Posts Tagged: government debt

FIIs’ India bond weakens

23 May 2015 - 9:35 am

Foreign institutional investors (FIIs) are selling bonds for the first time since April 2014, having pulled out $1.43 billion so far in May 2015, reports Bhavik Nair in Mumbai. FIIs had sold $1.85 billion in April last year but have since been loading up on debt, especially sovereign securities. In 2015, so far they have pumped in close to $6 billion into the bond market but the selling in May has pressured the currency somewhat; while the rupee was trading at 63.44 to the dollar at the start of the month, it had depreciated to 64.24 by May 7. On Friday, the currency closed at 63.52 to the dollar.

Brijen Puri, MD, head of markets at JPMorgan, says the FII outflows could be due to a combination of factors such as the sell-off in bonds globally, the rise in price of crude oil and uncertainty on rate cuts by the RBI.

Foreign bankers say the investment cycle not kicking off is something that FIIs seem to be keenly watching when deciding on their investment strategy. “If you are looking for one theme that is probably worrying the foreign investors, it would be the lack of growth, the as-yet stalled investment cycle and stressed corporate and banking balance sheets. Credit offtake remains at multiple year lows, capacity utilisation is tepid, as are corporate results,” said Ananth Narayan, regional head of financial markets, South Asia, at Standard Chartered.

FIIs can invest up to $25 billion in government bonds with long-term foreign investors like sovereign wealth funds, central banks and insurance companies being allowed to invest an additional $5 billion above the $25-billion cap.

Foreign investors had utilised the entire quota for gilts by August last year, indicating the attractiveness of Indian paper. >> Read More

If this month’s $1.4 billion withdrawal by global funds isn’t enough to signal faltering demand for Indian bonds, here’s more evidence.
An auction of treasury bills failed for the first time since February on 13 May, while underwriters had to rescue an offering of sovereign notes two days later in the first such forced purchases since August. A sale of 2026 government bonds on 15 May saw the least bids as a proportion of debt on offer since they were first sold in November.
Appetite is waning as a rebound in oil prices coupled with the prospect of weak monsoon rains clouds the outlook for cooling inflation and interest-rate cuts. Indian sovereign bonds are the worst performers among the largest emerging markets this quarter amid a global rout. Overseas funds have turned net sellers in May after 12 straight months of purchases.
“There’s clearly a lack of appetite and investors are hesitant to add more positions,” Badrish Kulhalli, a fixed- income fund manager at HDFC Standard Life Insurance Co. in Mumbai, which manages about Rs.67,000, said in a phone interview on Tuesday. “There’s a risk of failure to meet targets at some more auctions.”
Investors in Indian government notes lost 0.3% this quarter, compared with returns of 7.6% in Russia, 3% in Brazil and 1.7% in Chinese securities, JPMorgan Chase and Co. indexes show. Indian debt was the best among so-called Bric nations in 2014.

>> Read More


Everything has a cost, or so the story goes, especially time. In the Greek case we now know an additional item on the mounting bill: the country is back in recession. The issue is who – apart of course from the long-suffering Greeks themselves – will pay the extra costs of  the latest imbroglio.

 The Cost Of Not Finding A Solution

It is now clear that Greece’s economy has been going backwards over the last 6 months, and that it has once more fallen back into recession. Greek GDP fell by 0.4% in the last three month of 2014, and by a further 0.2% in the Jan – March 2015 period. As a result at the end of March Greek GDP was only 0.3% above the year-earlier level. This is a lot lower than expected in IMF forecasts, and – perhaps more importantly – well out of line with what is needed to maintain the 2022 debt sustainability targets on which continuing Fund support for Greek programmes depends.

Indeed “Greece is so far off course on its €172bn bailout programme that it faces losing vital International Monetary Fund support unless European lenders write off significant amounts of its sovereign debt”, Peter Spiegel wrote in the Financial Times on 4 May 2015. The reason for this is obvious: IMF regulations prevent the Fund continuing to make tranche payments to countries where there is a foreseeable financing shortfall during in the coming twelve months. The worsening in the Greek economic outlook and the consequent reduction in the revenue outlook effectively guarantee this shortfall.

But the sort of debt write-off the IMF is demanding of its European partners goes much deeper than that. Future IMF participation in any new Greek programme after June is also in doubt because without additional pardoning the debt will not be on a sustainable trajectory in terms of the objectives set down and  agreed upon in November 2012.  So you reach a point where extend and pretend hits the proverbial fan. You can, of course, do more extend and pretend till the next time it happens, but at this point the IMF seems reluctant to do so. On the other hand austerity-type spending cuts which only make the economy smaller and the growth path lower simply don’t help in this context, since what they give with one hand (debt reduction) they take away with the other (in the form of lower GDP).

>> Read More

Global Debt Now $200 Trillion!

14 May 2015 - 20:32 pm

 McKinsey Institute says global debt is $199 trillion and unsustainable
- Total global debt is $27,204 for every person living today
- All major economies have “higher levels of borrowing relative to GDP” than in 2007
- 3 risk areas – rising Chinese debt, government and household debt
- Debt report ignores U.S. unfunded liabilities of over $100 trillion
- Major cause of risky, unprecedented debt levels – QE and ultra loose monetary policies not acknowledged
- Risk of new global financial crisis – wealth taxes, currency wars and devaluations and bail-ins

Debt is booming

>> Read More


Bunds: shaken and stirred.

Yields on German benchmark bonds have climbed for the eighth day, as a sell-off of the securities intensifies following widespread commentary that they had become over-valued.

The interest rate yield on ten-year bunds, which moves inversely to the price, had dipped close to zero after European Central Bank president Mario Draghi launched his €1.1tn, sovereign debt-buying monetary stimulus in March.

On Thursday morning this yield, which illustrates what investors believe Germany’s cost of borrowing should be, has climbed as high as 0.66per cent, from 0.586 per cent on Wednesday.

In an indication that global bond investors have become bored with the theory that they should buy government bonds in countries whose central banks are engaged in wide-scale quantitative easing, yields on highly-priced, ten-year Japanese debt have also climbed 7 basis points to 0.43 per cent, in an unusually large move for these securities.

UK government bonds have also joined the rout, with the yield rising to 2.019 per cent, from their close of 1.984 per cent last night.

The sharp correction in the bund market follows a widely reported comment by influential bond investor Bill Gross that the German debt presented short sellers – who bet prices of assets will fall- with the opportunity of the century.


European lenders on Wednesday dashed Greece’s hopes for a quick cash-for-reforms deal in the coming days, leaving Athens in an increasingly desperate financial position ahead of a major debt payment next week.

Talks between the two sides have dragged on for months without a breakthrough and EU officials say Greece’s leftist government has failed to produce enough concessions for a deal at next Monday’s meeting of euro zone finance ministers.

“Since the last Eurogroup quite a bit of progress has been made,» Eurogroup chief Jeroen Dijsselbloem said.

“Still, lots of issues have to be solved, have to be deepened more, with more details, so there will be no agreements on Monday. We have to be realistic.”

Prime Minister Alexis Tsipras’s government remains hopeful the Eurogroup meeting will acknowledge progress in the talks, possibly enabling the European Central Bank to let Greek banks buy more short-term government debt to ease a cash crunch.

But there was no sign in Brussels or Frankfurt that any such easing of the squeeze is likely soon without concrete evidence of progress on reforms.

>> Read More


The ultra-low yields gripping global capital markets made their mark on an ancient seat of learning this week, as an Oxford college became the first UK university institution to issue a bond in 2015.

The £40m bond, which was launched this week by University College, Oxford and matures in 50 years, carries a coupon of 3.1 per cent.

The debt, which was pre-placed on the London Stock Exchange, is lower yielding than any bond issued by a UK university on record, according to Dealogic.

University College’s bond is a sign that a wider range of issuers — from the boardrooms of multinational corporations to the spires of august educational institutes — are aware of the opportunity to lock in long-term credit at historically low rates.

“We were struck by the level of interest rates and it seemed to be an opportunity to bring in external capital for the long-term on good terms,” said Frank Marshall, estates bursar at the Oxford college. >> Read More


Mario Draghi said this week that the transmission channels for European Q€ were opening up and crowed how well his cunning plan was working (by well we assume he means stocks are up). Today we get the ultimate test of that ‘transmission’ as 3-Month EURIBOR fell below 0.00% for the first time ever (likely wreaking havoc on European derivative pricing models). In English that means banks are being paid to borrow from one another in the interbank money-markets (which sounds a lot like a ‘glut’ of excess cash) seemingly confirming ICMA’s de Vidts fears: “We are scared about the [repo] market freezing,” as the ECB is “driving without headlights in the dark.” Of course this is yet another disturbing distortion on the heels of homeowners being paid to take out mortgages…

Banks now paid to borrow from one another…

As fears of the repo market in Europe freezing appear to be confirmed… (via Reuters), 

>> Read More


Kaisa, the Chinese real estate developer that rattled Asian financial markets when itdefaulted on a bank loan at the turn of the year, has failed to make scheduled repayments to international bondholders amid a downturn in China’s economy and the country’s housing market.

The group, based in the factory hub of Shenzhen near the Hong Kong border, admitted it had failed to meet payments that had come due on March 18 on its bonds that are due in 2017 and 2018.

The missed payments were worth a total of $51.6m.

Before Kaisa defaulted on its bank loan, Kaisa’s chairman and major shareholder Kwok Shing Ying left the business. And just before his resignation, the company said authorities in the factory hub of Shenzhen, near the Hong Kong border, had restricted most of its operations in that city, which contributes about a fifth of the company’s sales. Kaisa offered no explanation for the sudden clampdown. >> Read More


As a reminder, China is allowing local governments to refinance a portion of their ~17 trillion yuan debt pile by swapping it for lower yielding bonds. As a percentage of GDP, local government debt has grown to 35% and because a sizeable amount was accumulated off balance sheet via shadow banking channels, it carries relatively high interest rates.

The pilot program will allow for the refinancing of around 1 trillion of that debt, a move which could save local governments some 50 billion yuan in interest payments. As a reminder, here’s what the local government debt picture looks like in China:

>> Read More

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Technically Yours,
Team ASR,
Baroda, India.