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Chicago
Public School Haunted by Bankruptcy Chatter Ahead of Bond Sale - (www.chicagobusiness.com) The Chicago Board of Education can't catch a
break as it tries to borrow to pay for upgrades to the third-largest U.S.
school system. First, Moody's Investors Service and Fitch Ratings cut it to one
step above junk last month, delaying a planned $372 million bond sale. Then
last week, before a pared-down $296 million version of the deal, set for today,
Gov. Bruce Rauner said the system may need bankruptcy protection, an option
that's not legally open to it. There's little prospect that the backdrop will
brighten. The system faces a projected $1.1 billion budget gap next fiscal year
as retirement costs climb. Its relative borrowing costs are at a two-year high.
And with negative outlooks from Moody's and Fitch, a downgrade to junk may
chase off investors. “There are a lot of balls in the air when it comes to our
outlook,” said John Miller, co-head of fixed income in Chicago at Nuveen Asset Management,
which oversees about $100 billion of municipal debt. Nuveen may buy the new
bonds for its high-yield fund, he said. “They might have to entice people with
more spread, particularly with headline risk like this.”
Greece facing 'Lehman moment'
as debt costs soar - (www.cnbc.com) As
Greece's stock market plunges and borrowing costs soar, analysts warned the
country could be facing its "Lehman moment" as it faces bankruptcy
and more financial chaos. Greek bank stocks fell dramatically on Tuesday and
its borrowing costs rose sharply following news that European Central Bank
(ECB) staff were mulling contingency plans for both an "orderly" and
"disorderly" default by Greece, sources told CNBC. A default could
lead to Greece leaving the euro zone—something that closely-watched investor
Mark Mobius said could herald the "beginning of the end" of the
single currency bloc. "If there was an exit of Greece from the euro, that
would be an amazing event for Europe. It would mean the beginning of the end
and that would not be a happy picture," Mobius, executive chairman at
Templeton Emerging Markets Group, told CNBC.
China Sees First Bond Default by State Firm
With Tianwei - (www.bloomberg.com) A
Chinese power-transformer maker became the country’s first state-owned company
to default on an onshore bond, signaling the government’s willingness to let
market forces decide an enterprise’s fate. Baoding Tianwei Group Co., the unit
of central government-owned China South Industries Group Corp., said it will
fail to pay 85.5 million yuan ($13.8 million) of bond interest due Tuesday.
Kaisa Group Holdings Ltd. became the first Chinese developer to default on its
U.S. currency debt Monday. Until now, only private-sector companies have
defaulted in China’s domestic bond market even as state-owned enterprises have
sold the vast majority of debt. Tianwei’s default highlights a shifting
attitude toward financial risk, underscored by Premier Li Keqiang’s pledge to
open a cooling economy to market forces and strip power from the government.
Harley
has a warning for US companies - (www.businessinsider.com) When iconic motorcycle maker Harley-Davidson
Inc warned on Tuesday that discounting from foreign rivals would dent its
profits, the message resonated beyond the motorcycle business. From cars to
construction equipment, the impact of the strong dollar is a big problem for
U.S. companies selling overseas. But the U.S. dollar's recent surge to
multiyear highs against major currencies, such as the euro and yen, has also
become a challenge to their efforts to protect market share on home turf. Harley's
U.S. market share slipped nearly five percentage points in the first quarter to
51.3 percent as competitors offered discounts of up to $3,000 per bike and
slashed suggested retail prices by up to 25 percent.
Guess
What Happened The Last Time Bond Yields Crashed Like This... - (www.zerohedge.com) If a major financial crisis was approaching,
we would expect to see the “smart money” getting out of stocks and pouring into
government bonds that are traditionally considered to be “safe” during a
crisis. This is called a “flight to safety” or a “flight to quality“. In the past, when there has been a
“flight to quality” we have seen yields for German government bonds and U.S.
government bonds go way down. As you will see below, this is exactly what
we witnessed during the financial crisis of 2008. U.S. and German bond
yields plummeted as money from the stock market was dumped into bonds at a
staggering pace. Well, it is starting to happen again. In
recent months we have seen U.S. and German bond yields begin to plummet as the
“smart money” moves out of the stock market. So is this another sign that
we are on the precipice of a significant financial panic? Back in 2008, German
bonds actually began to plunge well before U.S. bonds did. Does that mean
that European money is “smarter” than U.S. money? That would certainly be
a very interesting theory to explore. As you can see from the chart
below, the yield on 10 year German bonds started to fall significantly during
the summer of 2008 – several months before the stock market crash in the fall…
Greece Flashes Warning Signals About Its Debt - (www.nytimes.com) By the standards of his frenzied schedule here
last week, the meeting on Friday between Yanis Varoufakis, the Greek finance
minister, and Lee C. Buchheit, the dean of international debt lawyers, was a
quiet one. There was none of the media scrum that had followed Mr. Varoufakis
around town during the semiannual meetings of the International Monetary Fund and World Bank, as he paid calls on the I.M.F. chief,
Christine Lagarde; the head of the European
Central Bank,
Mario Draghi; the United States Treasury secretary, Jacob J. Lew, and even
President Obama. But the get-together with Mr. Buchheit carried critical
meaning, according to experts here. After all, it was Mr. Buchheit who helped
brokerGreece’s most recent debt refinancing, in 2012.
[Evans-Pritchard] Europe ready for Grexit
contagion as Athens gets closer to Russian cash - (www.telegraph.co.uk) The European Central Bank has warned that a
rupture of monetary union and Greek exit from the euro could have dramatic
consequences, but insisted that it has enough powerful weapons to avert
contagion. Mario Draghi, the ECB's president, said it would be far better for
everybody if Greece recovers within EMU but made it clear that the currency
bloc is no longer vulnerable to the immediate chain-reaction seen in earlier
phases of the debt crisis.
This sends an implicit message to the
radical-Left Syriza government in Athens that it cannot hope to secure better
terms from EMU creditors by threatening to unleash mayhem. "We have enough
instruments at this point of time, the OMT (bond-buying plan), QE, and so on,
which though designed for other purposes could certainly be used in a crisis if
needed," said Mr Draghi, speaking after a series of tense meetings at the
International Monetary Fund.
"We are better equipped than we were in 2012, 2011."
Tax
Receipts Flash Economic Warning Sign - (www.zerohedge.com) With "tax
day" now firmly behind us, it is expected that 2015 will show a
record level of tax collections. This is a good thing, right? Maybe not. Over
the weekend, an economist friend of mine sent me an interesting piece of
analysis discussing the record level of tax receipts as a percentage of the
economy. This is something that I have written about in the past. While the
current push higher in tax collections partially due to economic growth, it is
primarily due to higher tax rates brought on by the "2011 Budget
Control Act." That bill imposed automatic tax increases and spending
cuts beginning in 2013. It is worth noting that then chairman of the Federal
Reserve, Ben Bernanke, launched "QE 3" specifically to
offset the potential risks of the "fiscal cliff" imposed by
the "debt ceiling deal." The good news is that those tax
increases and automatic spending cuts led to a massive shrinkage of the deficit
which has declined from a record of $1.35 Trillion in 2010 to just $559 billion
as of the end of 2014.
Greece Moves to Seize Public-Sector Funds as
IMF Payment Due - (www.bloomberg.com) Running
out of options to keep his country afloat, Greek Prime Minister Alexis Tsipras
ordered local governments to move their funds to the central bank. With
negotiations over bailout aid deadlocked, Tsipras needs the cash for salaries,
pensions and a repayment to the International Monetary Fund. Greek bonds fell
after the move, pushing three-year yields to the highest since the nation’s
debt restructuring in 2012. The order was questioned by local officials and
slammed by the leading opposition party. The decree to confiscate reserves now
held in commercial banks and transfer them to the central bank could raise
about 2 billion euros ($2.15 billion), according to two people familiar with
the decision. It shows how time is running out for Tsipras, a point made by
European officials who addressed the matter at IMF meetings in Washington in
recent days.
Major
Chinese Developer (Kaisa) Says It Can't Pay Dollar Debts - (www.bloomberg.com) Kaisa
Group Holdings Ltd. became China’s first real estate company to default on its
U.S. currency debt, capping a month of distress in bond markets amid an
anti-corruption probe and fueling concern that losses will spread. The default
coincides with the expiration of a 30-day grace period on $52 million of missed
interest payments on two dollar-denominated bonds, according to a Hong Kong
stock exchange statement Monday. Kaisa, based in the southern city of Shenzhen,
is struggling to service 65 billion yuan ($10.5 billion) of debt owed to both
onshore and offshore lenders while becoming embroiled in President Xi Jinping’s
crackdown on graft. The developer’s problems have rippled across the region’s
debt market, where investors starved of yield elsewhere in the world have
swooped in to boost returns. As the government’s anti-corruption probes widen,
it’s raising concern that defaults will spread after overseas noteholders
bought a record $21.3 billion of
bonds issued by Chinese property companies.
Creditors Chase Consensus With Greece to Unlock
More Aid - (www.bloomberg.com) Greece and its creditors remained at
loggerheads with time running out to unlock aid and avert a default. The sides
haven’t even set 2015 budget targets, let alone on policies to meet them, an
official representing creditors said Monday, asking not to be named as talks
aren’t public. Euro-area finance ministers said in February that a list of
measures must be agreed upon by
the end of April. European leaders want Greece to do more to revamp its
debt-burdened economy, with progress to be reviewed on April 24 in Riga,
Latvia, when finance ministers from the currency bloc meet. European Commission
Vice President Valdis Dombrovskis said in an interview in Washington that
creditors might need to wait until mid-May to
see what Greece can deliver.
Ukraine’s $32 Billion Eurobond Pile Means
Restructure or Go Bust - (www.bloomberg.com)
With less than $10 billion of reserves to repay
$32 billion of foreign-currency bonds, Ukraine is running out of time to reach
a deal with creditors. Finance Minister Natalie Jaresko last week rejected a
bondholder proposal to extend the maturities of its debt because it wouldn’t
ease the overall burden enough without a reduction in principal, known as a
haircut. The nation must repay $7.5 billion in government and corporate
Eurobonds due this year and $5.3 billion in 2016, according to data compiled by
Bloomberg. “The creditors are trying to achieve a reprofiling without a
haircut,” Michael Ganske, who helps manage $6 billion as the head of emerging
markets at Rogge Global Partners Plc in London, said by phone on Friday.
“Frankly speaking, I can’t see how that will work because debt-sustainability
is not established with that.”
Fed’s Cold-Case Files: Many Leaks But Nobody
Caught Since 1980s - (www.bloomberg.com) The leak came from the inner sanctum of Federal
Reserve Bank of New York. Inside the regal board room of the New York Fed in
lower Manhattan, a director quietly telephoned a brokerage
with inside information on interest-rate policy. It was 1984, and the director,
Robert Rough, had been tipping off the New Jersey brokerage for more than a
year. His story, a tale of clandestine calls and dishonest profits, stands
alone: He was the first, and so far only, official indicted for divulging
confidential Fed information. Some three decades later, the Federal Reserve is
once again confronting uncomfortable questions about possible leaks. So far
little has come to light about who might have passed details of a 2012 Federal
Open Market Committee meeting to a newsletter that caters to hedge funds.
Greek Bond Yields Climb Most Since Aftermath of
Syriza Election - (www.bloomberg.com) Greek
government bonds were set for their worst week since the aftermath of Syriza’s
election victory as the nation remained locked in negotiations to secure
funding and avoid a default. The yield on 10-year securities climbed to the
highest since December 2012 this week, and Spanish and Italian bonds also
dropped, as officials worked to reach an agreement before Greece faces payments
of almost 1 billion euros ($1.1 billion) next month. German 10-year yields
dropped below 0.1 percent for the first time as European Central Bank President
Mario Draghi said Wednesday that the institution’s 1.1 trillion-euro
bond-buying program must be implemented in full to work.
Kaisa Keeps Creditors Guessing as China Dollar
Default Looms - (www.bloomberg.com) Kaisa
Group Holdings Ltd. has until Monday to find $52 million for missed payments on
two of its dollar bonds as it seeks to avoid default. The troubled developer
must pay the interest on its 2017 and 2018 notes that was due on March 18 and
March 19 respectively after the expiry of a 30-day grace period. The delay is
the latest twist in a saga that has seen Kaisa’s founder Kwok Ying Shing make
an unexpected return to the company, projects in Shenzhen blocked, a near
default on a loan in December and a takeover offer from Sunac China Holdings
Ltd. Standard & Poor’s doesn’t expect Kaisa to pay and downgraded it
to default last month. “Kaisa in the last four months has been mysterious and
unpredictable, and Kwok coming back is equally surprising,” said Ashley
Perrott, the head of pan Asia fixed income in Singapore at UBS Global Asset
Management Ltd. “It wouldn’t be a good signal if they didn’t pay the coupon.”
Shares
hit by China trading clampdown fears - (www.cnbc.com) New rules for trading Chinese stocks spooked European and U.S. markets
on Friday. Chinese exchanges and regulators announced Friday that they would
crack down on over-the-counter margin trading and that they would allow fund
managers to lend shares for short-selling. The type of stocks that investors
can short sell will also be expanded soon to 1,100, from 900 currently. All of
these moves could slow Chinese equities' wild run higher in recent months. Although
the Shanghai Stock Exchange
Composite Index rose
2.2 percent in Friday trading, Chinese after-hours stock futures fell about 5.5
percent in a response to the new regulations. Traders said U.S. and European
markets were then in turn spooked by the move in those futures, and worries
that the regulatory changes would be negative for the flow of recent money that
has poured into Chinese exchanges.
The ECB Is Considering A Parallel Greek Currency - (www.zerohedge.com) As we first reported yesterday, one of the proposed
measures to be implemented in Greece just before, or during its default and/or
exit from the Eurozone, in addition to pervasive capital controls of course, is
the implementation of a parallel "currency", or as explained yesterday, a government paying its
citizens with IOUs. This is what we said less than 24 hours ago: Greece might resort to IOUs and/or capital
controls to avoid a disorderly default and keep the banks afloat for now.
But such measures would offer a temporary solution at best and could be the
first steps towards a euro-zone exit. Assuming that a deal is not reached next
week, there are a couple of routes that the Greek Government might take to
avert disaster in the short term. First, it could issue IOUs to pay
public sector workers and pensioners and free up money to repay its debts. But
this could cause economic chaos if fears that the IOUs would never be paid
sparked riots or public sector employees simply refused to work. Even if Greek
people accepted IOUs, they could only function for a very short period.
Before long, those receiving incomes in IOUs could only afford to pay their
taxes through the same medium. And given that the Government’s international
creditors would not accept IOUs as repayment, this would still lead to a debt
default. Effectively, the IOUs would become a parallel currency whose
value was deemed lower than that of a normal euro. This would be akin to a
euro-zone exit.
Oil
layoffs hit 100,000 and counting – (www.bdlive.co.za)
LIKE many other oil-field workers, Chris
Sabulsky spent years working a schedule known as "14 on, 14 off": two
weeks at an oil or gas well somewhere followed by another 14 days at home in
East Texas, fishing for bass and crappie. But now Mr Sabulsky, 48 years old, is
spending his days sending out résumés, calling acquaintances to see if they
know of job openings, and pondering his future. The closer your job is to the
actual oil well, the more in jeopardy you are of losing that job," said
Tim Cook, oil and gas recruiter and president of PathFinder Staffing in
Houston. "Each time an oil rig gets shut down, all the jobs at the work
site are gone. They disappear." The number of working US oil and gas rigs
has dropped 46% so far this year to 988, the lowest level in more than five
years, according to data from Baker Hughes''
Contagion
Arrives: European Peripheral Bond Risk Soars - (www.zerohedge.com) Just
yesterday, German FinMin Schaeuble bent the truth, proclaiming that there was
no sign of contagion from Grexit concerns. Today, it appears, he will be eating
his words, as Italian, Spanish, and Portuguese bond spreads have exploded
higher (up 15-30bps this week) amid the collapse of Greek sovereign and
bank bonds. It's not just Greek Sovereigns that are plunging, Greek Bank Bonds
have collapsed... It's not just Schaeuble that doesn't see any problems. Stan
Druckenmiller, the Chairman and CEO of Duquesne Family Office, said that with
regard Greece leaving the euro: "Draghi has QE at his disposal. My
guess is there won’t be contagion, but even if there is, he can contain it, and
soon as market participants see that, you won’t get contagion." However,
it's no longer about bonds or Draghi, it's about redenomination risk once again
and who gets what idea next (because if there is one thing that is not allowed
in the EU, it's thinking for yourself).
CBS4
Investigation: TSA Screeners At DIA Manipulated System To Grope Men's Genitals – (denver.cbslocal.com) A CBS4 investigation has learned that two
Transportation Security Administration screeners at Denver International
Airport have been fired after they were discovered manipulating passenger
screening systems to allow a male TSA employee to fondle the genital areas of
attractive male passengers. It happened roughly a dozen times, according to
information gathered by CBS4. According to law enforcement reports obtained
during the CBS4 investigation, a male TSA screener told a female colleague in
2014 that he “gropes” male passengers who come through the screening area at
DIA. “He related that when a male he finds attractive comes to be screened by
the scanning machine he will alert another TSA screener to indicate to the
scanning computer that the party being screened is a female. When the screener
does this, the scanning machine will indicate an anomaly in the genital area
and this allows (the male TSA screener) to conduct a pat-down search of that
area.” Although the TSA learned of the accusation on Nov. 18, 2014 via an
anonymous tip from one of the agency’s own employees, reports show that it
would be nearly three months before anything was done.
Schaeuble Warns Greece to Ditch False Hopes, Do
Reforms - (www.bloomberg.com) German
Finance Minister Wolfgang Schaeuble ruled out further concessions to Greece,
saying it’s up to the Greek government to commit to the reforms needed to
release aid rather than give false hopes to its people. Schaeuble, speaking in
a Bloomberg Television interview in New York on Wednesday, said that another
debt restructuring wasn’t up for discussion now, and that Greek demands for war
reparations from Germany were “completely unrealistic.” “It’s entirely down to
Greece,” said Schaeuble, 72. While some kind of restructuring might be on the
agenda in 10 years, “today the issue for Greece is reforming its economy in
such a way that it becomes competitive at some point.” Greece’s plight is
deepening with no end in sight to the standoff with creditors over releasing
the final installment of bailout aid, which has been stalled since the January
election of Prime Minister Alexis Tsipras’s anti-austerity government. Greek
bonds plunged Thursday after Standard & Poor’s cut the country’s rating to
CCC+ from B-, citing the country’s deteriorating outlook.
Greece in 'slow-death
scenario' amid defaults fears - (www.cnbc.com) A
U.K. bookmaker has stopped taking bets on Greece leaving the euro zone, saying
it is increasingly likely that the country could "begin the process of
departing" very shortly. William Hill closed their book on whether Greece
will leave the euro zone during 2015, and on which country would be first to
leave the euro zone, the bookmaker said Wednesday evening. "Greece had
been heavily backed down to 1/5 to be the first to quit the euro zone, and we'd
also been shortening the odds for Greece to leave during 2015. They'd come down
from 5/1 to 3/1.' William Hill spokesman Graham Sharpe said in a press release.
He added that "it is now looking increasingly likely that they could begin
the process of departing very shortly." It comes as one analyst told CNBC
Thursday that the country faced a "slow-death scenario"—including a
default and messy exit from the euro zone—as the country's economic crisis took
another turn for the worse following a credit rating downgrade.
Ratings Shopping Run Amok in U.S. Property Debt
Fuels Buyer Ire - (www.bloomberg.com) Some
of the biggest buyers of bonds financing U.S. commercial properties are asking
regulators to help stop a Wall Street practice of shopping for the highest
credit ratings that they say has gotten excessive. MetLife Inc., Genworth
Financial Inc. and Deutsche Bank AG’s investment arm are among at least nine
firms that have discussed their concerns with regulators, according to four
people with direct knowledge of the situation. Their main gripe is that
underwriters are increasingly dropping credit raters such as Moody’s Investors
Service and Fitch Ratings that demand the securities be structured to offer
more protection from defaults. Barclays Plc analysts say banks are instead
favoring upstarts that are more willing to give higher grades. That’s upsetting
big bond buyers, many of whom can’t purchase the debt unless it’s graded by one
of the three major bond raters -- Moody’s, Fitch and Standard & Poor’s.
That means they’re getting squeezed out of deals, losing out to investors who
face no such restrictions as a global hunt for high-yielding assets creates a
seller’s market.
