Latest news with #CarolinaMandl
Yahoo
5 hours ago
- Business
- Yahoo
Citadel CEO worried by rising cost of US default insurance
By Carolina Mandl and Davide Barbuscia NEW YORK (Reuters) -Citadel's founder and CEO Ken Griffin said on Thursday it is "unfathomable" that a financial instrument to protect against an eventual U.S. default is being priced at levels close to some European countries. "I never thought in my life I would see the U.S. priced higher in risk cost than a number of countries like Spain, Germany or France," he said at the Forbes Iconoclast Summit. "You gotta be kidding me." Griffin said the credit default swap (CDS) market has some issues with liquidity which impact prices, but still he considered that conversations around how close the swaps are trading are "unfathomable." Spreads on U.S. five-year CDS - market-based gauges of the risk of a sovereign default – stood at 48 basis points on Thursday, compared to 50 bps for Italy, 32 bps for Spain and 35 bps for France, S&P Global Market Intelligence data showed. U.S. sovereign CDS spreads widened to their highest since the debt ceiling crisis of 2023 in recent weeks. The move in the spreads of U.S. credit default swaps comes amid concerns around the country's fiscal deficit and negotiations over a tax bill that is estimated to add more than $2 trillion to the U.S. debt. Griffin did not specifically comment on the bill, but criticized the U.S. fiscal deficit. "The United States' fiscal house is not in order. You cannot run deficits of six or 7% at full employment after years of growth. That's just fiscally irresponsible," he said.
Yahoo
5 hours ago
- Business
- Yahoo
Citadel CEO worried by rising cost of US default insurance
By Carolina Mandl and Davide Barbuscia NEW YORK (Reuters) -Citadel's founder and CEO Ken Griffin said on Thursday it is "unfathomable" that a financial instrument to protect against an eventual U.S. default is being priced at levels close to some European countries. "I never thought in my life I would see the U.S. priced higher in risk cost than a number of countries like Spain, Germany or France," he said at the Forbes Iconoclast Summit. "You gotta be kidding me." Griffin said the credit default swap (CDS) market has some issues with liquidity which impact prices, but still he considered that conversations around how close the swaps are trading are "unfathomable." Spreads on U.S. five-year CDS - market-based gauges of the risk of a sovereign default – stood at 48 basis points on Thursday, compared to 50 bps for Italy, 32 bps for Spain and 35 bps for France, S&P Global Market Intelligence data showed. U.S. sovereign CDS spreads widened to their highest since the debt ceiling crisis of 2023 in recent weeks. The move in the spreads of U.S. credit default swaps comes amid concerns around the country's fiscal deficit and negotiations over a tax bill that is estimated to add more than $2 trillion to the U.S. debt. Griffin did not specifically comment on the bill, but criticized the U.S. fiscal deficit. "The United States' fiscal house is not in order. You cannot run deficits of six or 7% at full employment after years of growth. That's just fiscally irresponsible," he said.
Yahoo
7 days ago
- Business
- Yahoo
Wall Street fears foreign tax in budget bill may reduce allure of US assets
By Carolina Mandl NEW YORK (Reuters) -Wall Street analysts are cautioning that a tax targeting foreign investors in the U.S. budget bill progressing through Congress could end up weighing on demand for U.S. Treasuries and the dollar. The U.S. House of Representatives last week approved a sweeping tax and spending bill that includes the possibility of imposing a progressive tax burden of up to 20% on foreign investors' passive income, such as dividends and royalties. The levy, included in section 899, would be paid by entities or individuals from countries that impose taxes the U.S. considers unfair. If it is also approved by the Senate, it could raise $116 billion in taxes over ten years, according to the Congressional Budget Office. "We see this legislation as creating the scope for the U.S. administration to transform a trade war into a capital war if it so wishes," George Saravelos, head of FX research at Deutsche Bank, said in a note on Thursday, adding the new tax could have an adverse impact on demand for U.S. Treasuries. If passed by the Senate, the rising tax rate on foreigners' investments would come at a time global investors have started to question so-called "U.S. exceptionalism," or its unique ability to outperform other financial markets, amid growing fiscal deficits and a new trade policy based on tariffs. Morgan Stanley said in a note that the new tax would weaken the dollar, as it would reduce the foreign appetite for U.S. assets. Morgan Stanley's strategist Michael Zezas singled out European investors with passive income in the U.S. as particularly vulnerable to the tax. The bank did not provide any estimate for the impact. According to law firm Davis Polk, nations that could be considered 'discriminatory foreign countries' include many that are part of the European Union, as well as India, Brazil, Australia and United Kingdom. The White House did not immediately comment on the impact of the new tax burden. Error in retrieving data Sign in to access your portfolio Error in retrieving data Error in retrieving data Error in retrieving data Error in retrieving data
Yahoo
28-05-2025
- Business
- Yahoo
Japan's quick-fix for bond markets sets a global test case
By Vidya Ranganathan and Carolina Mandl SINGAPORE/NEW YORK (Reuters) -Japan, one of the world's most indebted developed economies, this week also turned into a saviour of sorts for its own bond market and globally. When Reuters reported on Tuesday Japan's ministry of finance (MOF) may reduce issuance of super-long tenor debt, bond markets from Japan and South Korea to Britain and the United States reacted positively, pushing prices up and yields down. That paused the weeks-long bond selloff forced by investors demanding bigger yields as they braced for increased inflation and government spending caused by U.S. President Donald Trump's trade and tax policies. Yields on 40-year Japanese government bonds (JGBs) had hit a record high 3.675% last week and were down 40 basis points from that level. Yields on 30-year U.S. Treasuries dropped to below a key 5% figure, helping the yield curve turn less steep. Michael Lorizio, managing director and head of U.S. rates at Manulife Investment Management, said Japan's proposal had stabilised all developed government debt. "As deficits expand, this will be a test case for other countries, if being more flexible around how issuance is scheduled is an attractive option, or not." Japan would be a test case for the entire world on the best way for governments to handle "signs of stress or a mismatch between supply and demand," Lorizio said. As of Wednesday, going by the auction of 40-year JGBs, investors aren't sold on the idea. Demand at the auction was at its weakest since July. A week ago, investors eschewed a 20-year bond auction so badly it was Japan's worst auction result since 2012. "For now, we have more orderly markets and some time for markets to catch their breath but, in the big picture, it's a band-aid," said Tom Nakamura, vice-president and head of fixed income & currencies at Canadian fund AGF Investments. "All these things are meant to help market functioning in the short term, but do very little to alleviate concerns in the medium- to long-term because the underlying causes of those concerns haven't gone away and are not helped by increasing funding from shorter-term instruments," he said. Nakamura said his portfolio has changed to limit exposure to long-end bonds and diversify into markets with healthier fiscal settings or more attractive yields, such as Germany, Poland and Romania. RECOGNISING RISKS Japan isn't alone. Britain's debt agency told Reuters in March there would be an "important shift" away from long-dated debt in the coming financial year in response to rising borrowing costs and reduced investor demand. Britain plans to issue 299 billion pounds ($402.60 billion of government bonds this year - the second highest amount on record - and its bonds have come under pressure from concern about high debt levels and bond issuance. Japan's situation is more complicated than elsewhere as its debt is 2-1/2 times the size of the economy and its central bank has slashed its previous bond buying. That governments are retooling their debt and fund-raising plans shows they are listening to markets, rather than letting central banks manage yields through monetary tools, analysts said. "What surprised us as well as the market was that we didn't really expect the Ministry of Finance to be the one that moves and starts discussing changes in issuance," said Subadra Rajappa, head of U.S. rates strategy at Societe Generale. While the U.S. Treasury has for years gradually shortened the duration of its debt by issuing more short-term bills as longer term bonds mature, overall debt has been rising. If Trump's "big, beautiful bill" on taxes is passed in the coming days, it is estimated to add about $3.8 trillion to the federal government's $36.2 trillion in debt over the next decade. When Moody's Investors' Service downgraded the U.S. rating this month, it projected U.S. public debt, now around 100% of gross domestic product, will rise to 134% over the next decade. "The Treasury is finding that the market doesn't have an appetite for anything at the long end of the curve unless the rate is above 5%," said Eric Beyrich, co-chief investment officer at Sound Income Strategies. "That will force them back to the short end of the curve when it comes to new issues." Germany is the only G7 economy with a debt-to-GDP ratio below 100%, yet investors have also sold its bonds in recent months on expectations of more supply following the surprise creation of a 500 billion euro ($565 billion) infrastructure fund. "The market is sending a signal that concerns are growing around fiscal and debt sustainability," said Chip Hughey, managing director of fixed income at Truist Advisory Services in Richmond, Virginia. "Market participants want to see policymakers use a multi-pronged approach to address deficits and lower their reliance on debt issuance." ($1 = 0.8846 euros) ($1 = 0.7427 pounds)
Yahoo
28-05-2025
- Business
- Yahoo
Japan's quick-fix for bond markets sets a global test case
By Vidya Ranganathan and Carolina Mandl SINGAPORE/NEW YORK (Reuters) -Japan, one of the world's most indebted developed economies, this week also turned into a saviour of sorts for its own bond market and globally. When Reuters reported on Tuesday Japan's ministry of finance (MOF) may reduce issuance of super-long tenor debt, bond markets from Japan and South Korea to Britain and the United States reacted positively, pushing prices up and yields down. That paused the weeks-long bond selloff forced by investors demanding bigger yields as they braced for increased inflation and government spending caused by U.S. President Donald Trump's trade and tax policies. Yields on 40-year Japanese government bonds (JGBs) had hit a record high 3.675% last week and were down 40 basis points from that level. Yields on 30-year U.S. Treasuries dropped to below a key 5% figure, helping the yield curve turn less steep. Michael Lorizio, managing director and head of U.S. rates at Manulife Investment Management, said Japan's proposal had stabilised all developed government debt. "As deficits expand, this will be a test case for other countries, if being more flexible around how issuance is scheduled is an attractive option, or not." Japan would be a test case for the entire world on the best way for governments to handle "signs of stress or a mismatch between supply and demand," Lorizio said. As of Wednesday, going by the auction of 40-year JGBs, investors aren't sold on the idea. Demand at the auction was at its weakest since July. A week ago, investors eschewed a 20-year bond auction so badly it was Japan's worst auction result since 2012. "For now, we have more orderly markets and some time for markets to catch their breath but, in the big picture, it's a band-aid," said Tom Nakamura, vice-president and head of fixed income & currencies at Canadian fund AGF Investments. "All these things are meant to help market functioning in the short term, but do very little to alleviate concerns in the medium- to long-term because the underlying causes of those concerns haven't gone away and are not helped by increasing funding from shorter-term instruments," he said. Nakamura said his portfolio has changed to limit exposure to long-end bonds and diversify into markets with healthier fiscal settings or more attractive yields, such as Germany, Poland and Romania. RECOGNISING RISKS Japan isn't alone. Britain's debt agency told Reuters in March there would be an "important shift" away from long-dated debt in the coming financial year in response to rising borrowing costs and reduced investor demand. Britain plans to issue 299 billion pounds ($402.60 billion of government bonds this year - the second highest amount on record - and its bonds have come under pressure from concern about high debt levels and bond issuance. Japan's situation is more complicated than elsewhere as its debt is 2-1/2 times the size of the economy and its central bank has slashed its previous bond buying. That governments are retooling their debt and fund-raising plans shows they are listening to markets, rather than letting central banks manage yields through monetary tools, analysts said. "What surprised us as well as the market was that we didn't really expect the Ministry of Finance to be the one that moves and starts discussing changes in issuance," said Subadra Rajappa, head of U.S. rates strategy at Societe Generale. While the U.S. Treasury has for years gradually shortened the duration of its debt by issuing more short-term bills as longer term bonds mature, overall debt has been rising. If Trump's "big, beautiful bill" on taxes is passed in the coming days, it is estimated to add about $3.8 trillion to the federal government's $36.2 trillion in debt over the next decade. When Moody's Investors' Service downgraded the U.S. rating this month, it projected U.S. public debt, now around 100% of gross domestic product, will rise to 134% over the next decade. "The Treasury is finding that the market doesn't have an appetite for anything at the long end of the curve unless the rate is above 5%," said Eric Beyrich, co-chief investment officer at Sound Income Strategies. "That will force them back to the short end of the curve when it comes to new issues." Germany is the only G7 economy with a debt-to-GDP ratio below 100%, yet investors have also sold its bonds in recent months on expectations of more supply following the surprise creation of a 500 billion euro ($565 billion) infrastructure fund. "The market is sending a signal that concerns are growing around fiscal and debt sustainability," said Chip Hughey, managing director of fixed income at Truist Advisory Services in Richmond, Virginia. "Market participants want to see policymakers use a multi-pronged approach to address deficits and lower their reliance on debt issuance." ($1 = 0.8846 euros) ($1 = 0.7427 pounds)
