Russia
Crisis Hits Pimco Fund, Wipes Out Options - (www.bloomberg.com) After
the single worst day in Russia’s nine-month-old financial crisis, the fallout
is spreading across global markets. Pacific Investment Management Co. (PEBIX) is facing mounting losses on its Russian
bond holdings; almost every bullish ruble option contract registered in the
U.S. has been made worthless; and foreign-exchange brokers in New York and London told clients they’re no longer taking
ruble trades. Sergey Shvetsov, a first deputy central bank governor, expressed
astonishment at the scope of the collapse during a conference in Moscow. “We
couldn’t imagine what’s happening in our worst nightmare even a year ago,”
Shvetsov, who oversees financial markets at Bank of Russia, said yesterday. He
said the surprise interest-rate increase in the middle of the night, a 6.5
percentage-point move that failed to stem the run on the ruble yesterday, was a
choice between a “very bad” option and a “very, very bad” option. Pimco’s $3.3
billion Emerging
Markets Bond
Fund has been one of the hardest hit. It held $803 million of Russian corporate
and sovereign bonds at the end of September, equal to 21 percent of total
assets, an amount that’s more than double that of the benchmark it tracks,
according to data compiled by Bloomberg. The fund has
lost 7.9 percent in the past month, trailing 95 percent of its peers.
Loan
Gains Erased With Debt Headed for First Loss Since 2008 - (www.bloomberg.com) Gains
on loans made to riskier U.S. companies have been wiped out for the year and
the debt is on track to post its first annual loss since 2008. The debt has dropped 0.79
percent, with declines this month erasing annual returns that were as high as
2.6 percent in July, according to the Standard & Poor’s/LSTA U.S. Leveraged
Loan 100 Index. Returns were 5 percent last year. The debt is tumbling along
with junk bonds as
the plunge in oil prices is making it harder for riskier companies
to raise debt. Investors pulled $1.05 billion from loan funds and $1.89 billion
from high-yield bond funds last week in the U.S., according to Lipper. The
retreat has reduced speculative-grade bond returns for the year to 0.36 percent
through Dec. 15, according to a Bank of America Merrill Lynch index. The debt
gained 7.4 percent in 2013.
Western
Banks Cut Off Liquidity To Russian Entities - (www.zerohedge.com) As
Zero Hedge first reported today, shortly before noon one (and subsequently more) FX brokers advised clients that any existing
Ruble positions would be forcibly closed out because "western banks have
stopped pricing USDRUB", over concerns of Russian capital controls.
Ironically, it was this forced liquidation of mostly short RUB positions that
pushed the RUB higher, which in turn had a briefly favorably impact on energy
commodities and risk assets, as the market had by then perceived the Ruble
selloff as excessive. Of course, since nothing had actually changed aside from
a temporary market technical, the selloff promptly resumed into the close of
trading once the market finally understood what we had explained hours
previously. And unfortunately for the bulls, various falling knife-catchers,
and those who hope the Russian situation will stabilize imminently with or
without capital controls, it appears things in Russia are about to get a whole lot worse because as the WSJ reports,
the next driver of the Russian crisis is likely to come from within the banking
system itself because "global banks are curtailing the flow of cash
to Russian entities, a response to the ruble’s sharpest selloff since the 1998
financial crisis."
U.S.
Oil Rigs Drop Most in Two Years, Baker Hughes Says - (www.bloomberg.com) U.S.
oil drillers idled the most rigs in almost two years as they face oil trading
below $60 a barrel and escalating competition from suppliers abroad. Rigs
targeting oil dropped by 29 this week to 1,546, the lowest level since June and
the biggest decline since December 2012, Houston-based field services company Baker Hughes Inc. (BHI) said on its website yesterday. As OPEC
resists calls to cut output, U.S. producers including ConocoPhillips (COP) and Oasis Petroleum Inc. (OAS)have curbed spending. Chevron Corp. (CVX) put its annual capital spending plan on
hold until next year. Rigs targeting U.S. oil are sliding from a record 1,609
after a $50-a-barrel drop in global prices, threatening to slow the
shale-drilling boom that has propelled domestic production to the highest level
in three decades.
The
Russian Ruble Is Hereby Halted Until Further Notice - (www.zerohedge.com) Earlier, we reported that various currency brokers such as FXCM and
FxPro, would - as a result of the soaring liquidity in the USDRUB pair -
suspend trading in the Russian Ruble (while other merely hiked margins to
ridiculous levels). It appears things have escalated again, and as FXCM just
reported, instead of just politely advising clients not to open new USDRUB
position tomorrow, it has advised anyone long, or short, the USDRUB
that their positions will be forcibly shut in moments. Please be advised that
that most Western Banks have stopped pricing USD/RUB. As such, FXCM can no
longer offer this instrument to our clients and will begin closing any
existing client trades in USD/RUB effective at Noon EST today, December 16th,
2014,…
So for those curious why there appears to be a collapse in Ruble volatility in the past few hours which in turn has sent both stocks and crude soaring, the answer is simple: nobody is trading it! And this is what happened following the post: as soon as all those short the RUB (long USDRUB) realized they have to take profits, the USDRUB tumbled some 500 pips (!) in the process sending stocks surging.
So for those curious why there appears to be a collapse in Ruble volatility in the past few hours which in turn has sent both stocks and crude soaring, the answer is simple: nobody is trading it! And this is what happened following the post: as soon as all those short the RUB (long USDRUB) realized they have to take profits, the USDRUB tumbled some 500 pips (!) in the process sending stocks surging.
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