World economy talk

[wowiesy]

major flight from risk-off assets

US 10 yr yield

di ko po ma gets yung chart.. Y axis is the interest rates going up... but what is the connect with the "major flight from risk-off assets"?

I'm trying to get a grasp of the world economy here... dagdag learning.. baka mapakinabangan in the future =)

[uls]

di ko po ma gets yung chart.. Y axis is the interest rates going up... but what is the connect with the "major flight from risk-off assets"?

I'm trying to get a grasp of the world economy here... dagdag learning.. baka mapakinabangan in the future =)

safe haven ang US govt bonds

when demand is high, bond prices go up, yields fall

last night, the 10 yr yield shot up

money left risk-off assets and went to risk-on assets like stocks, commodities

--

here's 10 yr futures price

[uls]

in Sept, the 10 yr yield went down to 1.7%

maximum fear

[uls]

China could contribute 100 billion euros to the EFSF

Milliardenspritze für Krisenfonds: Euro-Retter hoffen auf Hilfe aus China | FTD.de

Nach den Beschlüssen des Brüsseler Krisengipfels führen die Europäer nun konkrete Gespräche über einen Beitrag Chinas zur Euro-Rettung. Nach Informationen der Financial Times wird Peking wahrscheinlich zusätzliches Geld in den neuen Rettungsmechanismus investieren - stellt dafür aber Forderungen. Im Gespräch sind bis zu 100 Mrd. Euro. Das Geld könnte China in den Euro-Rettungsfonds EFSF oder in eine der neu zu gründenden Zweckgesellschaften pumpen, die internationales Kapital anlocken sollen.

Dass es den Europäern gelingt, Unterstützung globaler Investoren zu gewinnen, ist ein Kernelement der nach elfstündigem Gipfelmarathon in der Nacht zu Donnerstag vereinbarten Beschlüsse. Die Chinesen sind nach Japans Notenbank heute schon zweitgrößter Anleger der EFSF. Allerdings ist der Umfang noch gering, da der Rettungsfonds bislang nur sehr wenige eigene Anleihen ausgegeben hat. Ein stärkeres Engagement Chinas könnte dabei helfen, die Feuerkraft der EFSF wie auf dem Gipfel beschlossen auf über 1000 Mrd. Euro zu steigern.

translated

Following the decisions of the Brussels emergency summit, the Europeans do now concrete talks about a contribution of China to the euro rescue. According to the Financial Times Beijing is likely to invest additional money in the new bailout mechanism - but it makes demands. Under discussion are up to € 100 billion. The money could be pumped into China the euro rescue fund EFSF or one of the newly formed special purpose vehicles which are to attract international capital.

That the Europeans manage to gain support for global investors is a key element for the eleven-hour marathon summit in the night to Thursday agreed decisions. The Chinese are after Japan's central bank today the second largest investor EFSF. However, the scope is still limited because of bailout funds has been spent, very few own bonds. A stronger Chinese involvement could help to increase the firepower of the EFSF as decided at the summit at about 1000 billion €.

[uls]

Fitch press release re the EU summit

http://www.fitchratings.com/creditde...m?pr_id=732123

Fitch Comments on Euro Area Summit
28 Oct 2011 7:18 AM (EDT)

Fitch Ratings-London-28 October 2011: Fitch Ratings says the framework commitments agreed at the Euro Area Heads of State summit yesterday represent a positive step towards supporting financial stability in the euro zone, although their effectiveness will depend on greater clarity on the details of the various initiatives announced as well as full and timely implementation.

The nature of the Heads of State summit and the political and technical complexity of the issues at hand inevitably meant that a detailed set of proposals was unlikely to emerge. However, Fitch believes the main elements of the announced policy measures appropriately target the key causes of the recent intensification of the euro area crisis and the agency views the broad framework agreement on key principles as a positive outcome of the summit.

The agreement to materially increase the size of the EFSF's lending capacity to around EUR1trn is a critical first step to enhance market confidence in the ability of policy-makers to limit the risk of contagion spreading to the core euro area countries. More detail is needed to assess the viability of the two options being considered (providing credit enhancements to sovereign bonds and/or setting up one or more special purpose vehicles to finance its operations) particularly with regards to their structure, financing sources and implementation.

Given this level of uncertainty and until the viability of these options can be assessed, Fitch views as critical the role of the ECB in continuing to intervene in the secondary market for euro area sovereign bonds, and ultimately to be ready to act as a lender of last resort to solvent but illiquid sovereigns issuers. However, overall Fitch views positively the evidence that the Euro Area Member States (EAMS) have reached agreement on the need for an enhanced support mechanism.

In the meantime, Fitch has assigned a 'AAA(exp)' expected rating to the EFSF's amended guaranteed debt issuance programme following formal approval by all 17 EAMS of the amended Framework Agreement governing its operations that was announced at the Euro Area Summit on 21 July (see 'Fitch Assigns Amended EFSF Guaranteed Debt Programme 'AAA(exp)' Rating' dated 28 October at Fitch Ratings - Dedicated to providing value beyond the rating for further details). The agency will assess the implications of the potential changes to the EFSF once more detailed information becomes available.

The provisional agreement on private sector involvement (PSI) for Greece ('CCC') is a necessary step to put the Greek sovereign's public finances on a more sustainable footing, notwithstanding that - if accepted - the 50% nominal haircut on the proposed bond exchange would be viewed by the agency as a default event under its Distressed Debt Exchange criteria. However, Fitch recognises the significant challenges that the Greek sovereign will continue to face following the proposed debt exchange, against a backdrop of anaemic growth, austerity fatigue - possibly reducing the capacity to implement tough but necessary structural reforms - and continuing high debt levels, with government debt to GDP remaining well over 100% even in a positive scenario (see "Fitch: Greek 50% Haircut Would Keep Sovereign's Rating Low" dated 28 October at Fitch Ratings - Dedicated to providing value beyond the rating for further details). Fitch also views with some caution the apparent commitment to increase the Greek privatisation programme by an additional EUR15bn, given the already ambitious nature of the existing EUR50bn programme.

Fitch welcomes the commitment to raise the core Tier 1 capital ratio of EU banks to 9% by June 2012, which the European Banking Authority (EBA) estimates would require increased capital of EUR106bn. This is an important step towards enhancing confidence in the euro area financial system. Plans to "urgently explore" the options for providing state guarantees for term funding for banks could also support market confidence while helping to prevent excessive de-leveraging by banks trying to increase their capital ratios. As with the EFSF proposals, more detail will be required to undertake a comprehensive analysis of the implications of this initiative.

In addition to the main elements of the announced policy measures outlined above, Fitch views positively the further commitments to fiscal discipline and structural reform by euro area sovereigns under financing pressures as well as measures to strengthen economic discipline, governance and co-ordination, given that such commitments appropriately target some of the key causes of the euro area crisis.

Parallels with the Euro Area summit of 21 July, when a warm afterglow of confidence quickly dissipated, underline the importance of rapid and full implementation of the policy commitments. The July summit also included commitments to enhance the net lending capacity and operational flexibility of the EFSF (recently ratified by all 17 EAMS), a new EU-IMF programme for Greece coupled with private sector involvement in a debt restructuring agreement, commitments by euro area sovereigns to fiscal discipline and structural reforms, and a strengthening of euro area surveillance and governance.

Moreover, until there is a broad-based economic recovery across the euro area, progress on reducing government budget deficits and stabilising and then reducing government debt ratios, and structural reforms to enhance competitiveness and long-term potential growth within the euro area, further bouts of financial market volatility appear likely and downward pressure on sovereign ratings will persist.

Fitch says the 50% writedown = default

but it's the ISDA that ultimately determines it

i think the ISDA will not declare it a credit event

the politicians will make sure of that

they hate credit default swaps and they hate speculators

they don't want to see speculators get paid

politicians are gonna kill the sovereign cds market

[uls]

it was a fun week no?

--

there's a lot of talk re Fed QE3

which sent gold price higher the past days

gold ETF - GLD


--

a broker called MF Global

it's screwed bigtime

its rating was cut to junk

stock price... well, just look at it



depleted its credit lines

vultures are circling above... to buy assets at firesale prices (naturally, one of the vultures is Goldman)

MF global might not survive the weekend

[Ry_Tower]

^ GS na naman. Ang tindi talaga nila ah.

[uls]

clients are pulling out

MF Global raising cash by selling assets

MF Global Fights to Live Until Sale - WSJ.com

The New York company has sold some of its $6.3 billion in European sovereign-debt exposure in recent days, according to people familiar with the situation. Those are the same bets that backfired on the company. It couldn't be determined who bought the positions or at what price, but the sales are believed to be at least in the hundreds of millions of dollars, according to people familiar with the matter.

According to traders and Wall Street executives, MF Global also is trying to unload other holdings of European sovereign debt and U.S. government-bond debt at discount prices. These people added that several banks and financial firms are looking at those positions. Sales could help MF Global reduce the level of borrowing, or leverage, on its balance sheet and make the company look more attractive to potential buyers.

rating cut to junk

The rapid decline at MF Global accelerated during the week as it reported a surprise loss on Tuesday and saw its credit rating get cut to "junk" status by Moody's Investors Service and Fitch Ratings on Thursday.

used up credit lines

Earlier in the week, MF Global fully tapped a $1.3 billion credit facility to build up its cash, a person familiar with the matter said. The company's lenders include Bank of America Corp., J.P. Morgan Chase & Co. and Citigroup Inc., the person said.

potential buyers

Apart from J.C. Flowers, Goldman Sachs Group Inc., State Street Corp. and Macquarie Group Ltd. are among companies considering acquiring MF Global or parts of it, people familiar with the matter said. Some companies looking at MF Global haven't yet approached the firm and may not pursue a deal, the people added.

how did MF Global get itself into this situation? they invested in EU sovereign debt. excellent

[tidus1203]

Isn't MF Global runned by John Corzine? The former GS executive and New Jersey governor. He is one of those so-called "masters of the universe"... How the mighty have fallen...

[uls]

yup

former CEO of Goldman Sachs, former governor of New Jersey

[eld]

Laki kita ng GS sa food stamps business.

[Monseratto]

How are the companies who invested in the CDS doing?

[uls]

How are the companies who invested in the CDS doing?

i mentioned in a previous post that politicians wanna kill sovereign credit default swaps

the market is getting concerned

Greek deal may imperil sovereign CDS market | Reuters

(Reuters) - The future of the Credit Default Swap (CDS) market -- used to hedge against the risk of a country defaulting -- may be at risk if these derivative instruments do not pay out after this week's rescue deal for Greece.

Default Insurance Market Takes Hit - WSJ.com

A vast market in which banks, hedge funds and investors trade insurance against debt defaults got a jolt Thursday, sparking worries of new strains in the global financial system.

Under the broad deal reached this week to stem the euro-zone's financial crisis, holders of credit-default swaps on Greek government bonds aren't expected to receive any payout, even though a preliminary agreement between financial institutions and European policy makers would recognize just half the face value of some Greek debt.

The decision not to trigger the swaps raises questions about the value of the insurance-like contracts and exposes the limitations of the hedging strategies that banks and investors have come to rely on. The swaps are widely used by bondholders and major banks to defuse a wide range of risks, and by traders to bet on market trends. If the swaps don't pay out when bonds default, banks and funds that bought the insurance may face losses they thought they had hedged.

the ISDA will ultimately decide if a credit event has occurred

but before a decision, a market participant has to bring it up with the ISDA first

i checked the ISDA website. so far nobody has brought it up yet

this issue is not yet closed. the process hasnt even started yet

sooner or later somebody will bring it up

ISDA's EMEA DC members will then decide

so we wait

btw, who are the members of ISDA's EMEA DC?



some of them are bondholders that bought CDS and some of them are CDS sellers

so some of them want to be paid and some of them hope not to pay up

they will all vote for their self interest

this should be interesting

a bondholder who bought CDS should bring it up with the ISDA na to get the process started

[uls]

intervention

[uls]

italy 10 yr yield



that's despite the debt deal last week

not good

[uls]

the euphoria last weak is gone

italy's biggest bank

[uls]

like i said MF Global might not make it thru the weekend

News Headlines

Report: MF Global to seek Ch. 11 protection, sale
Published: Monday, 31 Oct 2011 | 10:19 AM ET Text Size

NEW YORK - Trading in shares of MF Global Holdings Ltd. has been halted amid reports that the ailing securities firm is desperately trying to sell itself. The New York Federal Reserve has also suspended any new business with MF Global.

The Wall Street Journal reported Monday that MF Global would seek Chapter 11 bankruptcy protection, partly because Jon Corzine, the former Goldman Sachs chairman who runs the firm, had MF Global invest $6 billion in sovereign bonds issued by European countries over the past year.

[tidus1203]

intervention

Time to buy JPY again! Thanks BOJ!

[tidus1203]

on Corzine's bid to revive his Wall Street career crashed and burned on Monday when his futures brokerage MF Global Holdings Ltd filed for bankruptcy protection following bad bets on euro zone debt.

Corzine's MF Global files for bankruptcy | Reuters

MF Global files for Chapter 11... Banking stocks get hit, especially JPM and DB...

[uls]

europhoria fades

back to reality