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...and living practically everywhere. Excerpt from an email to me from a long ago retired investment banker friend; source unknown, highlights mine.
Deflation my azz...there's waaaay too much cheap money chasing stuff out there.
25 September 2010
Recent bond market euphoria has given way to talk of a bubble developing. Those who had been crowing about the credit markets being open for business are becoming much more nervous.
Certainly, the combination of plentiful cash and low interest rates has seen investors scrabbling for yield and the market has responded with a swathe of structures usually associated with the most bullish of bull markets.
With insurance companies looking at a 4% bogey just to stand still and private bankers aiming a couple of percentage points higher, the resurgence of high-beta products was inevitable. It’s simply a case of “never mind the quality, feel the yield”, as investors ignore some of the lessons of the last crisis and pile into anything that pays.
Examples of potential excesses abound. Just last week saw the first corporate perpetual from Asia in 13 years when Cheung Kong Infrastructure raised US$1bn. The fact that it came from an unrated and structurally subordinated SPV didn’t seem to matter, with the deal pricing at 6.625% on a US$5.2bn book despite initial whispers at 7%.
Philippines borrower First Pacific also started discussions on its 10-year offering in the region of 7%, before ending up at 6.375%. Despite this, a deal indicated at US$300m attracted demand of US$3.4bn.
It was a similar story in Latin America, with Pemex pricing its US$750m non-call five perp at 6.625%, having dropped down from early whispers, again in the 7% area, in gradual instalments, while Brazil’s CSN priced a perp at just 7% the previous week – putting it flat to a 30-year and flying in the face of perceived wisdom that issuers should pay 75bp–100bp for the privilege of perpetuity and the call option.
As if to underline the point, there was talk last week that Dubai – last heard of in the middle of a debt crisis – is planning a US$1bn return and that Mexico was not only talking about a 100-year bond but also finding people to talk to.
Despite the exuberance, a few signs were beginning to emerge last week of something of a pushback. A number of deals are drifting in the secondary market as potential follow-on buyers consider the possibility that things have gone too far too quickly.
Many of the smarter investors who piled into aggressively priced bonds in recent weeks felt somewhat coerced and would need little excuse to dump their holdings should the market show signs of going into reverse.
Of course, a correction, or even just a pause for breath, could be no bad thing right now, as the bigger a bubble gets, the bigger the bang when it bursts.
Deflation my azz...there's waaaay too much cheap money chasing stuff out there.
25 September 2010
Recent bond market euphoria has given way to talk of a bubble developing. Those who had been crowing about the credit markets being open for business are becoming much more nervous.
Certainly, the combination of plentiful cash and low interest rates has seen investors scrabbling for yield and the market has responded with a swathe of structures usually associated with the most bullish of bull markets.
With insurance companies looking at a 4% bogey just to stand still and private bankers aiming a couple of percentage points higher, the resurgence of high-beta products was inevitable. It’s simply a case of “never mind the quality, feel the yield”, as investors ignore some of the lessons of the last crisis and pile into anything that pays.
Examples of potential excesses abound. Just last week saw the first corporate perpetual from Asia in 13 years when Cheung Kong Infrastructure raised US$1bn. The fact that it came from an unrated and structurally subordinated SPV didn’t seem to matter, with the deal pricing at 6.625% on a US$5.2bn book despite initial whispers at 7%.
Philippines borrower First Pacific also started discussions on its 10-year offering in the region of 7%, before ending up at 6.375%. Despite this, a deal indicated at US$300m attracted demand of US$3.4bn.
It was a similar story in Latin America, with Pemex pricing its US$750m non-call five perp at 6.625%, having dropped down from early whispers, again in the 7% area, in gradual instalments, while Brazil’s CSN priced a perp at just 7% the previous week – putting it flat to a 30-year and flying in the face of perceived wisdom that issuers should pay 75bp–100bp for the privilege of perpetuity and the call option.
As if to underline the point, there was talk last week that Dubai – last heard of in the middle of a debt crisis – is planning a US$1bn return and that Mexico was not only talking about a 100-year bond but also finding people to talk to.
Despite the exuberance, a few signs were beginning to emerge last week of something of a pushback. A number of deals are drifting in the secondary market as potential follow-on buyers consider the possibility that things have gone too far too quickly.
Many of the smarter investors who piled into aggressively priced bonds in recent weeks felt somewhat coerced and would need little excuse to dump their holdings should the market show signs of going into reverse.
Of course, a correction, or even just a pause for breath, could be no bad thing right now, as the bigger a bubble gets, the bigger the bang when it bursts.
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