The View from Abu Dhabi's Investment Vehicle

Aabar, the Abu Dhabi investment vehicle, has sold its stake in Banco Santander's Brazil unit, in a head-shaking affront towards emerging markets, or at very least, a risk-aversive stance.

Talk of Irish Bailout

Ireland is in trouble - it may need to be bailed out. Have the needs of continental economies come at the detriment of the Irish economy? The Telegraph believes so, and asserts that Brussels has only helped Ireland in areas that were shrinking such as agriculture.

Ballmer's Big Sale

Behemoth Steve Ballmer has sold $1.3 billion worth of shares in Microsoft and plans to sell more by year-end.

QE2 Deployed: America's $600bn Stimulus Package and Impact on EM Currencies

Fed CHAIRMAN Ben Bernanke (undergrad Harvard, PhD Economics from MIT) has said the US' $600bn stimulus package will not spur inflation. Will it lead to inflation? Could speculative bubbles appear in bonds and commodities? South Africa's finance minister Pravin Gordhan said the US should pay more mind to the impact of QE2 on other nations. The stimulus will take the form of the government buying (government) bonds in a bid to make loans cheaper and encourage Americans to spend more. The impact on emerging market currencies was for them to strengthen versus the dollar, provoking foreign countries to intervene in the currency markets to maintain export competitiveness.

Bond Yields Bubble Up in Greece

Bond yields in Greece bubbled ahead of the weekend's local government elections (10yr bond yield was 11.34%). Greece was bailed out in May by the EU and the IMF and today's bond yields are approaching those May highs when yields were over 12%. The EU and IMF are insisting wage and pension cuts and higher VAT and excise taxes.

North American Drilling Boom for Schlumberger

Q3 profit more than doubles (NI of $1.7 3billion) leading to rise in share price of 5.4% (one of top gainers in SPX). Their Western Geco unit is also seeing some interest in surveying work. Although prospects in Gulf of Mexico look promising, there is likely to be more stringent process for deepwater permits following the BP oil spill.

Bank of America's Massive One-Off Charge and Banking Environment

BoA in Q3 2010 took a charge of more than $10bn for a revaluation of its credit and debit card business which is being adversely impacted by charge-curbing regulation. This netted out with profits to give a loss of $7.3bn. Apart from the "credit charge", BoA performance is very tied to the US mortgage market: data on foreclosures etc.

Goldman's Q3 profit was $1.73bn, down from last year (blamed on lower prop trading revs due to smaller volumes and lower volatility) although revenue from investment banking advisory increased.

Currency War and the Big Five Reservists

By buying dollars and other currencies, China holds down the value of the yuan and makes its exports more competitive. IMF chief Dominique Strauss-Kahn does not like this and wants China to let the yuan appreciate, but China does not want to move too fast and hurt export businesses. China saves and exports, US spends and imports. This results in global imbalances.
Yuan in Chinese means round object or round coin. Difference between yuan and renminbi is like difference between Pounds and Sterling.
Last month South Korea's foreign reserves hit a record $290bn USD, the world's fifth. Who are the biggest? China, Japan, Russia and Taiwan. 80% of the world's largest FX reserve countries are in Asia. SK is one of the countries recovering fastest from the crisis. BoK estimates this year's growth to be 5.9%.

Economist Brands Wheat Price Spike as Food Crisis 2.0

In 2007-2008, food prices soared. 30 countries, including Mozambique, endured food price riots and Russia restricted sales of grain. Now, with soaring wheat prices Mozambique and Russia are at it again. What to do with such price volatility, should countries resort to autarky and grow their own food?

"Unacceptable Face" Subsumes Varley as CEO of Barclays

Last year Diamond made £40m from his job at Barclays, partly through selling asset management for £8bn, to boost capital ratios (e.g. Tier One Capital ratio: ratio of core equity (common stock and reserves) to risk-weighted assets). RWA is the total assets of the bank weighted by credit risk. The BIS (Bank for International Settlements has formulas for setting RWA). Cash has zero risk weighting whereas debentures (corporate medium- to long-term debt) may have 100% risk weighting.

Vince Cable, business secretary of the Liberal democrats, wants universal banking groups like Barclays to be split up. Mandelson described Diamond as the "unacceptable face" of banking. HSBC Chairman, Stephen Green, will leave HSBC in favour of a role as trade minister in the Lib-Lab coalition. His offical tagline will be "boost British exports and attract inward investment".

World's Largest Economies: US, China, Japan

China has overtaken Japan to take the number two slot, but incomes in Japan are still ten times that of China (using current exchange rates). In 2010 Q2, Chinese output was $1.33 trillion versus $1.29 trillion. DP World mentioned first half profits were up 17% (citing a revival in world trade). DP World have interest in various ports, including Chennai, Cochin and Vishakapatnam (on India's East coast, state of Andhra Pradesh, capital Hyderabad).

Palm Oil Price Inflated by Rain in Indonesia

China, India and the EU are the top importers of palm oil (responsible for 50% of global trade in this product). Palm oil is the major traded vegetable oil (60% of flows) whereas sunflower oil is about 25%.

Palm oil is produced predominantly in South East Asia. Indonesia has about 45% of global palm oil production, closely followed by Malaysia at 40%, then Thailand and other countries.
Prices were driven up to 2,737 ringgit per tonne due to the heavy rains which could also affect thermal coal output (Indonesia is the world's largest exporter of thermal coal, with a major mines operating in Kalimantan). The largest palm oil producer in Latin America is Colombia.

Nutritionally, palm oil has extremely high carotene and is useful in combating vitamin A deficiency.

Commodity ETF tracks Dynamic Total Return Commodity Index

United States Commodity Index Fund has been launch August 2010, tracking the SummerHaven Dynamic Commodity Index. 14 contracts are selected on a monthly basis from a possible 27. The index was created by two professors from Yale. It's an "algo" (rules-based). Powershares also have a commodity index fund. iShares also have an ETF tracking S&P GSCI index, allowing broad-based exposure to commodities.

There is concern that such products distort the market and encourage front-running. US Commodity Funds is already famous for USO and UNG. The strategy is to invest in futures that exhibit backwardation (an "anti-contago" strategy). It is reminiscent of the "size effect" in equities.

In other innovations, PowerShares has already released a product to track Ultra-T-bond futures on CBOT (where you can leverage up or down three times). It applies their "monthly leverage rebalancing methodology to fixed-income products".

JP pays $130m for coal trade gone wrong but Blythe remains focused on the bigger picture

JP has been ramping up its commodities business through the purchase of Bear Stearns and RBS Sempra this year. Nevertheless, Chan Bhima and team (ex-Merrill who moved across in 2009) bet on a decline in European coal prices and lost over $100m. Make big bets while you can - get rewarded if you win - else face a public harakiri.

RBS Sempra is an interesting addition to JP's commodity arsenal. They are active in natural gas fixed-for-floating swaps, basis and options. They are the largest non-producer trader of natural gas in North America.

JP also own Henry Bath, which is a metals and soft commodities warehousing company, registered in Liverpool in 1920, but founded in the 18th Century. Henry Bath, from whose name the company hails, found a copper trading business in 1794. Bath & Son developed trade with Chile, exporting coal and importing copper ore and sodium nitrates (Chilean or Peru saltpetre) which was used in fertilizer and gunpowder. The 1850s was the era of coffee-shop deals, which evolved formally into the London Metal Exchange, of which H. Bath was a founding member.

Blythe Masters is the illustrious Head of Commodities at JP Morgan and helped JP develop CDS in the 1990s.

Will Bank of Burger King entrepreneur buy Prudential's Old Online Bank

Citi is reported to be looking to sell Egg, the UK online bank, as part of a wider disposal of assets, to simplify the "Frankenbank", that has apparently become too complex to manage.

Egg, created by Prudential, was bought by Citi in 2007 and potential buyers include BSCH and Metro Bank, the first new high-street bank to open in Britain for more than a century.

Metro Bank is backed by Vernon Hill, who also owns several Burger King franchises. He has a BS with concentration in finance from Wharton.

Citi has already dispensed with Phibro, a commodity trading unit acquired for net asset value, now owned by Occidental Petroleum Corporation (NYSE:OXY) and HQ'ed in Westport, Connecticut. They have a European office in Duke Street, London. (half-way house between Piccadilly Circus and Green Park). The business was sold due to concern's over its top executive's pay packet ($100m bonus in one year, nine-figure bonus) rather than business concerns.

In the first half of the year, Citi paid $75m to settle SEC charges over failing to disclose the extent of its subprime exposure (more than $40bn). This exposure came from the super-senior tranches of CDOs backed by subprime mortgages and related instruments called "liquidity puts". The puts allowed Citi customers to sell debt securities back to Citi at face value if credit markets froze; clearly Citi was betting that this would never happen.

Li-Ka Shing buys EDF's UK Network (£5.8bn)

The consortium included Hongkong Electric Holdings. Li also owns Superdrug in the UK. Meanwhile Carlos Slim has bought a townhouse on Fifth Avenue for $44m.

Tate and Lyle sells Sugar Business

Acquirer is American sugar refining, deal is for £211m cash. TAL were sugar refiners, in 1885 they put golden-syrup - made from the by-products of sugar refining - into green and gold tins, which proves to be a hit.

Tech Companies Target in Digital TV and Digital Radio

Intel's Atom processor is a ground-up re-architecture of Intel's chips, focused on energy efficiency. Intel as well as Google are getting interested in the digital TV market, following the lead of Microsoft, and Intel has finalised deals with France Telecom and Telecom Italia to put the chips in set-top boxes. Otellini told analysts it was the biggest change in TV since colour television.

Reciva, a company based in Cambridge, UK, has developed the Barracuda module, a hardware/software platform for Internet radio that supports the major streaming protocols: RTSP, MMS and HTTP. Stingray is an extension that supports FM and DAB radio too.

CDS Curve Inversion

Probability of short-term default higher believed higher as CDS curves for Greece, Spain, Portugal have inverted as has BP CDS. Exposure to Greece for French banks is highest with Credit Agricole, through its ownership of Emporiki, and SocGen, which owns Geniki Bank. The Guardian quotes James Rickards, former general counsel of LTCM, on the morality of CDS - "Why should we have instruments where the hope is for the failure of a sovereign state?".

Governors of Central Banks

Central Bank Governors generally have PhDs.

1. People's Bank of China: Dr Zhou Xiaochuan. PhD from Tsinghua University

2. Reserve Bank of India: Dr Subbarao. PhD from Andhra University. He did his BSc. Physics from IIT Kharagpur in 1969, MSc. IIT Kanpur. He also has a Masters degree in Economics from Ohio State. He became Governor in September 2008.

3. Bank of England: Dr Mervyn King. Honorary Doctorate from Cambridge (now ex-Governor).

Biggest Yuan Fall since Dec08 following Xrate Reform

Speculation is fizzing around China amidst beliefs that its central bank (PBOC) will INTERVENE to limit gains of yuan against the dollar. China announced over the weekend that they would drop the 2 year peg (FIXING) of the yuan against the dollar, allowing the yuan to appreciate.

The Chinese consumer can now buy a bit more dollars than before.

If China becomes more consumer-oriented, then will inflation rise in the US, if cheap goods from China are no longer available. This sentiment was echoed by Michael Woofolk, MD at Bank of New York Mellon, who revealed that the higher cost of Chinese goods would lead to inflation and higher interest rates in Europe and the US, resulting in slower growth.

"This is an important step" said US Treasury Secretary, Tim Geithner. One of Obama's foreign policy goals is a stronger renminbi. The idea is that if Chinese good becomes more expensive, US consumers will buy more US goods.

Japanese Bonds and Equities This Week

JGB futures hit a record 2 year high (as people moved money from falling shares). JGBs have also been helped by the Eurozone debt crisis. 3 month LIBOR on YEN is currently around 0.24% (24 TV series) compared with 0.53% for USD 3m-Libor (easy to remember, 53 is the 16th prime number) - Yen LIBOR used to be more than USD. NKY is currently around 9700 level (fell a lot in May). GBP 3-month LIBOR is 73 bps (21st prime number).

Kerviel defended by Noriega's lawyer to take stand on Tuesday 8 June (mardi huit juin)

The trial of JK will take place in France's medieval Palais de Justice between Oliver Metzner defending JK and Jean Veil (son of politician Simone Veil and "le complice des puissants" or "the accomplice of the powerful") defending SocGen.

JK is blamed for 4.9 billion EUR of losses of SocGen by exposing the bank to 50 billion EUR notional of unhedged futures in January 2008 (loss of 10% of the notional). It was not only the exposure but the three day sale starting Jan 21 that resulting in the realised losses.

JK claims his bosses knew about his bets and that exceeding trading limits was normal. In defending JK, Metzner was quoted as saying: "When it is a case of a man against the system, I defend the man and not the system". Metzner has formerly defended General Noriega, the Panamanian dictator (1983-89 who was removed from power by the American invasion of Panama in 1989).

Commodity Currencies get the Blowtorch Treatment, FTSE Falls

AUDUSD was punished in Asia Tuesday 25 May as commodity-driven currencies get a thrashing.

The Wall Street Journal mentions the Euro could be an attractive funding currency for the carry trade going forward. The ECBs decision to buy goverment bonds of weak eurozone countries has increased doubts of the eurozone itself.

FTSE falls 3% in seconds over Korea tensions and Eurozone debt fears. Last week FTSE fell below the 5000 barrier.

Commodities and Commodity Currencies Crushed

Platinum and palladium fell in a sharp round of profit-taking, coinciding with the crazed assault on the Euro in the FX markets and corresponding "crashing" of commodity currencies.

Platinum dropped to a low of $1500 before reaching $1530 on the rebound.

As an aside, an interest in chemistry is essential to the commodity investor.

Platinum has the symbol Pt and its name derives from the Spanish phrase "platina del pinto" ("little Silver of the Pinto River"). Platinum is used in catalytic convertors (which reduce the toxicity of emissions from internal combustion engines e.g. evil nitrous oxides).

Eurozone Concerns: Bafin's Ban and its Implications for the FX and the Eurozone

Euro setting new lows, falling further (1.2163) as Germany bans short-selling - reason given was bond volatility and also widening of credit spreads. Bafin's (German regulator) doesn't German firms in the UK (e.g. Deutsche Bank London won't be affected according to the WSJ).

But what did the short-selling ban really mean? It covered shares, mainly of financial companies (e.g. Allianz), but not futures or long puts (arguably insurance, rather than short-selling). It also covered naked short-selling of euro-zone country debt, and naked sovereign CDS for Eurozone i.e. not for hedging of default risk.

Note to the curious: the Ba in BaFin stands for Bundesanstalt (Federal Agency) and Fin stands for Finanzdienstleistungsaufsicht (Finanicial Services Supervision).

S&P Drops almost 9% in "Flash Crash"

S&P 500 dropped almost 9% on Thursday 6 May (birthday of Nehru) with fears that a trading error could be to blame. According to the FT, this led to the wipeout of billions from portfolios. BlueTrend ($10bn computer-driven fund) dropped 7.57% in 1st week of May, AHL $20bn dropped 3.3%. Renaissance fell 3.6%. Quant funds didn't actually do as bad as some long-short equity funds. $2.2bn Odey European fund fell 8.68%. added to "flash crash" is uncertainty over the EU's 750bn EUR bail-out package.

Aide à la Grèce

The ECB (or "la BCE" in France) has agreed to bailout Greece.

Repo 105

"Repo 105" was an accounting trick Lehman allegedly used to temporarily boost its Balance Sheet. Fuld denies all knowledge.

Who is Volcker?

Who is the Volcker behind the Rule? Paul Volcker was Chairman of the Federal Reserve under Jimmy Carter and Ronald Reagan, from August 1979 to August 1987 (eight years).

The Renminbi Saga Continues

The US tussle with China over exchange-rate policy is being joined in by Brazil and India central banks for a stronger Chinese currency. Henrique Meirelles, described China as distorting the world economy. If China revalues, other Asian currencies may also strengthen.

18 Months after Bottom of Financial Crisis

Obama attempts reforms.

Loonie Standoff against the Dollar

The Loonie has touched parity with the Greenback for the first time in 2 years. This is partly due to the OECD forecast that Canada’s GDP would grow faster than any other G7 country during the first half 2010. 1CAD = 0.998004 USD (i.e. just under parity).

China's Three Principles on Currency Policy

Currency Policy of China:

* any change must be controlled
* it must be Beijing’s own initiative
* any shift must be gradual.

Will Deficits Dictate Currency Markets?

Speculation spreads that countries with huge deficits like the UK, US and Japan, will see their currencies suffer relative to countries with healthier budgets (i.e. non G4 versus G4 currencies such as EUR/AUS). G4 = Eurozone, UK, US and Japan, which all have interest rates near zero. But what about intra-G4 exchange rates?

Trapped in the Eurozone: Why Greece MUST reduce Fiscal Deficit

The IMF has asked Greece to focus on reducing its fiscal deficit. It can't ask it to change interest rates or exchange rates since Greece is in the Eurozone. There have been other situations when borrowers only had fiscal policy to rely on e.g. $30bn rescue of Brazil in 2002 (the indexing of Brazil's debt to USD or STIRs precluded the use of monetary policy). The bailout of Brazil was also in American interests: General Motors had invested a large amount in Brazil, Citigroup had $9.7bn in Brazilian loans.

Monday Onslaught on Sterling: FIscal and Political Fears

Speculative selling drove the pound down below the $1.50 watermark, it's weakest level since May09 following weekend opinion polls that there could be a "hung Parliament" (in which no one party has a majority of seats). This was compounded by the news of Prudential buying AIG's Asian business for $35bn (of which $25bn will be in cash (70%) for which it would have to sell sterling to raise funds.

GBPUSD is known as cable (the number of dollars you need to purchase one pound). An increase in cable indicates a strengthening of sterling (with respect to the dollar).

China Purges US Treasuries in December 2009

UST department said foreign demand fell for US Treasuries in Dec09 as China purged holdings of government debt ($34.2bn selloff in the month). This leaves Japan as the largest holder of US government debt at $768bn. Countries are abandoning the "flight to safety" strategy adopted during the economic crisis, this could mean the US will have to pay more to service its debt. The overall monthly sell-off of $53bn was the largest on record. Biggest foreign holders of Treasuries are Japan, China, UK and oil-exporting countries. Japan, China and UK hold more than 50% of the foreign holdings of US Treasuries.

The US trade deficit is projected to be $1.56 trillion in 2010 (10.6% of GDP). Foreign purchases of US equities rose to $20.1bn in December09 from $9.7bn in Nov09. There is large difference between the reported budget deficit and change in debt because of 1) Social Security Surplus, which reduces the "off budget" deficit in the media, 2) Non-budgeted spending e.g. wars.

Fire-breathing Growth for Sq Enix with Dragon Quest Sales Final Quarter '09

Pretax profit was 8.2 billion yen on sales of 44.8 billion yen due to the release of Final Fantasy 13 (sold 1.9m copies) and Dragon Quest 9 (sold 4.1m copies). Awesome sales!

The Final Fantasy series started in 1987.

Square Enix is part of a holding company that's HQ'ed in Shibuya-ku in Japan. Shibuya station is one of Tokyo's busiest stations (Tokyo prefecture is one of the 47 subnational jurisdictions of Japan). Shibuya is the HQ of Casio and Google Japan. Apart from games software, Square is also involved in the sale and rental of arcade game machines and operation of mobile phone portals.

"Jobless Recovery" in the US

Feb2010: US output has grown at an annual rate of 5.7%, but without improving the jobless situation. 20,000 jobs were lost in January, mainly in the construction sector. Unemployment rate dropped from 10% to 9.7%. Larry Summers former Secretary of the Treasury stated America is experiencing a "statistical recovery and human recession". Cautious optimism may be in the air as employment for temporary workers increased.

Monitoring SWF World using SWF Insitute's Newsfeed

Listing of funds and news of what they are up to. News such as Glencore selling convertibles to Blackrock, GIC and Zijin Mining Company, China's third largest copper producer. Incidentally, the bonds they issued were December 2014 and convertible into Glencore shares upon an IPO or “other pre-determined qualifying events".

Markets: P-Notes and Kangaroo Notes (The Basis Swap Story)

Aggressive SocGen has been banned from dealing in ODI (offshore derivative instruments) and P-Notes (participatory notes) in India following an inquiry by SEBI. In 2008, RBI called for ban on issuance of P-Notes, however foreign investors reacted sharply and the stock market almost crashed. For a background to central banking in India please see the RBI's website. In a nutshell, the RBI was set up in response to the Hilton Young Commission (Hilton Young was a British politician who was educated at Eton and University College London). The RBI was also the central bank for Burma but it seceded from the Indian Union in 1937. The RBI however continued to act as the central bank for Burma until Japanese occupation.

And now to the extraordinary rise in "kangaroo bond" issuance amongst stylized banks.

Bloomberg reports the EIB is seeking (update:has sought) assistance with Australian local banks to help it issue kangaroo bonds (AUD notes sold by foreign issuers in Australia). Certainly the currency has been talked about a lot recently, but why would the Luxembourg lender raise money in AUD? The reason is the extraordinary story of the basis swap (an interest rate swap involving the exchange of two floating rate instruments) and EIB is by no means isolated in their desire for kangaroo issuance (other names include KfW and Nordic Investment Bank). EIB's issuance of A$1.5bn will be the largest tranche issued by a kangaroo issuer, with April 2015 maturity (i.e. 5 year).The bonds are priced at Commonwealth government bonds + 83bps. What's the big driver behind all this kangarooing around? The USD-AUD basis swap has been up to 35bps wide for 5 years, making margins paid by the K-issuers look good, relative to LIBOR - and further issuance should stop the widening. The cause of the chasm in the basis swap is due to Ozzie banks raising debt offshore, such as ANZ bank which raised a billion EURs for three years in the Euromarket (57bps over midwaps).

For those that may not remember KfW, they gained the moniker of "Germany's dumbest bank" when they transferred 300 million EUR to Lehman on the day it filed for bankruptcy. But was it so dumb? Could the administrators have demanded that money after taking over Lehman Brothers?
BankingDay is a great information service on how banks fund themselves and new developments in the world of funding.

Power of Now Seeks Healthcare through Foresight

SOA-evangelists TIBCO (aka "TIBX" on the Nasdaq) famous for its "Information Bus", which is nothing but TCP all the way to the bank, acquired Ohio-based Foresight Corporation, a private "transaction solution provider" (think healthcare claims processing) and vendor of EDI (Electronic Document Interchange, often associated with XML) productivity tools. What is the strategic rationale for this deal? One reason seems to be to broaden TIBX's customer base to include healthcare firms (an area that Foresight focuses on). Foresight also sells to many BCBS organizations. Open interest on TIBX's front-month ATM call is around 5.5K. Options trade on a February cycle (Feb, May, August etc).

A Beautiful Place to Study Finance

The Bendheim Center for Finance at Princeton University.

Deja Vu as Chavez Devalues "Bolivar Fuente"

Why were Venezuelans on a shopping spree last weekend? On Friday, the government announced the introduction of a multi-tiered exchange rate. How does it work you may well ask? There will be three rates. The official value of the dollar will be fixed at 2.6 bolivars. This rate will be reserved for essential imports such as medicine and food. Essential goods will be traded at the "oil dollar" pegged at 4.3 bolivars. The third floating rate will be managed by central bank intervention. This rate has previously been known as the parallel rate and currently values the USD at just over 6 bolivars.

Opposers point out this tiered system will make goods more expensive for average citizens while the government's oil export earnings double. Venezuela's currency is the "bolivar fuerte" (Pl. "bolivares fuertes") which has been the new currency since January 2008 (when the ISO code changed from VEB to VEF). The new exchange rate system is effectively a devaluation.

Economist says MBAs are JSEVS ("Jargon-Spewing Economic Vandals")

The Economist has divulged that MBAs are, in its humble opinion, "jargon-spewing economic vandals". The response, says the FT, is to broaden MBAs so they are not trained to think in terms of limiting models with constraining assumptions but in more creative terms. This, it claims, will reduce the number of "shallow, narrow and static thinkers" outputted by business schools i.e. reduce the percentage of JSEVs produced by these programs.

Copycats - The Only Cats Who Know Where AstraZeneca's At

Everyone wants to be a copycat these days. That's why UK-listed healthcare giant AstraZ is taking steps to guard against generic drug makers stealing its pharma-making thunder. It is agreed with Teva a deal that will stop Teva selling copycat versions of heartburn drug Nexium, at least for now. The Nexium patent ceases-to-be in 2014.

American Branding Made in Taiwan (without Tethering or Multitouch)

HTC, the Taiwanese company listed on TAISE:2498, is a handset producer which helped to create Google's latest contribution to the smartphone market, the Nexus One. It is somewhat surprisingly feature-scanty. The device will not support tethering, the use of a mobile phone to supply Internet access to a laptop via Bluetooth or USB cable. It also will not support multitouch (allowing user to interact by placing two or more fingers on the screen). HTC has been described as a white-label handset vendor (a white-label product is one which is produced by one company and rebranded by another). White-label products can extend to ecommerce services (e.g. amazon running the e-store of waterstones).

Greece Downgraded by Fitch, Yields on GBonds Rise!

In Dec09, Fitch (shortly followed by S&P) downgraded Greece's credit rating to BBB+ with negative outlook (the first time in 10 years the country has received a sub-A rating, though still investment grade). Moody's was left with the only A1 rating on Greece's debt. This is a great case study in how the market reacts to a ratings downgrade. Actions: Athens shares fell 6% in response. CMA reported Greece 5yr CDS rose to 226.8 BPS from 209 BPS on Tuesday's NY close (a rise of 17.8bps). 10 yr Greek government bonds fell, yields rose to 5.4%. This also caused the Greek-German 10yr bond yield spread to widen by 4bps to 225bps. Also the Greek finance minister issued mutliple reassurances: "Papaconstantinou (PhD LSE, worked previously at OECD) says Greek banking system not at risk". (STOCKS, BONDS, CREDIT, BOND SPREADS).

Why the concern? What drove the downgrade? The reason is Greece's high levels of debt (forecasted to be 125% of GDP next year). A downgrade is bad for a country - it may make it difficult for the country to raise money in bond markets and through central bank liquidity operations (e.g. through ECB, exchanging sovereign bonds for ECB loans).