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Bonds, About buying Bonds
nipper
post Posted: Mar 21 2012, 09:20 AM
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In Reply To: wren's post @ Feb 2 2012, 10:44 AM

QUOTE
Since the start of the year .. (there have been changes in) bank funding spreads almost every week. A raft of new issues – including covered bonds and ASX listed subordinated and hybrid issues – have "re-priced" the market on numerous occasions.

However, the greatest impact has been the commencement of covered bond issues in the domestic A$ market by the major banks. In particularly the inaugural covered bond issue by CBA in mid- January at a hefty 175bp over five year swap threw the cat amongst the pigeons so to speak.

Where to from here?

Covered bonds have tightened a long way but prior to the first A$ issue (CBA @ 175bp above), we expected them to be around 80bps. We expect that spreads will continue to tighten towards those levels subject to the odd push wider when large volumes hit the market by way of new issues, which should be a regular occurrence over 2012.

Term deposits in the long end now appear poor value. Higher margins over swap are available in at call and short dated deposits and these appear much better places to invest if you are looking for the safety of deposits.

Senior debt is still wide by historic and recent standards and with credit spreads for European banks tightening materially over recent weeks, we expect further tightening domestically also (but the risk of another bout of European or global risk aversion does remain).

Subordinated debt is a dying breed for the major banks. Other than the new ANZ retail issue, there is very little with an expected call date past 2012.

Hybrids have been hit by a large sell off, much of which was justified. However, certain hybrids possibly have sold off too far but with further new ASX retail issues to be "funded" by the sale of old hybrids, there is a risk that the sell off could continue. The current differential of 315bp between covered bonds and hybrids is a little high but we see a circa 300bps pick up as appropriate.

However, new style bank hybrids that mandatorily convert to equity (with a likely "haircut") if the bank breaches a common equity ratio trigger (typically 5.125%), should return an extra 100bps plus on top for that additional risk. These new style hybrids include the recent ANZ CPS3 and Westpac CPS issues.
FIIG Securities



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"Every long-term security is nothing more than a claim on some expected future stream of cash that will be delivered into the hands of investors over time. For a given stream of expected future cash payments, the higher the price investors pay today for that stream of cash, the lower the long-term return they will achieve on their investment over time." - Dr John Hussman

"If I had even the slightest grasp upon my own faculties, I would not make essays, I would make decisions." ― Michel de Montaigne

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wren
post Posted: Feb 2 2012, 10:44 AM
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In Reply To: flower's post @ Feb 2 2012, 10:28 AM

flower,
Bill Gross is a great media star,but how well does his huge Bond Fund perform?

"Gross has been proven wrong and his fund has suffered. As of Monday, Pimco's flagship fund ranked 501th out of 589 bond funds in its category, says the FT."

 
flower
post Posted: Feb 2 2012, 10:28 AM
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Couldn't find a bond specific thread--this will suffice.
Apparantly Bill Gross (Pimco) has discovered an alternative invrestment vehicle other than bonds: (excerpt)
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When all yields approach the zero-bound, however, as in Japan for the past 10 years, and now in the U.S. and selected "clean dirty shirt" sovereigns, then the dynamics may change. Money can become less liquid and frozen by "price" in addition to the classic liquidity trap explained by "risk."

Even if nodding in agreement, an observer might immediately comment that today's yield curve is anything but flat and that might be true. Most short to intermediate Treasury yields, however, are dangerously close to the zero-bound which imply little if any room to fall: no margin, no air underneath those bond yields and therefore limited, if any, price appreciation. What incentive does a bank have to buy two-year Treasuries at 20 basis points when they can park overnight reserves with the Fed at 25? What incentives do investment managers or even individual investors have to take price risk with a five-, 10- or 30-year Treasury when there are multiples of downside price risk compared to appreciation? At 75 basis points, a five-year Treasury can only rationally appreciate by two more points, but theoretically can go down by an unlimited amount. Duration risk and flatness at the zero-bound, to make the simple point, can freeze and trap liquidity by convincing investors to hold cash as opposed to extend credit.

""Where else can one go, however? We can't put $100 trillion of credit in a system-wide mattress, can we? Of course not, but we can move in that direction by delevering and refusing to extend maturities and duration. Recent central bank behavior, including that of the U.S. Fed, provides assurances that short and intermediate yields will not change, and therefore bond prices are not likely threatened on the downside. Still, zero-bound money may kill as opposed to create credit. Developed economies where these low yields reside may suffer accordingly. It may as well, induce inflationary distortions that give a rise to commodities and gold as store of value alternatives when there is little value left in paper.""



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flower
post Posted: Sep 3 2011, 12:00 PM
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In Reply To: Mungo's post @ Sep 3 2011, 11:42 AM

Central Banks are meant to be independant of their Government,--PM's aren't meant to openly criticise the chief judge of the High Court--that is how much the rule book is being ripped up by!



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Mungo
post Posted: Sep 3 2011, 11:42 AM
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In Reply To: flower's post @ Sep 3 2011, 11:10 AM

"Foreign exchange reserves are held and managed by central banks, not by governments," said Natalie Dempster, director of government affairs at the World Gold Council.

If she is talking about gold, goes against what the Bernank stated and if that was the case Costello would not have been able to sell our gold reserves (part of).

As far as the gold backed bond, If it was me I would default and keep the gold.

 
flower
post Posted: Sep 3 2011, 11:10 AM
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In Reply To: Mungo's post @ Sep 3 2011, 11:05 AM

M: open the businessinsider link at the bottom of my post---agreed we are at an utterly fascinating point in economic history making right now!





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Mungo
post Posted: Sep 3 2011, 11:05 AM
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In Reply To: flower's post @ Sep 3 2011, 10:30 AM

Yes, they are all in panic mode. I would look like to understand more of what they are proposing because all I see at the moment is an opportunity for banks to plunder the gold reserves of a country.

 
flower
post Posted: Sep 3 2011, 10:30 AM
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In Reply To: Mungo's post @ Dec 16 2010, 05:37 PM

Hi Mungo----with the EURO rapidly descending into another currency basket case--this may be the ONLY way out!
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Today, the President of the ECB, Jean- Claude Trichet did not rule out a gold backed euro bond in an interview with 'Il Sole 24 Ore' published on the ECB'swebsite.

The comments were a response to former Italian Prime Minister Romano Prodi who proposed - in Italian national daily business newspaper 'Il Sole 24 Ore' last week - the creation of a euro bond backed by member states' gold reserves.

Prodi was President of the European Commission from 1999 to 2004.

Trichet was asked about "the creation of a fund guaranteed by the gold reserves of countries that would issue bonds to buy back national debt and make new investments."

Trichet did not answer the question directly but said "at this stage, we have the EFSF bonds, which are bonds with a European signature. The main message of the ECB Governing Council to governments is to implement rapidly, fully, comprehensively the decisions taken by the European heads of state and government on 21 July."



Read more: http://www.businessinsider.com/ecb-doesnt-...9#ixzz1WqQV4K7o



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Mungo
post Posted: Dec 16 2010, 05:37 PM
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In Reply To: wren's post @ Dec 16 2010, 11:05 AM

Hi Wren,
Just as a side note, the Fed now holds more in treasuries than any other foreign central bank, given that a treasury bond is an 'asset reserve' that allows the Fed to create an additional multiple of 9 of its new reserves (Fractional reserves being 10% in the U.S.), Central banks work a little differently from commercial banks.

They can purchase the Tbond with money created out of thin air, the Tbond is then classified as an asset reserve, this then allows the Fed to create additional credit/money being based on the new reserve * 9. In the process devaluing the purchasing power of each dollar in circulation Hello Inflation..

That above is what I call a Cartel scam.


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wren
post Posted: Dec 16 2010, 11:05 AM
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In Reply To: wren's post @ Dec 16 2010, 11:00 AM

Ignore that chart ! For some reason my system is not heeding its master.

 
 


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