Posted on 05/23/2005 1:14:30 PM PDT by Righty_McRight
Germany on Monday launched a dollar bond – its first such foreign currency bond since the second world war – and met with such strong demand that it raised the size of the issue to $5bn.
The sale of the bond, which comes amid efforts by the German government to diversify its borrowing base, was met with orders in excess of $13bn during the bookbuilding process. The benchmark size for such an issue is considered to be about $3bn.
A formal announcement from the German finance ministry is likely to come today when pricing is also expected to take place. But the initial price guidance sees the bond, which has a maturity of five years, yielding about 12 points above comparable US Treasuries.
Germany, the eurozone’s largest economy, first decided to consider such an issuance in October as part of a strategy to fund a rising deficit that has already violated the fiscal rules governing the European Union for three consecutive years.
But while other European countries have been tapping the market, Germany first had to pass some legislative hurdles. However, the long-awaited move allows Berlin not only to raise the money it needs, but allows it to avoid hurting the benchmark status of its euro-denominated bond.
“Germany was a bit behind because it was issuing only euro bonds,” said Nathalie Fillet, interest rate strategist at BNP Paribas. “But the issue of the [dollar bond] is another way to meet increasing borrowing needs without increasing the euro issuance programme.”
The move into the foreign currency market comes at a particularly opportune time. Because interest rates are so low, there is an incentive for governments to lower the cost of funding by locking in low rates while they can.
Yields on the benchmark 10-year Bund hit an all-time low last week amid persisting gloom about economic growth in the region, and many analysts see few reasons for yields to rise in the short term. Also, the recent strength of the euro against the dollar has made dollar bonds cheaper to issue. There is also strong demand for dollar assets, particularly from Asian central banks.
“A lot of investors are quite keen to buy this debt because it gives them a diversification of the names they can hold and the creditworthiness is similar to the US,” said Gregor Macintosh, investment director at Standard Life Investments.
Deutsche Bank, Goldman Sachs and Morgan Stanley have been hired to lead manage the bond sale.
Better them than the PRC I suppose ...
So, in the very short term, there's a little more selling of EUR/USD than there would otherwise be (i.e. USD will gain a bit on EUR). OTOH, $3-5 billion is nothing, the merest crumb, in the forex mkts.
The French and Dutch referenda and the pending German national election will together have a far greater effect on the level of EUR/USD than the issuance of this bond.
Doubtless you could Google and find out the details.
"Y'know how it is; socialists are VERY good at repudiating debt"
... and also very good at amassing it in the first place.
Much as I'd like to, I can't blame Hitler and his thugs for Germany's debt situation in the late 1920s-early 1930s. That blame rests squarely on France, with an assist en passant from Norman and Strong, heads of the Bank of England and the Fed.
France wanted nothing more than huge payback for their humiliating defeat (and sizeable reparations, payable to the Kaiser in silver...a fascinating story in and of itself, and its effects on the gold/silver balance worldwide) in the Franco-Prussian war. Lloyd George and the idiot Henry Woodrow Wilson acquiesced (in George's case because he was extremely naive, in Wilson's because he would have done anything to get his precious League Of Nations), and let Norman and Strong back-manage the details.
From day 1, Germany had no way in the world to meet the reparation terms, but they did try. The result, since at that point the world was effectively off the gold standard, was inflation. Moderate enough in 'wealthy' countries, but not to be controlled at all in nations that were effectively broke. Thus, the origin of the infamous Weimar inflation of 1921-23. (Santayana note: the same thing happened to a similarly situated Hungary after WW II...to an even worse degree than 1920s Germany).
Norman, Strong, and the French got back onto the gold standard in 1925 (the more fools, they, given conditions of the day), and the result for Germany was a huge recession...and they still couldn't pay their alloted reparations. Add to the mix the well-meaning but politically incompetent vonHindenberg and his Weimar buddies, and you get a politico-economic black hole. Welcome to Germany, 1926-1930.
The worldwide crash of 1929-31 made things in Germany worse still. But, nature abhors a vacuum, and this was the perfect entree for the man on horseback, in this instance Herr Hitler.
track fed rate and dollar prices over the last 50 years.
Currency trader in this market are either speculators, multinationals making currency hedges or energy companies making currency hedges., Why would they car about how people vote in the EU.
The structure of the EU will most likely depress the euro, not increase it.
There are economic and political factions in ESSR that have an enormous stake in the member ratification of their proposed 'constitution'. Two 'no' votes from original member nations, and this version (at least) of the 'constitution' is dead, dead, dead. And the people who've banked on its easy ratification are going to take a major hit, and they know it.
From the very moment the first poll came out showing the Froggies likely to vote 'non', EUR has gone straight down vs USD, from 134.29 on 9 March to 125.xx tonight (I'm not looking at the close, sorry).
The Fed hikes do have a firming effect on USD, but the big gorilla in the room is the capital that was going to go into the ESSR right quick, this year for certain, and is now demurring because of the political uncertainty. It's looking for another home, and China and the US look pretty attractive. Notice also how the ChinComs have suddenly stopped talking about a sizeable increase in the EUR portion of their foreign reserves? Five weeks ago, this was a done deal, the announcements were made almost daily, and the only doubt was how MUCH more the ChinComs were going to hold in EUR and EUR-equivalent. Gee...I wonder what happened. /evilgrin
Trade forex for a decade or so, m'friend; you'll see what affects what in the real world, soon enough.
BTW, you'll have to look back a couple of months, but I wrote an extended commentary on what would occur in the EUR options' volatilities in the run-up to May 29. Spot on, too. IV is up fully 4% in the ensuing period, with a bit more to go I fancy. After the election, if it's 'oui', the oppies' IV will fall out of bed; if it's close but 'non', the IVs will stay elevated until at least the Dutch vote, and if it's a rout for 'non', EUR is likely to see a tidy little 3-4-5 handle drop in short order, with a volatility spike thrown in.
Mkts are anticipatory discounting mechanisms; if the putative result of a referendum in the near future doesn't match certain mkt participants' views (or, if you like, biases), you bet your bucket that said mkt participants are going to change around their positions before the event.
BTW, next time you hear the proposal of a ''Marshall Plan'' for this area, or that continent, or some other group -- RUN, DO NOT WALK, in the other direction. Fade such plans w/all your effort and capital. Why?
Because the so-called ''Marshall Plan'' occurred within a context that is unique in history. The defeated axis powers and the allied nations were all nations with a long history of more-or-less market economies. It was a lock to bet that these nations' citizens, if offered capital and reconstruction, would right quickly become pretty productive. A good bet, one of the VERY few worthwhile ''aid'' expenditures in American history.
A ''Marshall Plan'' for Iraq, for the Middle East, for South America, for assorted spots in Asia???
Gag me with a spoon. Santayana had this one dead effing right, long ago.
I was discussing the 'Marshall Plan' for Europe from America's perspective, and it was a huge success.
Consider, pls, that America after WW II had the ONLY intact manufacturing plant in any reasonably developed and civilised nation (don't waste your breath citing Canada). If, and as happened, the 'Marshall Plan' confined its efforts to just those nations who 1) had productive citizens, and 2) had a history of being generally market-oriented, then -- because America required external mkts -- this plan was a gigantic success over time.
Contrarily, pouring a similar amount of dollars and effort into the Middle East, or India, or Brazil, or XXX (you pick it), TODAY, is absolute nonsense. The return on investment will be either zero or negative (viz: the World Bank and IMF),
I've no talent as an electrical engineer; the last thing in the world you'd want to pay for is my wiring your home. Similarly, but on a macro scale, the least even marginally defensible application of capital is toward some group of (alleged) nations that do not and NEVER WILL operate under some sort of mkt economy.
In 1949, Argentina was the fifth-wealthiest nation per capita on this planet. After 13 or 15 cycles of ''foreign aid'', not to mention the generalised looting of the nation by Peron and his accomplices, Argentina today, for all its natural wealth, natural resources, and industrious citizenry, hasn't got a pot to piss in.
I more or less understand why this situation has evolved. Do you?
Agreed, of course (can't think of our FReeper colleague who has that in the tagline).
Government, of whatever type, have known this little principle for years. The Soviets rewarded children for ratting on their parents, f'Heaven's sake...nothing new here, taking from the Peterite parents to give to the Pauline state and be granted privileges for doing so.
This is just rather more blatantly hypocritically done, to reward that sort of action, within a society that allegedly protects the right of property.
The only law regarding felony that ever need be passed in a free, mkt-oriented society is a guarantee that the assassination of thieves is entirely lawful. Aside from technological issues, everything else will sort itself out quite readily via that one statute.
Those who take without paying get shot. Including the Regress. What a marvelously simple, and entirely moral, and anti-recidivist principle, eh?
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