Archivo de la Categoría ‘Financial Markets’


La ruptura del mercado LIBOR

Escrito el 23 abril 2008 por Juan Toro en Financial Markets

El mercado LIBOR (London Interbank Offered Rate) ha sufrido un importante envite esta semana. Se ha puesto as


Inversiones en Energ

Escrito el 18 abril 2008 por Antonio Rivela Rodríguez en Financial Markets

Estimados inversores que busc


Testosterone and cortisol make markets move.

Escrito el 16 abril 2008 por Juan Toro en Financial Markets

A recent study by a Cambridge researcher


Las hipotecas SUBPRIME en Espa

Escrito el 10 abril 2008 por Antonio Rivela Rodríguez en Financial Markets

Numerosos analistas extranjeros se preguntan por qu



Escrito el 18 marzo 2008 por Juan Toro en Financial Markets

La Reserva Federal de EEUU ha realizado grandes esfuerzos para aliviar los problemas de liquidez que han surgido en el sistema financiero americano desde Agosto de 2007. Los primeros esfuerzos se plasmaron en la reducci


Commodity prices or world inflation

Escrito el 11 marzo 2008 por Juan Toro en Financial Markets

Commodity prices are surging in an anomalous way. The spike in commodity prices is not just limited to oil which has crossed the 105 $ barrier, but extends to metals (gold, copper, iron,


Back on credit issues

Escrito el 6 marzo 2008 por Juan Toro en Financial Markets

The liquidity crisis is back with vengeance. Recent episodes of high LIBOR rates are been resurrected this week and new calls to calm the markets are needed. This increase in risk aversion is taking place almost in any asset, with fixed income assets been those where movement are sharpest.
If we take the case of Europe the level of awareness in happening almost everywhere and even affecting sovereigns (debt issued by governments). Investors have been selling Italian and Greek bonds in signs of panic. This asset reallocation is been recommended from some banks such as BNP or Goldman, leading to spreads of this debt against the German bund of over 52 basis. This spread should be zero because of the European Monetary Union, the existence of a single currency and the sovereign quality of both assets (Greek/Italian debt versus European bonds). People are getting refuge in the classic assets gold or the Swiss franc to name a few. European money markets are on the high again and rates at which Euro zone banks lend to each other has gone over 4.4 %. This implies forty basis point of premium over target despite the efforts from the European Central Bank to grease money markets with floods of liquidity.

In Britain, money markets are also on fire and new actions are expected from the Bank of England (BoE). The Bank of England will probably put aside any moral hazard considerations and will be as aggressive as needed to avoid any new Northern Rock case. There has already been pain in the banks and moral hazard punishments can wait. The Bank of England will probably raise and renew the three months repurchase operations that offered in December. Sterling London interbank rates are at two months high and with similar premium over target as those seen in Europe. Broader collateral in repo operations and an increase of the amount of reserves in its regular repo operations are some of the measures that the BoE is thinking of implementing.

On the other side of the Atlantic things are not very different. We should say they are worse that out here in Europe. Close to the core the heat is higher! LIBOR are high, swap spreads are at record levels (though these days every day a new record figure is set), the cost of insuring corporate debt through credit default swaps is soaring, municipalities are rising money without taking any insurance (who cares about monolines which cannot insurance what they should!) and high yield bonds have risen on average to 7.76 percentage points over Treasury bonds. Not a nice picture. In the meantime there are rumors circulating of explicit government guarantee for Government Sponsored Enterprises (Freddie and Fannie) and Bernanke is asking banks to be lenient with mortgage borrowers.

Central banks And governments are reacting but a lot of bail out is still needed to calm this burning fire.


The collapse in the UK housing market:

Escrito el 21 febrero 2008 por Juan Toro en Financial Markets

The effect of the housing market correction in the US has been felt worldwide through the sub prime crisis. Analysts had watched carefully other markets to follow. Whereas Ireland and Spain are two that has been considered to be over inflated, analysts are also watching the UK market. There are many reasons to worry in the UK. First, the UK has been the first market where a mortgage based bank has gone bankrupt and nationalized. The model business followed by Northern Rock might still be present somewhere else in the UK. Second there are many fraud elements in the UK market similar to events surrounding the US sub prime crash. The Financial Services Authority (FSA) has recently banned two mortgage brokers for handling false applications to lenders. Income and credit conditions are have been altered in an attempt to keep the ball rolling. Third, UK house prices have increased more than in US whether this is measured either in absolute values or in relative values, that is, relative to income (see picture below taken from a Merrill Lynch report). Fourth, interest rates are al high levels in the UK and any reductions in interest rates are currently difficult given inflationary pressures. The mortgage bill is likely to remain high for those holding mortgages. Fifth, household debt/income ratios are hitting record levels.

There might be many other arguments not mentioned above that justifies a correction. But I believe these are enough. We have learnt that mortgage crisis can easily have economic effects beyond national borders. This is why the UK housing is an additional worry in our current gloomy horizon.

Seguir leyendo…


Why monoline is a new important word?

Escrito el 14 febrero 2008 por Juan Toro en Financial Markets

Last weeks were relatively quite in terms of economic news. Some good news from the retail sales front more a less worldwide (UK and the US specially), lower unemployment claims in the UK and few minor things. However markets still were relatively nervous. Monoline insurers had an important role in this nervous state. Monoline insurers were anew word for many, a hidden economic agent that hardly appeared in the news. But it is playing quite a big role in the last weeks. Are they going to be downgraded by rating agencies? Are regulators promoting changing legislation so they can operate within new market conditions? Is Warren Buffet going to rescue some of them?

Before all these questions are answered we have to ask ourselves why they matter so much. What is the economic effect of these downgrades? Briefly put, there are a few reasons why they are important economic agents whose downgrade can induce a chain reaction that affect the balance sheet of many companies. These are some consequences of the downgrade just to name a few:

a) If a monoline gets downgraded, bonds they have enhanced are downgraded as well.
If an investor has a mandate to hold investment grade assets, they have
30 – 45 days to sell the assets that have been downgraded.

b) CDO tranches kept by banks in their balance sheets are top quality that do not count
against their capital. Any downgrade of the CDO enhancer leads to a revision of the capital needs by these banks.

The monoline insurer


Are Spanish banks been bailed out?

Escrito el 29 enero 2008 por Juan Toro en Financial Markets

This question is hanging around in the media. Today the UK Daily Telegraph addresses the issue in article that I attach. According to the newspaper some Spanish banks would have followed the path of Northern Rock if it had not been by the very active lending role played by the European Central Bank in the last quarter of the year. Spanish banks have been issuing record volumes of mortgage backed securities during the last quarter of the year. According to the article, Spanish banks have not been able to place these issues within an open market much affected by the credit squeeze and have resorted in the ECB discount window. Repo operations using these bonds as collateral have provided Spanish banks with liquidity. Most probably this liquidity would have not be found in the open market were asset backed securities have been much denostated.

This practice has been considered by many as a disguised rescue operation. Whether this is the case will be revealed when these short term loans (by the ECB) have to be rolled over.

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