IFR SSA Special Report 2016

A rise in the number of banks giving up primary dealer roles in European government bond markets threatens to further reduce liquidity and eventually make it more expensive for some countries to borrow money. Increased regulation and lower margins have seen six banks exit various countries in the recent months. Others look set to follow, further eroding the infrastructure through which governments raise debt. While these problems are for now masked by the European Central Bank buying €60bn of debt every month to try to stimulate the eurozone...

With all risk assets classes being battered by global volatility in the opening weeks of 2016, Europe’s SSA market proved to be one of the rare beneficiaries, owing its stability to the European Central Bank’s €60bn-a-month quantitative easing programme, which was the biggest event in Europe’s capital markets in 2015. Massive order books for jumbo trades in January from eurozone sovereigns showed that primary deals are hoovering up liquidity, not just through the ECB, which typically buys around 30% of each transaction, but from a wider...

The world is a strange place. While hardly a unique insight, it can offer a crumb or two of comfort, when explaining the inexplicable, to recognise that there are sometimes no clear answers and that we are all at times simply stumbling around in the dark. A prime example of the bond market’s ability to bewilder with aplomb can, for instance, be found in the SSA market last year, as sovereigns, supranationals and agencies alike mulled the benefits of issuing debt in either euros or US dollars. When ECB president Mario Draghi announced in January...

Despite the early weeks of 2016 being characterised by volatility across all markets, many investors insist they are relatively upbeat. There is a feeling that the worst of the European sovereign debt crisis is over and that the root cause of the problems lay with a sickly banking sector that has been nursed back to health. Europe’s public deficit is now largely under control, growth is picking up and, of course, the ECB has put its money where its mouth is in terms of supporting the continent. Cosimo Marasciulo, head of government bonds at...

The European Central Bank is set to “review and possibly reconsider” monetary strategy at its policy meeting in March as it attempts to counteract persistent deflationary pressures in the euro area. Bankers expect key lending rates to be cut deeper into negative territory and the ECB’s public sector bond-buying programme to be expanded. Conditions are ripe for European sovereigns to borrow very long and very low, but as to whether the ECB’s support for the market is a sign that investors should ignore local politics in favour of a convergence...

Students that go the extra mile on particular assignments and complete them well in advance of the deadline tend to illicit a range of reactions from their peers. A few may look to replicate their success, but others might cut corners to complete the work more quickly or shrug their shoulders and leave it for later in the hope of an extension. A similar range of reactions has been evident when it comes to compliance with Basel III; in particular the leverage ratio, which is due to become a binding requirement in less than two years’ time. For...

In recent years, the wisest heads of all have been caught out, more often then not, when seeking to issue sage forward guidance on prices and inflation. At times, no one seems to be able to know what is going on, or what will happen next. Bureaucrats at the European Central Bank watched with passivity as prices tumbled for three years, clinging vainly to the sacred belief that, sooner or later, they simply had to rise. Only when the eurozone tipped into deflation in the final month of 2014 did the ECB act, rolling out European-style...

It reads like the plot of one of the more outlandish Marx Brother movies. At the end of June last year, Adriano Maleiane, finance minister of Mozambique, played havoc with the markets, when he was quoted as having told parliament that the repayment period for an US$850m 6.305% seven-year bond the government had sold to build a state tuna-fishing fleet and bolster maritime security was too short. The bonds promptly went into as a tailspin as markets presumed that a restructuring was imminent, and yields shot up above 10% as Maleiane back-peddled...

Kangaroo bond sales from sovereign, supranational and agency issuers have never fully recovered from the asset class’s 2011 exclusion from the Australian Prudential Regulatory Authority’s list of eligible assets to meet short-term liquidity coverage ratios under Basel III regulations. The Liquidity Coverage Ratio, formally introduced on January 1 2015, obliges banks to hold more HQLAs, namely Commonwealth and semi-government bonds, at the expense of higher yielding alternatives, including SSA Kangaroos, that are less liquid. APRA’s...