Can it really be true that liquidity on EM secondary markets is more constrained today than it was in the crisis of 2008-09? That’s what beyondbrics reported recently, to the surprise of some readers.
Our report was based on anecdotal and empirical evidence, mostly concerning local currency bond markets. We’ve had another look and found not only that liquidity on those markets is indeed tighter than it was, but also that tight conditions on EM bond markets pose a serious threat to stability on currency and other markets if – or in the view of many, when – investors start to rush for a very crowded exit. Read more
“Emerging markets are where we can measure the deterioration of trading conditions. They are the warning for the rest of the market.”
So says Hung Tran, executive managing director of the Institute of International Finance. He has powerful data to back up his assertion. According to four key metrics, trading conditions have tightened dramatically over recent years, with especially sharp moves in recent months. Where emerging markets have led, the fear is, other global markets may follow. Read more
Two African countries – Senegal and South Africa – are just months away from issuing sukuk, or Islamic bonds, seeking to attract cash-rich Middle Eastern and Asian investors to finance their large infrastructure programmes, Islamic finance bankers told a meeting of the African Development Bank.
The move represents a potentially significant boost for the profile of Islamic finance in Africa. Until now, Gambia and Sudan have been the only countries on the continent to issue a sukuk – and they were only for tiny sums. Read more
The World Bank’s move doubling to $2bn its offshore-rupee bond programme today marks a significant moment in the international development of India’s currency. But it leaves one big question unanswered: what should these new Indian instruments be called?
Offshore debt naming is not difficult: just pick a food or animal commonly linked to the country in question, and add extra points for alliteration. Read more
By Samuel George of the Bertelsmann Foundation
On February 18 the Republic of Argentina submitted a petition to the US Supreme Court requesting a judicial review of a 2012 decision from the New York Second Circuit Court. That ruling found illegal Argentine payments on restructured sovereign debt if the country did not also service investors who had not accepted the haircut on the non-performing bonds.
If the Second Circuit Court ruling stands, it will set a precedent that holdouts could eventually be paid in full. Bondholders may become increasingly reluctant to accept haircuts on sovereign securities, thus complicating the ability of a distressed country to restructure its debt. Read more
The discovery of oil and a rising consumer class had investors positive about Ghana’s growth story, holding up the west-African country as one of the frontier markets to invest in. But the recent broad sell-off in EMs has changed the mood about the country and exposed a slate of problems in need of resolution.
Source: Thomson Reuters
Analysts from Bank of America Merrill Lynch think that China will experience its “Bear Stearns moment” on Friday, when the country will probably see as its first ever bond default.
That is a bold, attention-seeking call that is also patently ridiculous. Read more
A Chinese corporate bond was heading on Tuesday for default, potentially puncturing some of the optimism that has galvanised a booming $12tn corporate debt market.
Shanghai Chaori Solar Energy Science & Technology Co.,Ltd, a Chinese maker of solar cells, announced late on Tuesday that it will not be able to repay the Rmb 89.8m interest on a Rmb1bn bond issued on March 7th 2012. Read more
By Marcelo Etchebarne Mihanovich of Cabanellas Etchebarne Kelly
Two cases pending in US federal courts show how sovereign and sub-sovereign borrowers in distress can get very different treatment.
Detroit, with declared debts of approximately $18bn, filed for bankruptcy in July 2013. On December 3, it was declared eligible for protection under Chapter 9 of the US Bankruptcy Code. Judge Stephen Rhodes of the US Bankruptcy Court noted that Detroit had negotiated in bad faith with its more than 100,000 creditors; however, he also expressed the view that negotiation was impracticable. Read more
There has been a relief rally in Ukrainian assets with the uneventful passing of Tuesday morning’s rumoured deadline for Ukrainian troops in Crimea to surrender to the peninsula’s Russian occupiers. Vladimir Putin appeared to pull further back from armed conflict in a mid-day press conference, so the rally may have more legs.
But yields are still at the brink.
Source: Thomson Reuters
We did this a couple of days ago but here it is again: the $1.6bn bond of Naftogaz, Ukraine’s state gas company, due on September 30. If 30 per cent in less than eight months wasn’t apocalyptic enough, its yield has now gone to 34 per cent and counting. Does this look like some kind of endgame?
Source: Thomson Reuters
Which tapering programme is bigger – the US Fed’s or China’s? Of course, the two processes are different in several aspects, but each represents an unwinding of monetary stimulus for the global economy.
The question is particularly topical after US Fed Chairman Janet Yellen reaffirmed her commitment this week to keep reducing US asset purchases and China’s central bank pledged to keep its monetary policy unchanged in 2014. Read more
This is the yield on the $1.6bn bond of Naftogaz, Ukraine’s state gas company, due on September 30 this year. Thirty per cent for less than eight months, anyone?
Source: Thomson Reuters
Finance Minister Uros Cufer
Slovenia is set to join a regional rush to the bond markets as it seeks to borrow €3.5bn, equivalent to around 10 per cent of its annual GDP, this year. The government announced that it would raise the cash largely through “long-term borrowing through issuing sovereign bonds”, with some short-term local notes also likely to be issued.
The statement raised the possibility of using the funds to help finance a €4.8bn bank bailout announced in December, which includes a €3.2bn recapitalisation programme. The government is confident that this can be met without resorting to an international bailout of the sort that has placed severe strictures on other eurozone countries such as Greece and Portugal. Read more
Tapping bond markets is something of a trend for many African countries in the past year, including Gabon this month with a $1.5bn 10-year eurobond priced to yield 6.375 per cent.
But selling long-term debt is proving a hard game in east Africa, despite the presumable attractions of political stability and a favourable business environment. Interest costs for government securities are high, with long-term instruments maintaining yields of about 10 per cent or more, creating a growing concern for central banks. Read more