|
| Issue #16 |
February 5, 2013 |
|
In This Issue
Recommended Readings
Latest Resources
Recommended Readings
Libor Lies Revealed in Rigging of $300 Trillion Benchmark
Original Story by Liam Vaughan & Gavin Finch of Bloomberg Markets Magazine
In this article, Caughan and Finch go into great detail explaining the people behind the Libor scandal. Paul White, who had joined RBS in 1984, was one of the employees responsible for the firm’s submissions for the London interbank offered rate the global benchmark for more than $300 trillion of contracts from mortgages and student loans to interest-rate swaps. Behind him sat Neil Danziger, a derivatives trader who had worked at the bank since 2002. Rest of Summary...
For Full Article
Yield Hunger May Spur Hybrid Boom
Original Article by Richard Barley of the Wall Street Journal
In this article, Barley covers how the search for yield is driving a comeback for another bull-market structure: corporate hybrid bonds. Last week, French utility EDF sold a record-breaking 6.2 billion euros ($8.3 billion) equivalent of these securities, which blend features of debt and equity. More issuance seems likely, with borrowers seeking to preserve credit ratings and investors hungry for returns. But higher yields mean higher risk.
For Full Story
When the Chips Are Down: How Underperformance Changes Fund Manager Behavior
Original Article by Greg Richmond and Alistair Byrne of the CFA Institute
"This study looks at the ways in which fund manager behavior changes after the experience of a period of substantial underperformance. A series of structured interviews with experienced investors was carried out. They revealed strong patterns in the changes in investment behavior that they observed. These changes were mainly regarded as unhelpful ones."
For Full Story
DRC: Finding Red Flags in the ADV's
Original Story by Christopher Faille of AllAboutAlpha.com
Faille covers a recent report issued by Diligence Review Corp., a due-diligence oriented research firm, on the conflicts it alleges are endemic among U.S. pension investment consultants. It addresses this report to “fiduciaries, internal audit, and risk management professionals.” DRC compiled its data from the Form ADVs filed with the Securities and Exchange Commission under the Dodd-Frank Act. The Form requires a good deal of information whence the authorities, research firms like DRC, and for that matter any inquiring persons checking in through the website the SEC has established for this purpose, can make judgments about conflicts on the part of the investment advisers who had done so.
For Full Story
US Companies Ready to Deploy Cash
Original Article by Ken Tysiac of CGMA Magazine
A change in corporate strategy for cash reserves may be in the works, according to a new survey of US corporate treasurers. Twenty-eight per cent of treasurers anticipate reducing cash holdings in the first quarter of 2013, while 23% expect to increase cash balances, according to the Association for Financial Professionals (AFP) Corporate Cash Indicators survey.
For Full Article
Contagion Thesis Once Derided Proven by Kristin Forbes
Original Article by Joshua Zumbrun of Bloomberg
This article covers Kristin Forbes and her research on financial contagion as she sought tenure at the Massachusetts Institute of Technology. Many colleagues felt she was at a dead end. Her reaction: Full speed ahead. Forbes says she still sees complacency over the risk that financial turmoil will spread beyond a single country, even with Europe’s struggle to curb its sovereign-debt crisis. Regulators aren’t doing enough to bolster preventative oversight, she said in an interview.
For Full Story
How to Cut Megabanks Down-to-Size
Original Article by Gretchen Morgenson of The New York Times: Business Day
"Whatever regulators and lawmakers say, the Dodd-Frank financial overhaul lacks any guarantee that taxpayers won’t have to come to the rescue again. So it was refreshing to hear a Federal Reserve System official debunk the bailouts-are-gone theory last week.
The official was Richard W. Fisher, the president of the Federal Reserve Bank of Dallas and a longstanding truth-teller about too-big-to-fail banks. On Wednesday, in a speech in Washington, Mr. Fisher laid out a compelling proposal for shrinking financial giants in order to protect taxpayers. He suggested that megabanks be chopped into pieces, so that no one of them could endanger the financial system if it ran into trouble."
For Full Story
The Year Ahead in the Eurozone
Original Article by Nouriel Roubini of Economonitor
"Financial conditions in the eurozone have significantly improved since the summer, when eurozone risks peaked because of German policymakers’ open consideration of a Greek exit, and the sovereign spreads of Italy and Spain reached new heights. The day before European Central Bank President Mario Draghi’s famous speech in London in which he announced that the ECB would do “whatever it takes” to save the euro, bond yields in Spain and Italy were at 7.75 percent and 6.75 percent, respectively, and rising. When the ECB announced its outright monetary transactions (OMT) bond-buying program, the euro zone was at risk of a collapse."
For Full Story
Latest Resources
"Financial Instrument Risk Disclosures"
CFA Institute
"CFA Institute1 has undertaken a study to examine the quality of existing financial instruments risk disclosures. The overall study evaluated credit, liquidity, and market risk disclosures and disclosures for derivatives and hedging activities under International Financial Reporting Standards (IFRS). The study specifically focuses on IFRS Statement No. 7 (IFRS 7), Financial Instruments: Disclosures. This report, Volume 2, provides a user perspective on the disclosures of derivatives and hedging activities. It is an extension to Volume 1, which provided a user perspective on financial instrument credit, liquidity and market risk disclosures."
See Full Report
"How Did The Financial Crisis Alter the Correlations of U.S. Yield Spreads?"
Federal Reserve Bank of St. Louis
Abstract:
"We investigate the pairwise correlations of 11 U.S. fixed income yield spreads over a sample that includes the Great Financial Crisis of 2007-2009. Using cross-sectional methods and nonparametric bootstrap breakpoint tests, we characterize the crisis as a period in which pairwise correlations between yield spreads were systematically and significantly altered in the sense that spreads comoved with one another much more than in normal times. We find evidence that, for almost half of the 55 pairs under investigation, the crisis has left spreads much more correlated than they were previously. This evidence is particularly strong for liquidity- and default-risk-related spreads, long-term spreads, and the spreads that were most likely directly affected by policy interventions."
See Full Report
"Estimating the Impacts of U.S. LSAPs on Emerging Market Economies’ Local Currency Bond Markets"
Federal Reserve Bank of New York
"This paper examines whether large-scale asset purchases (LSAPs) by the Federal Reserve influenced capital flows out of the United States and into emerging market economies (EMEs) and also analyzes the degree of pass-through from long-term U.S. government bond yields to long-term EME bond yields. Using panel data from a broad array of EMEs, our empirical estimates suggest that a 10-basis-point reduction in long-term U.S. Treasury yields results in a 0.4-percentage-point increase in the foreign ownership share of emerging market debt. This, in turn, is estimated to reduce government bond yields in EMEs by approximately 1.7 basis points. Federal Reserve LSAPs, which most previous studies have found reduced ten-year U.S. Treasury yields between 60 and 110 basis points during our sample period, therefore likely contributed to U.S. outflows into EMEs and marginal reductions in longer-term EME government bond yields. These effects are qualitatively similar to conventional U.S. monetary policy easing. To assess the robustness of these estimates, we also employ event study and vector autoregression methodologies, finding broadly similar results using these methods. While these results hold in the aggregate, marginal effects vary notably across emerging market countries."
See Full Report
"Are Treasuries Turning?"
The Financial Times
In this video, US markets editor Michael Mackenzie explains how the rise in equities suggests bond yields are set to rise.
See Full Video
"Global Insurance Industry Outlook"
BlackRock Investment Institute
Abstract:
"As we look ahead to 2013, historicaly low rates are still center-stage, challenging insurers' income prospects and stressing their busines models. Although the coming year may see the beginning of the end of the era of ultra-loose monetary policy, the income outlook remains sub-par and will force insurance companies to embrace new methods for achieving profitability targets. And this focus on profitability will lead to changes in the way that capital is deployed, whether that means reallocating some of that capital to high-yielding investments or returning a portion of it to investors. "
See Full Report
"The Nature of Inflation"
Seeking Alpha
"Demonstrating the relationship between commodity prices and equity yields is not that difficult for the U.S. If it is not Gibson's Paradox, it sure is a lot like Gibson's Paradox. It doesn't matter what we call this commodity/equity yield connection, but if one could show that this was not merely a quirk of the American data, that it had a longer pedigree from a noble European line, if you will, it would suggest that we are witnessing a remarkably durable law of economics."
See Full Report
|
|
