federal Reserve will pare back its asset purchase programme in the coming months have driven a sell-off across the rates market. But some believe the magnitude of such shifts may have rushed ahead of fundamentals, which paint a more uncertain picture about any imminent tapering in quantitative easing.
For months, markets have been dancing to central bankers’ tune, but that may now be changing. It must have been fun to be a central banker in the early part of 2013: You say “jump” and Mr. Market says “how high?”
Large structural changes afoot in the Europe’s exchange landscape are set to drive one of the biggest shake-ups as new and incumbent players vie to win market share across some of the most liquid futures contracts. At the heart of the battle is the 4.5m of open interest in three-month Euribor futures contracts – a market currently controlled by NYSE Liffe.
The most positive aspect to the IFO report is the breakdown related to the service sector.
Prime Minister Shinzo Abe prepares to woo Myanmar with newly-minted yen, and the country braces for key monthly data. Reuters correspondent Wayne Arnold tells us what to look for in a crucial week ahead for Japan.
(Reuters) Malaysian billionaire Vincent Tan is exploring an IPO of UK football team Cardiff City as early as this year, people with knowledge of the matter told Reuters, in a deal that would follow the team’s recent promotion to the Premier League.
When it comes to the tapering debate what we have is a picture of a Fed that lacks consensus. The most important core group led by Bernanke plays a pivotal role in mapping out a strategy and the testimony highlights that based on the Fed’s dual mandate there is some distance before the conditionality of tapering QE is met.
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