Archive

Reuters blog archive

from Global Investing:

A (costly) balancing act in Hungary

A bond trader in London is still marvelling at the market's willingness to snap up a Eurobond from Hungary, calling it a country with "a policy mix so unorthodox even Aunty Christine won't lend to them".  But Hungary's probable glee at bypassing the IMF and "Aunty Christine"  with $3.25 billion in two bonds that were almost four times oversubscribed, is probably short-sighted.

Hungary needs to raise the equivalent of $23.4 billion this year to repay maturing debt. The bond placement will enable Hungary to easily meet the hard currency component of this, and it has been enormously successful in luring buyers to domestic debt markets.  Such has been the demand for Hungarian bonds in recent months that foreigners' holdings of forint-denominated government debt are at a record high of over 45 percent.

The success does not necessarily represent a thumbs-up for Prime Minister Viktor Orban's policies but is more likely due to the yield Hungary paid -- well over 5 percent for five and 10-year cash. In dollar terms that is not to be sneezed at, especially at a time when liquidity is abundant and the yield on mainstream dollar assets is low. The same reason is behind the demand for forint bonds, where Hungary pays over 5 percent on one-year paper. An IMF loan would have been far cheaper. (The rate for a standby loan of the kind Hungary had is tied to the IMF’s Special Drawing Rights (SDR) interest rate. Very large loans carry a surcharge of 200 basis points)

The dollar bond sale is forcing Budapest to pay lenders roughly double what it would have paid for an IMF standby loan, says William Jackson at Capital Economics:

from Unstructured Finance:

The gold rush in foreclosed homes picks up steam as mad money flows freely

By Matthew Goldstein

Institutional money keeps rushing into the market for foreclosed homes, with some big players snapping up homes at breakneck speed. But the question is whether the big buyers are throwing money around indiscriminately and Wall Street’s big housing long will come up a bit short.

The other day Bloomberg reported that Blackstone Group has already spent $2.5 billion to buy 16,000 homes to manage as rentals and eventually sell them when prices appreciate high enough. Blackstone says it’s finding that the going price for homes sold at foreclosure auctions and out of bank inventories are rising quicker than anticipated.

from Global Investing:

A yen for emerging markets

Global Investing has written several times about Japanese mom-and-pop investors'  adventures in emerging markets. Most recently, we discussed how the new government's plan to prod the Bank of Japan into unlimited monetary easing could turn more Japanese into intrepid yield hunters.  Here's an update.

JP Morgan analysts calculate that EM-dedicated Japanese investment trusts, known as toshin, have seen inflows of $7 billion ever since the U.S. Fed announced its plan to embark on open-ended $40-billion-a-month money printing.  That's taken their assets under management to $67 billion. And in the week ended Jan 2, Japanese flows to emerging markets amounted to $234 million, they reckon. This should pick up once the yen debasement really gets going -- many are expecting a 100 yen per dollar exchange rate by end-2013  (it's currently at 88).

from Unstructured Finance:

Hedge funds love affair with leverage still on hiatus, for now

By Katya Wachtel

Last year was a sorry one for the $2 trillion hedge fund industry, when funds lost 5 percent on average. This year managers are doing better, up more than 5 percent for the year, according to the latest tracking data.

But those returns are a far cry from the 16.4 percent rise achieved by the S&P 500 this year, so what will hedge fund managers - who are supposed to be the smartest, savviest market players on the Street - do to juice returns?

from Global Investing:

Risks loom for South Africa’s bond rally

Investors are wondering how much longer the rally in South Africa's local bond markets will last.

The market has received inflows of over $7.5 billion year-to-date, having benefited hugely from Citi's April announcement that it would include South Africa in its elite World Government Bond Index (WGBI).  But like many other emerging markets, South Africa has also gained from international investors' hunger for higher-yielding bonds. And the central bank's surprise rate cut last week was the icing on the cake, sending 5-year yields plunging another 30 basis points.

from Global Investing:

Three snapshots for Wednesday

On Friday 283 companies in the S&P 500 had a dividend yield higher than the 10-year Treasury yield, at yesterday's close this had fallen to 266 but remains very high compared to the last 5-years.

Italian consumer morale plunged to its lowest level on record in May as Italians' pessimism over the state of the economy plumbed new depths.

from Global Investing:

Russia’s new Eurobond: what’s the fair price?

Russia's upcoming dollar bond, the first in two years, should fly off the shelves. It's good timing -- elections are past, the world economy seems to be recovering and crucially for Russia, oil prices are over $125 a barrel.  And the rise in core yields has massively tightened emerging markets' yield premium to  U.S. Treasuries, offering an attractive window to raise cash.  Russia's spread premium over Treasuries hit the narrowest levels in 7 months recently and despite some widening this week it is still some 75 basis points below end-2011 levels.

Initial indications from the ongoing roadshow are for a two-tranche bond with 10- and 20-year maturities, possibly raising a total of $3.5 billion.

from Global Investing:

Three snapshots for Wednesday

Most U.S. banks passed their annual stress test driving shares higher. Where does this leave their valuation? Looking at price-to-book value in aggregate (1st chart) they are only just trading above a ratio of one, looking cheap compared to a 15-year average ratio of two.  However a premium is opening up over European banks which are still trading below book value, and analyst forecasts for return on equity suggest banks are in a very different environment to the last 15-years (2nd chart)

The UK could start issuing 100-year bonds as it seeks to lock in current low interest rates. Recent sales of long-dated UK gilts have met with strong demand, and  as the chart below shows yields on 50-year gilts hit a record low of around 3 percent in January.

  •