Bonds In Conversation : To Shake, Borrow and Roll

11/07/2014 by

Fresh off the heels of Bulgaria’s bank run last week, 2 European company scandals surfaced within this week that markets are taking in their stride.

Let’s GOWEX, a listed company in Spain, admitted to accounting fraud and falsifying their revenue for years. http://www.bloomberg.com/news/2014-07-09/how-gowex-ceo-went-from-defiant-to-disgraced-in-five-days.html

Banco Espirito Santo, Portugal’s second largest lender by market value, missed debt payments, spreading contagion to Portuguese names and exposing a systemic risk to the country. http://www.bloombergview.com/articles/2014-07-10/hang-on-portugal-europe-s-crisis-isn-t-over

Contagion is well contained at the moment and heavily buoyed by positive sentiments after the release of June’s Fed FOMC minutes and junk continues to fly despite the worry of investor COMPLACENCY highlighted in those very minutes. https://tradehaven.net/market/do-not-challenge-the-fed-with-4-fed-funds-expectations/

Complacency is well sustained too as Iceland Foods (B1/B+) and Greece (Caa3/B-/B) successfully return to the bond markets along with many former defaultees such as, Ecuador, that was noted with irony by many observers. http://www.businessweek.com/news/2014-07-07/complacency-breeds-2-trillion-of-junk-as-sewage-funded

The Bank of International Settlements (BIS) is warning of a bubble even if they are not exactly sure where it is and when it will burst. http://washpost.bloomberg.com/Story?docId=1376-N86KOD6TTDS801-3HFM9OV2VJTRL59VI8APGNSTDA

http://www.businessinsider.com/r-scoping-the-new-subprime-as-watchdogs-cry-bubble-2014-09?IR=T&

Another noteworthy comment out of Ifo Institute is that Southern Europe needs debt forgiveness to revive their economies which, to me, suggests defaults and something every other borrower and issuer out there would love to happen, all at once for them to rid themselves of their debt burdens.

A bubble is what we make of it, because it does not have to be a bubble as we could be in a perfectly engineered marketplace where every asset is booming. https://tradehaven.net/market/fx/engineering-a-perfect-market-at-a-price/

The challenge is much like deciphering the Schrodinger’s Cat paradox of whether the cat is dead or alive or perhaps dead and alive, at the same time, in that box and we really would not know until the bubble bursts and reality strikes.

Besides all this bubble talk, we have the threat of violence in the usual conflict zones with Israel being the latest to pull a Russia on Gaza, China is showing signs of internal strife as Bank of China (state owned) is accused by state owned television of money laundering and Indonesia has a problem deciding on the winner of their presidential elections.

Our main challenge in the days ahead is to come to terms with the reality of this bond market bull run instead of looking for the next Espirito Santo in Asia or US. As the ECB (and BOJ) picks up from where the Fed left off in their taper, many Espirito Santo and Let’s Gowex will get a new lease of life and stay hidden from our sights.

It is the only way we know – to Borrow and to Roll, and to never pay it back until the fat lady sings or till… we open the box to find the dead cat.

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Singapore saw 2 issues this week out of Geo Energy for SGD 100 mio 3.5 year at 7% and Pacific International Lines (PIL), a private company, for SGD 300 mio. Both were targeted at private bank clients, along with the Perisai Capital 6.875% 10/2016 reopening today.

The retail market is not pausing to breathe with the banks feeding them exactly what they are hungry for – yield.

Leaving you with the prices.

USD Bonds Listed in SGX and HK