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from Global Investing:

The people buying emerging markets

We've written (most recently here) about all the buying interest that emerging markets have been getting from once-conservative investors such as pension funds and central banks. Last year's taper tantrum, caused by Fed hints about ending bond buying, did not apparently deter these investors . In fact, as mom-and-pop holders of mutual funds rushed for the exits,  there is some evidence pension and sovereign  wealth  funds actually upped emerging allocations, say fund managers. And requests-for-proposals (RFPs) from these deep-pocketed investors are still flooding in,  says Peter Marber, head of emerging market investments at Loomis Sayles.

The reasoning is yield, of course, but also recognition that there is a whole new investable universe out there, Marber says:

There has been so much yield compression that to get the returns investors are accustomed to, they have to either go down in credit quality or look overseas. Investors have been globalizing their equity portfolios for 25 years but the bond portfolios still have a home bias. We are starting to see more and more institutional investors gain exposure to emerging markets, and a large number of recent RFPs highlight more sophisticated mandates than a decade ago.

The allocation swing has been especially marked since the 2008 crisis and subsequent Fed money printing that flattened yields across developed markets - the IMF estimated earlier this year that of the half trillion dollars that flowed to emerging bonds between 2010-2013, 80 percent came from big institutional investors.

from Breakingviews:

Japan’s bond-hugging banks are pinning Abe down

By Andy Mukherjee

The author is a Reuters Breakingviews columnist. The opinions expressed are his own.

Japanese lenders’ outsized government bond holdings have Prime Minister Shinzo Abe in a chokehold. Unless banks shed the load now, they might try to dump the debt when the Bank of Japan stops printing money and causes bond prices to fall. A stampede could rattle the financial system and dent Abe’s anti-deflation campaign.

from Breakingviews:

Banco Espirito Santo could lure periphery bulls

By Neil Unmack

The author is a Reuters Breakingviews columnist. The opinions expressed are his own. 

Euro zone periphery bulls should be eyeing up Banco Espirito Santo. The troubled Portuguese bank’s shares were at one point down 20 percent on July 15, and it needs capital to stabilise itself. For hedge funds looking to profit from Europe’s banking recapitalisation, or an acquisitive bank, this is the moment to pounce.

from Global Investing:

Emerging markets; turning a corner

Emerging markets have been attracting healthy investment flows into their stock and bond markets for much of this year and now data compiled by consultancy CrossBorder Capital shows the sector may be on the cusp of decisively turning the corner.

CrossBorder and its managing director Michael Howell say their Global Liquidity Index (GLI) -- a measure of money flows through world markets -- showed the sharpest improvement in almost three years in June across emerging markets. That was down to substantially looser policy by central banks in India, China and others that Howell says has moved these economies "into a rebound phase".

from Counterparties:

MORNING BID – Minute by minutes

The bond market remains pretty much tethered to the 2.50 percent to 2.60 percent range that's prevailed for the 10-year note for quite some time now, with the primary catalyst being today's release of the Federal Reserve's minutes from its most recent meeting. The relevant data that investors are probably paying most attention to - the jobs report last week, the JOLTS jobs survey, shows some more things that is meant to keep the Fed engaged rather than moving toward an imminent increase in rates. The quit rate - the rate at which people leave jobs for others - is still historically a bit on the low side, not at a level that would make the Fed more comfortable that the kind of labor-market dynamism needed for the Fed to shift to raising interest rates. Fact is, the central bank just isn't there yet.

And with that in mind, that means those investors clamoring for higher rates are probably going to continue to see their expectations unmet for a longer period of time, and with sovereign buyers from Europe and Japan wandering outside those halls, there's an ongoing bid in the market that continues to thwart short-sellers who are just waiting for that right moment to bet against the bond market. That's been a lonely trade of late - or rather, a popular trade, just a big loser as trades go.

from Breakingviews:

Don’t believe predictions of low interest rates

By Edward Hadas

The author is a Reuters Breakingviews columnist. The opinions expressed are his own.

Will the new normal for interest rates be lower than the old? It is rapidly becoming conventional wisdom that years of near-zero overnight rates will be succeeded by an indefinite period in which borrowing costs remain low by the standards of the last few decades. The new consensus is reflected in financial markets: the yield on 30-year U.S. Treasury bonds has fallen from 4 percent to 3.4 percent this year. But it is built on unsound foundations.

from Counterparties:

MORNING BID – Crypto-sale of the Century

Details on the sale of about 30,000 bitcoin have been spare, but what can be inferred by reading through the lines is that the sale of about $18 million went a lot better than many expected - particularly those who expected to get the coins on the cheap somehow. The prevailing market rate at the end of Monday was about $639, according to Coindesk, currently the leader in the pricing world, and the chatter trickling out was that the unsuccessful bidders - including hedge fund Pantera and SecondMarket's Barry Silber, who put together a consortium of more than 40 bidders - aimed too low in one of those "Price is Right" moves but without the warmth of Bob Barker to confront you when you lose on these things.

With that in mind the speculation on just where the auction ended up can run wild - did it go for $650? $700 for the lot? Perhaps; those commenting on twitter and to Reuters in a story from Gertrude Chavez and Nate Raymond on Monday were suggesting that there were plenty of newer bidders in the process, firms that have been just getting going in the bitcoin world and probably wouldn't mind to get their hands on a large stake even at a somewhat elevated price.

from Global Investing:

Ecuador: a successful emerging market?

A colleague of mine, Marius Zaharia (@MZaharia) interviewed Moritz Kraemer, Standard and Poor's head of sovereign ratings for Europe, Middle East and Africa. (you can read the interview here) Kraemer offered this piece of advice to the African governments who are busily tapping bond markets these days:

    What I want to tell all those governments in africa is that you are not a successful market participant when you've issued your first eurobond. You are a successful participant when you've paid it back for the first time.   

from Hugo Dixon:

Is Greece losing its reform drive?

By Hugo Dixon

Hugo Dixon is Editor-at-Large, Reuters News. The opinions expressed are his own. 

Is Greece losing its reform drive? Prime Minister Antonis Samaras has stuck to a harsh fitness programme for two years. But just as it is bearing fruit, he has sidelined some reformers in a reshuffle. There is only one viable path to redemption for Athens: stick to the straight and narrow.

from Breakingviews:

Tranquil markets may lead emerging nations astray

By Andy Mukherjee 

The author is a Reuters Breakingviews columnist. The opinions expressed are his own.

The return of calm to global markets is not an unalloyed blessing for the developing world. In the year since investors freaked out about rising U.S. interest rates, JPMorgan’s emerging markets bond index has recovered almost all of its losses. That could tempt developing economies to abuse easy money and blow domestic asset bubbles.

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