Negative interest rates – you pay for the privilege of keeping your money in the bank – are current monetary policy in Japan and some European countries. Negative interest rates pose questions: Are they here? Why would anyone pay the bank to keep money? Do they make economic sense? Why would a central bank set negative interest rates? Most importantly, should a central bank make negative interest rates its policy? In what follows, we try to answer some of these.
Derivative practitioners need to be thinking about the pricing and modeling challenges related to prolonged, and in some areas, increasingly negative rate environments around the globe. The recent March 22 announcement by the Bank of Hungary—along with the January 29th announcement by the Bank of Japan—to adopt negative interest rates took much of the world by surprise. Of particular interest to derivative market participants, the info graphic below highlights the negative market rates in Europe and Japan for 2-year bond yields, as of March 21, 2016.
Less than 24 hours to go until the ‘Introduction to Green Bonds’ Webinars. Presentations from Climate Bonds Initiative experts, followed by a Q&A session.
Wednesday 25th May
- Session 1: 9am BST London / 12pm GST Abu Dhabi / 4pm CST Beijing / 6pm AESTSydney REGISTER HERE
- Session 2: 3pm BST London / 4pm CEST Berlin / 10am EDT New York / 7am PDT San Francisco REGISTER HERE
These webinars will cover:
- Introduction – What is a bond?
- How are bonds used in capital markets?
- What makes a bond green?
- How can green bonds help finance climate goals?
- Supply – Who is issuing green bonds, what are they issuing, why aren’t there more?
- Demand – Why do banks, insurance companies and pension funds invest in bonds?
Don’t miss out – Register Now!
IPFA Special edition — January 2016
10 emerging trends in 2016 – Trends that will change the world of infrastructure over the next 5 years
Barring a global economic meltdown or apocalyptic event, 2016 is already shaping up to be a year of growing momentum for the infrastructure sector. The signs of this momentum are everywhere: in new sources of capital and new funding approaches that promise to unlock trillions of dollars in new equity and debt investment; in growing asset management capabilities, cyber security and public procurement, which are ushering in a real step-change in the way operators and owners manage assets; in the growing boldness of governments seeking to catalyze economic and social benefits; and in the growing alignment between the ‘macro’ needs of governments and the ‘micro’ decisions of consumers.
Participants in the $880 billion leveraged loan market are taking a multi-prong approach to cutting the time it takes to complete a loan trade as regulators warn that long delays may prohibit funds from meeting redemptions during times of volatility.
According to the S&P Pan Asia Bond Index, India and China together represented 79% of the overall market value as of April 18, 2016. While foreign investor access to these countries is opening up, the investability is still limited. The market value excluding these two countries is around USD 2 trillion, as tracked by the S&P Pan Asia Ex China and India Bond Index, and Korea has the biggest exposure (see Exhibit 1).
According to the S&P China Corporate Bond Index, the market value of Chinese corporate bonds was approximately CNY 26.4 trillion and represented 36% of the overall China bond market as of May 5, 2016. It is a robust expansion compared with the mere 6.7% exposure in 2007 (see Exhibit 1).
The yield-to-maturity of the S&P China Corporate Bond Index came down 170 bps to 3.66% in 2015. This spread tightening in 2015 was largely due to improved liquidity, particularly with the correction in A-shares in the first half of 2015.
|The Multi-Asset RETHINK – IIJ
Webcast – Thursday, May 19th 11:00 A.M. Eastern / 8:00 A.M. Pacific
Live Q&A to follow broadcast
|Click to Register
Featured in this webcast:
David Millar, Head of Multi Asset, Invesco Perpetual – ”In fact, I don’t actually like the term multi asset, because that assumes you’re starting with asset classes. We’re not. We actually look for independent themes in the global macro space.”
Adam Duncan, Head of Portfolio Modeling and Quantitative Research, Cambridge Associates – “There’s lots of different flavors. You have your traditional GTAA…there’s your unconstrained mandates…Multi-asset is a bit of a misnomer.”
Charles Van Vleet, Assistant Treasurer, CIO, Textron – “My definition of an asset class is a unique set of income streams…I very much want to stay diversified by asset class.”
At the Intersection of Front and Middle Office Risk
Date: May 18, 2016
Time: 11:00 a.m. ET
Presenter: Eugene Stern, Business Manager, Bloomberg Risk
Over the past few years, unprecedented market structure and regulatory changes along with major advancements in technology have precipitated a huge demand for risk management platforms that can accommodate the needs of both intraday and end of day (EOD) risk analytics.
On the technology side, we have seen increased computing and aggregation capabilities which for the first time can power a consistent multi-asset class risk management platform that can meet the needs of both frontoffice and middle office risk functions.
This will provide a real-time view of risk and portfolio analytics to the trading desk as well as providing middle office capabilities for internal, investor, and regulatory reporting.
Topics to be Discussed
- The drivers of change
- Risk system requirements for the front and middle office
- Components of an advanced risk system
- Putting it all together
The 2008 financial crisis brought a focus on the potential for a large insurance firm to contribute to systemic risk. Among the concerns raised was that a negative shock to insurers could lead to a ‘fire sale’ of corporate bonds, a market where insurers are among the largest participants. This paper discusses the existing evidence on life insurance firms and systemic risk, with a focus on the investment grade corporate bond market. We provide some tentative evidence that life insurers tend to absorb liquidity risk by purchasing bonds when the bonds are less liquid than average. However, we do not find evidence that insurers increased bond purchases specifically during the financial crisis leaving open the question of whether insurers would play a stabilizing role in a future crisis. Read more
“It’s a tough time for convertible bond managers,” says Cédric Daras, senior fund manager at RAM Active Investments. Finding long-term value in the market has been hard for some time. And since issuance has also slowed in recent months, managers have a more difficult job than usual in selecting securities.
Yet convertibles seem the natural answer to a classic asset allocation conundrum: how can investors participate in equity markets upside while keeping a safety cushion against market falls?
Last month was a quiet watershed in debt capital market history, reversing the decades-old, untrammeled legal privilege of rating agencies to express their credit views.
Superficially, the cases were very different—one in Hong Kong involving emerging market corporate research, another in the state of California involving a highly structured money market type investment—but both featured substandard credit information and spillover volatility into related, non-credit markets. The essence of the California case was whether ratings are automatically protected by the American Constitution, even if negligently produced. In a nutshell, the California courts said “no.” The essence of the Hong Kong case was whether its securities regulator, the SFC, had jurisdiction over credit research published by the agencies it licenses. In a nutshell, the Hong Kong Tribunal said “yes.”
Last year proved to be a difficult one for all asset classes and the global high-yield bond markets were no exception. US high-yield in particular had a terrible year, driven by a collapse in metals and mining on top of the precipitous decline in oil prices. This year might prove to be difficult in many ways and the bearish market continued in January and February.
May 3 China’s banking regulator, in a move to rein-in a rapidly growing ‘shadow loans’ industry, has instructed commercial lenders to properly account for lending products that may appear on their balance sheets as lower-risk investments.
Authorities are tightening scrutiny of the lenders, as the growth of complex financial structures by commercial lenders may be used to conceal bad lending and credit risks.
The weakness of emerging economies could prove lasting as deep-seated structural problems rather than fleeting troubles are the root cause, posing a risk to growth even in advanced economies, the European Central Bank said. ECB President Mario Draghi has repeatedly cited subdued growth in emerging market as a drag on the euro area recovery and one of the reasons underpinning its ultra-easy policies.
This presentation suggests an alternative lens through which to view the global economy’s struggle to achieve sustainable and balanced growth, reflecting a failure to prevent the build-up and collapse of hugely damaging financial booms and busts. A symptom of the current malaise can be seen in interest rates that have been exceptionally low for an exceptionally long time, with a record high amount of global sovereign debt trading at negative yields. To break out of this trap, there is a need to take a longer-term view and rebalance policies towards structural measures, abandoning the debt-fuelled growth model that has brought us to the current predicament.
Speech by Mr Claudio Borio, Head of the Monetary and Economic Department of the BIS, at the FT Debt Capital Markets Outlook, London, 10 February 2016.
- Presentation slides (27 pages, 501 kb)