Reuters blog archive
By Swaha Pattanaik
(The author is a Reuters Breakingviews columnist. The opinions expressed are her own.)
British politicians are drawing up battle lines more than a year before general elections. On current form, the left-leaning opposition could oust the governing coalition. However, any knee-jerk investor dismay may be tempered given the Labour Party is more likely to cement the UK’s place in the European Union than the ruling Conservatives.
Prime Minister David Cameron says he wants to renegotiate ties with the bloc. He also plans a referendum on whether Britain should stay in the EU if his party wins the next election. The Liberal Democrats, who currently share power, oppose the idea. Labour, which is leading in opinion polls, says it won’t mimic Cameron’s plebiscite promise.
Britain has its own currency, and its monetary policy is autonomous, but EU membership matters to investors. They typically prefer stability and will take a dim view of any move that jeopardises the trade and economic benefits which come with such membership. Moreover, the risk of an exit would trigger huge uncertainty, not least about investment by domestic and foreign firms, and hurt growth.
U.S. and German government bonds came under selling pressure on Thursday, one day after the Federal Reserve announced it will start trimming its monthly asset purchases by $10 billion to $75 billion. The move was much anticipated but was also historically significant – it is the first step towards unwinding the abundant monetary stimulus that helped keep the financial system afloat during years of crises.
But the bond sell-off was limited, only taking yields to the top-end of ranges held in recent months. On Friday, U.S. yields were mixed and German borrowing costs little changed.
Corporate bonds normally yield more than sovereign debt since companies are seen as more likely than states to go bust. But during the euro zone debt crisis, when various governments had to be bailed out, that relationship broke down in Spain and Italy.
Madrid and Rome are paying more to borrow in the market than similarly-rated companies generally. Ten-year Spanish and Italian sovereign bonds offer a comfortable premium of more than 60 basis points over a basket of BBB-rated corporate debt, even though that gap has more than halved from this year’s highs.
from Global Investing:
What a dire year for emerging debt. According to JPMorgan, which runs the most widely run emerging bond indices, 2013 is likely to be the first year since 2008 that all three main emerging bond benchmarks end the year in the red.
So far this year, the bank's EMBIG index of sovereign dollar bonds is down around 7 percent while local debt has fared even worse, with losses of around 8.5 percent, heading for only the third year of negative return since inception. JPMorgan's CEMBI index of emerging market corporate bonds is down 2 percent for the year.
Surprise! Euro zone unemployment was stuck at record high of 12.2 percent in May, with the number of jobless quickly climbing towards 20 million. Still, as accustomed to grim job market headlines from Europe as the world has become, it is worth perusing through the Eurostat release for some of the nuances in the figures.
For one thing, as Matthew Phillips notes, Spain’s unemployment crisis is now officially more dire than Greece’s – and that’s saying something.
Ask an economist a question about the euro zone, and the answer will as much depend on the location of their head office as any analysis of the data.
It's been noted before (here, here, and here), but economists and fund managers working for euro zone-based banks and research houses tend to be optimists about the euro zone. Everywhere else - including Britain, North America and the Nordics - they tend to be pessimists.
By Neil Unmack and Olaf Storbeck
The authors are Reuters Breakingviews columnists. The opinions expressed are their own.
The two engines of the euro zone bond rally are sputtering. Rising yields on risk-free debt are hitting one, and the German constitutional court hearing has thrown a little sand in the other. But a tougher ride for peripheral debt is not necessarily all bad.
Let’s face it: “Gerxit” doesn’t roll of the tongue nearly as smoothly as a “Grexit” did. While Europe continues to struggle economically, fears of a euro zone break-up have receded rapidly following bailouts of Greece and Cyprus linked to their troubled banking sectors.
Mounting anti-integration sentiment in some of region’s largest economies, raise concerns about whether the divisive monetary union will hold together in the long run. Indeed, the rise of an anti-Europe party in Germany begs the question of what would happen if one of the continent’s richer nations decided to abandon the 14-year old common currency. Never mind that, viewed broadly, the continent’s banking debacle has actual saved Germans money so far.
from Global Investing:
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.
Australia arguably has one of the best individual retirement systems in the world. The government-sponsored system - superannuation - requires mandatory employee and employer contributions to retirement savings. In certain need-based circumstances, the government may also contribute. Australians take funding their retirements seriously, and the government is giving them a powerful new tool to save by moving trading of government bonds onto the Australian Securities Exchange (ASX). From the government:
Deputy Prime Minister Wayne Swan and Minister for Financial Services Bill Shorten today announce that Australian Government Bonds (AGBs) will be available for trading on the Australian Securities Exchange for the first time on 21 May.