When the Wall Street Journal asked a panel of economists why US long yields had risen recently, none of the traditional culprits made the top the list. Only few hands were raised for inflation or growth, and nobody suggested debt or deficits. Instead, two-thirds of them blamed Ben Bernanke’s hint last month that the Federal Reserve might reduce the rate of its monthly bond purchases.
There is no doubt David Cameron dodged a bullet last month when the House of Commons was called to vote on the referendum on Britain’s membership of the European Union. The vote only concerned a belated expression of regret that a bill to make a referendum possible had not been included on the current parliamentary timetable. Yet, although he professed to be ‘profoundly relaxed’ over the vote, Cameron must be able to see himself being painted into a corner
There has been so much talk recently about the possibility of the Fed reining in its policy monthly asset purchases, the so-called ‘tapering’ (Word of the Year?). Yet, it shouldn’t have escaped investors’ attention that any official mention of the policy shift is invariably wrapped in pre-conditions: if employment continues to improve; if economic activity is sustained; if inflation doesn’t fall. It should also not have escaped attention that in recent months the improvements in all of those measures appears to have stalled.
This is not the first time that central bank gold reserves have been evoked as a partial solution to public debt problems. In the depths of the Greek crisis, the sale of nation’s bullion reserves was briefly discussed as a means to bring down the debt burden, but the holdings were too small to make any difference. In Cyprus, a proposal to sell the bulk of the island’s gold reserves was endorsed, at least by EU finance ministers. So, it was not shocking to hear about a proposal to put Italy’s ample bullion holdings – the second highest in the EU after Germany’s – to use in tackling its massive debt overhang.
Actually, I’m a fan of FC Freiburg, not FC Schalke 04, but I found the idea of creating a cemetery for Schalke fans in the shadow of the stadium in Gelsenkirchen absolutely absorbing. In honour of its founding year, the club plans 1904 graves in this ‘terminal turf’. Only the most faithful fans will be able to rest there after their final whistle, but they will enjoy an unimpeded view of the Veltins-Arena and the posthumous feeling of being part of every home game.
When I learned recently that you actually had to pay to lend the German government money for two years, I couldn’t help but wonder what my late mother-in-law would have said. In the last years of her life, rest her soul, she complained how little pocket money she had because of the low yields on her savings, wholly invested in German Bunds. Back then, at least, the average coupon on the bonds in her portfolio was around four per cent, so she could still afford the odd indulgence. And this is precisely how she saw the income that flowed each time she cut a coupon, as income that she could use to treat herself to something nice. It wasn’t like income from other sources, or even like the capital that begat the coupon. This money was segregated from the others in her head – in a so-called mental account.
It is amazing what can become of a bond engagement if one happens to choose the wrong issuer. Yes, I was one of those unfortunate souls who decided to take a bet on short-dated Greek bonds in the middle of the eurozone bailout negotiations. In retrospect, it was not my best idea, but the engagement was small and entirely with my own money. Who dares, wins, I mused.
As far as I am aware, the idea didn’t come from the Cabinet Office’s Behavioural Insights Team, but the plan for the UK Treasury to issue “project-specific bonds” is certainly deserving of a behavioural moniker. Instead of just issuing generic gilts to meet the government’s policy objectives, the Treasury is thinking about labelling the bonds according to the use the money would be put. So, for instance, the financing of new roads, hospitals, or bridges would be done through the sale of a specifically-labelled bond and the money raised would be put to that purpose only.
“Dynamism for your car, security for your portfolio.” This headline emblazoned the flyer that fell out of my newspaper this morning. It was an advertisement from one of Europe’s leading manufacturers of alloy wheels for the automotive industry. The flyer didn’t just show off some shiny new rims, it also vaunted the qualities of a shiny new bond: a €50m five-year debt offering with a 7.5 percent coupon.
An older lady recently complained that low interest rates had sent her fixed-interest income into decline over the past few years. And now the last of the bonds with a 4 percent coupon were set to mature. Gone are the days when she could afford something nice with her interest income.
Several weeks ago, as the World Cup soccer tournament came to a close, we wrote about how the result could be used to the advantage of the Spanish victors in the form of a soccer bond .Now, we (almost) have the opportunity to see a real-time trial of the appeal of the beautiful game: FC Schalke 04, one of the most popular soccer clubs in Germany, is to issue its own bond.
A thrilling conclusion to the soccer World Cup tournament in South Africa has thrown up the possibility for the victor, Spain, to consider a bond marketing strategy we theorised about in any earlier post. The strategy exploits the popular appeal of assets, even financial assets, with a celebrity ‘label’.
European fiscal and monetary authorities have been bitingly critical of the big three rating agencies. Not only have Fitch, S&P and Moody’s been singled out for blame in the subprime meltdown, they have also been attacked in the European sovereign debt crisis for their lack of superior knowledge, their pro-cyclicity and their dreadful timing.
Despite being an Englishman, former soccer player and manager, Jack Charlton, is immensely popular in the Republic of Ireland. As manager of the national team, he led the soccer-mad nation to its first World Cup competition in 1990.