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from Global Investing:
Turkey’s (investment grade)bond market
We wrote here yesterday on how Turkish hard currency bonds have been given the nod to join some Barclays global indices as a result of the country's elevation to investment grade. Turkish dollar bonds will also move to the Investment grade sub-index of JPMorgan's flagship EMBI Global on June 28.
Local lira debt meanwhile will enter JPM's GBI-EM Global Diversified IG 15 percent Cap Index -- the top-tier of the bank's GBI-EM index. But the big prize, an invitation into Citi's mega World Government Bond Index, is still some way off. Requiring a still higher credit rating, WGBI membership is an honour that has been accorded to only four emerging markets so far.
Still, the Turkish Treasury is not complaining. Even before last week's upgrade to investment grade by Moody's, it was borrowing from the lira bond market at record cheap levels of around 5 percent for two-year cash. Ten-year yields are down half a percentage point this year. One reason of course is the gush of liquidity from Western central banks. But most funds (at least those who were allowed to do so) had not waited for the Moody's signal before buying Turkish bonds. So the bond market was already trading Turkey as investment grade.
RBS analysts reckon that by end-April, Turkey had raised 40 percent of this year's 152 billion-lira borrowing plan, while the average bid-cover ratio at bond auctions this year has been 3.2, compared to 2.5 in 2012. They write:
from Global Investing:
Weekly Radar: Central banks try to regain some control
Central banks may be regaining some two-way control over global markets that had started to behave like a one-way bet. After flagging some unease earlier this month that frothy markets were assuming endless QE, the Fed and others look to be responding with at least some frank reality checks even if little new in the substance of their message. In truth, there may be no real change in the likely timing of QE's end, or even the beginning of its end, but the size of the stock and bond market pullbacks on Wednesday and Thursday shows how sensitive they now are to the ebb and flow of central bank guidance on that score. Although the 7% drop in Japan's stock market looks alarming - Fed chief Bernanke actually played it fairly straight, signalling no imminent change and putting any possible wind down over the "next few meetings" still heavily conditional on a much lower jobless rate and higher inflation rate. The control he gains from here is an ability to nuance that message either way if either the data disappoints or markets get out of hand.
The central banks are clearly treading a fine line between getting traction in the real economy and not blowing new financial bubbles. The decider may be inflation and on that score central banks have a lot of leeway right now – global inflation is still evaporating and, as measured by JPM, fell in April to just 2.0% - its lowest in 3-1/2 years. That said, CPI was also very well behaved in the run-up to 2007 credit crisis - it was asset prices and not consumer inflation that caused the problem. So - expect to hear plenty more cat-and-mouse on this from the central banks over the coming weeks/months.
from Breakingviews:
Buoyant markets too sanguine on end-of-QE threat
By Ian Campbell
The author is a Reuters Breakingviews columnist. The opinions expressed are his own.
The Fed’s hand is hovering over the wide open tap. The U.S. central bank may cautiously begin to ease its $85 billion monthly dose of quantitative easing. The gold bubble has burst in anticipation. The line of other losers could be long. With less liquidity from the Fed, bonds, commodities and stocks are likely to be hit - probably in that order.
from Felix Salmon:
Don’t fear the bubble
Tyler Cowen has no truck with the Bubble Crew. He aligns himself with Paul Krugman and against Jesse Eisinger; we can add Gillian Tett to Eisinger's side of the debate, and Jim Surowiecki to Cowen's.
The bubblista side of the argument, at heart, says that the flood of money being poured into the global economy by the world's central banks is driving up asset prices to well beyond fundamental valuations, and that if and when valuations revert to sanity, the unwind (the "burst") could be disastrous in all manner of unpredictable ways.
from Global Investing:
Turkey: investment grade, peace and FDI?
Turkey's elevation to investment grade last week may or may not be a game changer for its stock and bond markets, but the country is really hoping for a boost to FDI - bricks-and-mortar foreign direct investment into manufacturing or power generation. Its peace process with Kurdish separatists should help.
Speaking last week at Mitsubishi-UFJ's annual Turkey conference, Finance Minister Mehmet Simsek cited data showing an average 2 percentage-point pick-up in FDI in the two years immediately after a country moves into investment grade.
from MacroScope:
Possibility of Spanish downgrade looms over euro zone
Spanish government bonds have had a good run since the European Central Bank said it would protect the euro last year. But some analysts say the threat of a rating downgrade to junk remains an important risk.
Credit default swap prices are discounting such a move, according to Markit. Spain is only one notch above junk according to Moody's and Standard & Poor's ratings, and two notches above junk for Fitch. All three have it on negative outlook. Bank of America-Merrill Lynch says it sees a “high probability” of a sovereign rating downgrade in the second half of the year.
from Global Investing:
Emerging European bonds: The music plays on
There seems to be no end to the rip-roaring bond rally across emerging Europe. Yields on Turkish lira bonds fell to fresh record lows today after an interest rate cut and stand now more than a whole percentage point below where they started the year.
True, bonds from all classes of emerging market have benefited from the flood of money flowing from central banks in the United States, Europe and Japan, with over$20 billion flowing into EM debt funds since the start of 2013, according to EPFR Global. Flows for the first three months of 2013 equated to 12 percent of the funds' assets under management.
from Global Investing:
Weekly Radar: Draghi returns to London
ECB chief Mario Draghi returns to London next week almost 10 months on from his seminal “whatever it takes” speech to the global financial community in The City – a speech that not only drew a line under the euro financial crisis by flagging the ECB’s sovereign debt backstop OMT but one that framed the determination of the G4 central banks at large to reflate their economies via extraordinary monetary easing. Since then we’ve seen the Fed effectively commit to buying an addition trillion dollars of bonds this year to get the U.S. jobless rate down toward 6.5%, followed by the ‘shock-and-awe’ tactics of the new Japanese government and Bank of Japan to end decades.
And as Draghi returns 10 months on, there's little doubt that he and his U.S. and Japanese peers have succeeded in convincing financial investors of central bank doggedness at least. Don't fight the Fed and all that - or more pertinently, Don't fight the Fed/BoJ/ECB/BoE/SNB etc... G4 stock markets are surging ever higher through the Spring of 2013 even as global economic data bumbles along disappointingly through its by now annual ‘soft patch’. Looking at the number tallies, total returns for Spanish and Greek equities and euro zone bank stocks are up between 40 and 50% since Draghi's showstopper last July . Italian, French and German equities and Spanish and Irish 10-year government bonds have all returned about 30% or more. And you can add 7% on to all that if you happened to be a Boston-based investor due to a windfall from the net jump in the euro/dollar exchange rate. What’s more all of those have outperformed the 25% gains in Wall St’s S&P 500 since then, even though the latter is powering to uncharted record highs. And of course all pale in comparison with the eye-popping 75% rise in Japan’s Nikkei 225 in just six months!! Gold, metals and oil are all net losers and this is significant in a money-printing story where no one seems to see higher inflation anymore.
from MacroScope:
Greek bond rebound masks stark economic reality
Ten-year Greek government bond yields tumbled to their lowest in nearly three years one day after Fitch upgraded the country's sovereign credit ratings.
Borrowing costs fell to 8.21 percent - the lowest since June 2010, just after Greece received a bailout from the International Monetary Fund and European Union. The difference between 10- and 30-year yields was also at its least negative since that time.
from Global Investing:
Weekly Radar: Watch the thought bubbles…
Far from the rules of the dusty old investment almanac, it’s up, up and away in May after all. And judging by the latest batch of economic data, markets may well have had good reason to look beyond the global economic ‘soft patch’ – with US employment, Chinese trade and even German and British industry data all coming in with positive surprises since last Friday. Is QE gaining traction at last?
Well, it's still hard to tell yet in the real economy that continues to disappont overall. But what's certain is that monetary easing is contagious and not about to stop in the foreseeable future - whether there's signs of a growth stabilisation or not. With the Fed, BoJ and BoE still on full throttle and the ECB cutting interest rates again last week, monetary easing is fanning out across the emerging markets too. South Korea was the latest to surprise with a rate cut on Thursday, in part to keep a lid on its won currency after Japan's effective maxi devaluation over the past six months. But Poland too cut rates on Wednesday. And emerging markets, which slipped into the red for the year in February, have at last moved back into the black - even if still far behind year-to-date gains in developed market equities of about 16%!
