Foreign holdings of US Treasuries March 2014Bubble Bubble: Bonds Edition

Gillian Tett over at Financial Times says we might be in a bubble, but its probably not the bubble you were expecting: “In recent years an astonishing amount of money has quietly flooded into fixed income funds…And as the US looks more likely to raise interest rates, creating potential losses for bondholders, the flows could reverse — creating destabilising shocks for regulators and investors alike.”  Furthermore, last year’s “taper tantrum” proved that bond markets can be just as skittish as their equity counterparts, “and since it is now the bond funds, not banks, that hold the lion’s share of corporate bonds, if another taper tantrum does take hold that could be very destabilising.”  Meanwhile, “over $8 billion of new municipal debt came to market [last] week — and that’s not even counting the $3.5 billion of bonds sold by Puerto Rico…it made for the most active week of new muni issuance so far this year.”  Foreign holdings of U.S. Treasuries, however, saw a record decline and has some people believing that “Russia is shifting its Treasury bond holdings out of the Fed and into offshore accounts.  That way, Russia would be able to buy or sell its portfolio if the U.S. and its European allies impose economic sanctions amid growing geopolitical tensions in Ukraine.”  So yeah, things are getting kinda spooky for bond investors.  Then again, some believe there is simply a rising bubble in bond-bubble chatter.


“The People’s Bank of China announced Saturday that it would double the allowable trading range for the yuan against the dollar to 2% from a midpoint rate it sets every day…Many investors have always viewed the yuan, also called the renminbi, as a safe bet — a one-way appreciation game.  But the Chinese government is now trying to show that its currency markets are just as susceptible to outside factors. Doing so may boost outside confidence in the yuan and help promote offshore hubs for the currency.”  United States Treasury Secretary Jack Lew could be heard muttering “game on.”  Meanwhile, shares of China’s four largest banks have sold off $70 billion in valuation on market concerns over a slowing economy and a credit meltdown.  “The slowdown is making it harder for Chinese borrowers to repay their debts…Some lenders are increasingly financing insolvent companies to help them pay off maturing debt in a bid to avoid outright defaults…The practice, known as evergreening, reduces banks’ ability to lend to profitable businesses.”  Furthermore, “investors in Chinese banks are concerned ‘the ongoing interest-rate liberalization will squeeze their profits…Over the short or medium-term horizon, pessimism over the industry is still there and share prices could become even cheaper.’”  Meanwhile, Alibaba (China’s eBay-Amazon-Google all wrapped into one) has chosen the United States for its IPO later this year and is expected to be among the largest ever.

Seeking Justice: IFRS And The DOJ Would Rather Not

A Seeking Alpha contributor has exposed an insider trading/investing tabloid scandal involving IR firm “Dream Team” and at least two companies, Galena Biopharma and CytRx Corp: “Below I will provide detailed documentation (emails and attachments) that indicate management from both Galena and CytRx were intimately involved in reviewing and editing the paid articles on their own stock at precisely the time they were looking to sell / issue shares.”  Meanwhile, “the International Financial Reporting Standards (IFRS) Foundation’s role in governing global accounting rules is under threat after European politicians said they were questioning whether the authority was ‘best suited’ to the position.  The London-based authority, responsible for setting standards in 100 countries, has been severely criticised by MEPs for poor governance structures, a lack of transparency and its ‘close links to the accounting industry.’”  Also, the Justice Department “is simply unequipped — or unwilling — to combat complex financial frauds.”

Global: US And EU Impose Sanctions As Crimea Asks To Join Russia

As expected, Crimea voted to join Russia (by an extremely wide margin: >95%), so now the United States and the European Union are imposing travel bans and asset freezes on 32 people.  Eurasia Group calls the sanctions “a sideshow” and “puts the odds of a Russian military invasion [of Ukraine] at 40%.”

EU: It’s All About The Bin Ladens, Baby

MA370: Finally, A Plausible Scenario Of What Happened To Flight 370 (maybe)

USA: Factories Flex Muscle After Winter Chill; Largest Output Gain In Six Months

USA: One Third Of Uninsured Won’t Sign Up For Obamacare


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