Bond
Auctions Fail From Russia to Korea as Brazil Protests Rage - (www.bloomberg.com) Developing nations around the world are scaling
back or canceling billions of dollars of bond sales as borrowing costs climb
the most since 2008, just as spending needs increase amid slowing economic
growth. Romania’s Finance
Ministry rejected
all bids at a seven-year bond sale yesterday because of market volatility,
while South Korea raised less than 10 percent of the amount planned in an
auction of inflation-linked bonds. Russia scrapped a sale of 15-year
ruble-denominated bonds June 19, the second time it canceled an auction this
month, and Colombia pared
an offering of 20-year peso debt by 40 percent. A cash shortage led to failures
last week of China Ministry
of Finance debt sales. The tumble in bonds, stocks and currencies, spurred by
investors’ biggest retreat from emerging
markets in
two years, is tightening credit as the Federal
Reserve says
it may end cheap money that had made investment plentiful.
Brazil
Tycoon's Empire on Edge - (online.wsj.com) Just
months after he unveiled it, Brazilian commodity tycoonEike Batista's bid to rebalance his unsteady oil, mining
and shipping empire is nearly in tatters, overtaken by a shift in investor
sentiment against emerging-market and commodity businesses like those owned by
the former powerboat racer. The value of Mr. Batista's assets has plunged,
undermining a strategy set in March to raise capital by selling stakes in his
companies to new partners to ensure the viability of his cash-intensive
businesses. The bond due in 2018 in Mr. Batista's flagship oil company, OGX LLC,
reached the distressed level of 33 cents on the dollar Thursday. That compares
with 88 cents on March 6. "The price already indicates that investors are
seeing a company in a scenario of liquidation," said Marco Aurelio Guerra
de Sa, head of the Latin American trading desk at Crédit Agricole Securities in
Miami. Spokesmen for Mr. Batista declined to comment. But perhaps the strongest
statement in declining confidence in the Batista empire came from Mr. Batista
himself, investors say. In May, Mr. Batista sold around $60 million of shares
in his flagship oil company at a rock-bottom price of between 1.57 Brazilian
reais and 1.85 reais (70 cents and 83 cents) a share.
Analysis:
Creeping mistrust stops euro zone banks lending to peers across bloc - (www.reuters.com) Euro
zone banks are refusing to lend to peers in other countries in the
common currency bloc, signaling a worrying fall in confidence that appears to
have worsened since the Cyprus bailout earlier this year, data analyzed by
Reuters showed. In a trend that could reignite fears about the euro and its
banks, European Central Bank data shows the share of interbank funding that
crosses borders within the euro zone dropped by a third, to just 22.5 percent
in April from 34.5 percent at the beginning of 2008. Banks are now lending to
other banks across euro zone borders
at only about the same rate as when the single currency was first launched, 15
years ago. The silent retreat to within national borders is most pronounced in
the troubled economies of southern Europe but is seen even in Germany.
Insight:
Losses loom for investors enmeshed in mortgage chaos - (www.reuters.com) Since
the financial crash, banks have
been accused of wrongfully foreclosing on U.S. homeowners because they failed
to create and maintain proper mortgage paperwork. Now, there are signs that
chaotic document management is harming investors in mortgage bonds,
too. A review of loan documents, property records and the monthly reports made
available to investors show that mortgage servicers are reporting that
individual houses are still in foreclosure long after they have been sold to
new buyers or the underlying mortgages have been paid off. These delays enable banks and
other mortgage servicers to continue to charge monthly fees to investors in
these mortgage-backed securities, the banks' investor reports show. It means
that investors are buying mortgage bonds that
may have billions of dollars of undisclosed losses that will become apparent
only at a later stage. Mortgage experts said it could also lead to a new round
of litigation for banks just when some appeared to have been putting their
mortgage problems behind them.
Bond
market sell-off causes stress in $2tn ETF industry - (www.ft.com) A
wave of selling caused many exchange traded funds to tumble below the value of
their underlying assets as a bond market sell-off caused stress in the $2tn ETF industry. ETFs track baskets of
underlying assets, such as emerging-market stocks or municipal bonds, but
discounts widened sharply on Thursday as dealers struggled to keep up with the
sell orders. Emerging-markets ETFs
were among the worst affected, as investors took fright that the end of Federal Reserve monetary easing would lead to outflows from developing
countries. For example, the share price of the iShares MSCI Emerging Markets
Index fell to a 6.5 per cent discount to the underlying asset value. The
selling also caused disruptions in the plumbing behind several ETFs. Citigroup
stopped accepting orders to redeem underlying assets from ETF issuers, after
one trading desk reached its allocated risk limits.
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