bonds

Following the successful second tranche of Croatia’s largest-ever bond issue, the government looks set to line up more next year to cover maturing debt and bridge its budget deficit. While the government has taken advantage of abundant liquidity that has pushed yields down, the country’s patchy macroeconomic condition may see the cost of issuing debt edge upwards in 2015. The economy has not grown since 2008, and with hotly-contested elections due next year, deep reform seems highly unlikely. Read more

Argentina's economy minister Axel Kicillof

If there’s anything certain about investing in Argentina at the moment, it’s that there is an unusually high degree of uncertainty over the outcome an investment.

As a result, investors were delighted when the economy minister Axel Kicillof said on Thursday that he wanted to “put an end to all speculation” and provide “certainty” about whether the government will be able to pay its bondholders next year.

The government will give holders of the $6.7bn Boden 2015 bond the option next week to collect their payment early, swap the local-law dollar-denominated bond for another one (the Bonar) that matures in 2024, or simply wait until the Boden bond matures next year. Read more

By Sergio Trigo Paz and Gerardo Rodriguez, BlackRock

Periodic phases of market volatility this year have brought back painful memories of emerging markets (EM) crises. Some of these crises – particularly those associated with US monetary policy tightening in 1994 and 1999 – caused significant damage to emerging economies and their asset prices.

But those difficulties brought a hidden blessing. The crises taught countries that their misfortunes were caused not so much by the actions of the US Federal Reserve as by the lack of policy buffers and financial flexibility in their home markets. This realisation has helped foster an improvement in the overall framework of EM macroeconomic policies. Read more

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

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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

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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

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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