Why German bonds could be even riskier than Greece’s

Why German bonds could be even riskier than Greece’s

…. or why bond are much riskier than they are perceived

Which will be the better investment over the next 10 or even 30 years: German bonds or Greek bonds?

If that sounds like a simple question, think again.

In the fallout from Sunday’s “no” vote in Greece, the price of “safe” German bonds has surged and that of “risky” Greek bonds has, predictably, plunged.

Bonds are like seesaws: When the price goes up, the yield goes down and vice-versa.

At today’s prices, a 30-year German Bund sports a yield to maturity of only 1.4%. Meanwhile, a 30-year Greek bond offers a theoretical yield of just under 13% — i.e., nearly 10 times as much.

Naturally the markets are predicting that Greek bondholders won’t get all that money. They’ll take what is generally called a “haircut,” meaning cuts in their coupons and final principal repayment.

But how big will the haircut be?

Unless Greek bondholders suffer a massive, catastrophic write-down, they will actually end up getting more money back on their bonds than German bondholders will. That’s because “risk” and “safety” cannot be understood without reference to the price you pay for an asset. A “solid” asset can end up being a risky or poor investment if you pay too much; a dubious or risky asset, as long as it has at least some value, can end up being a great deal if you get it cheaply enough.

Both could be the case right now. Greek bonds could be underpriced. And German bonds could be overpriced. A yield of 1.4% a year for three decades looks dismal from almost any standpoint.

Mathematically, Greek bondholders will end up ahead if their haircut is less than about 73%. Yes, really. Take a 30-year bond with a theoretical yield of 12.73%, and you have to cut coupons and principal overall by more than 73% before the owner ends up earning a net return of less than 1.4% a year.

The face value of Greece’s government debt is currently 170% of economic output, or gross domestic product. A decrease of 73% would reduce that to only 46% — about the same as that of Germany. That would be some cut.

http://www.marketwatch.com/story/why-german-bonds-could-be-even-riskier-than-greeces-2015-07-08

 

Why German bonds could be even riskier than Greece’s

Why German bonds could be even riskier than Greece’s

…. or why bond are much riskier than they are perceived

Which will be the better investment over the next 10 or even 30 years: German bonds or Greek bonds?

If that sounds like a simple question, think again.

In the fallout from Sunday’s “no” vote in Greece, the price of “safe” German bonds has surged and that of “risky” Greek bonds has, predictably, plunged.

Bonds are like seesaws: When the price goes up, the yield goes down and vice-versa.

At today’s prices, a 30-year German Bund sports a yield to maturity of only 1.4%. Meanwhile, a 30-year Greek bond offers a theoretical yield of just under 13% — i.e., nearly 10 times as much.

Naturally the markets are predicting that Greek bondholders won’t get all that money. They’ll take what is generally called a “haircut,” meaning cuts in their coupons and final principal repayment.

But how big will the haircut be?

Unless Greek bondholders suffer a massive, catastrophic write-down, they will actually end up getting more money back on their bonds than German bondholders will. That’s because “risk” and “safety” cannot be understood without reference to the price you pay for an asset. A “solid” asset can end up being a risky or poor investment if you pay too much; a dubious or risky asset, as long as it has at least some value, can end up being a great deal if you get it cheaply enough.

Both could be the case right now. Greek bonds could be underpriced. And German bonds could be overpriced. A yield of 1.4% a year for three decades looks dismal from almost any standpoint.

Mathematically, Greek bondholders will end up ahead if their haircut is less than about 73%. Yes, really. Take a 30-year bond with a theoretical yield of 12.73%, and you have to cut coupons and principal overall by more than 73% before the owner ends up earning a net return of less than 1.4% a year.

The face value of Greece’s government debt is currently 170% of economic output, or gross domestic product. A decrease of 73% would reduce that to only 46% — about the same as that of Germany. That would be some cut.

http://www.marketwatch.com/story/why-german-bonds-could-be-even-riskier-than-greeces-2015-07-08

Euro entrepreneurs take a move: MALTA GDP not only Tourism and Finance, Industrial production up by 9%

Euro entrepreneurs take a move: MALTA GDP not only Tourism and Finance, Industrial production up by 9%

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The spirit of continuous improvement and accomplishment, to pursue global thinking and local action that characterizes MALTAway, with a new proposal:Industrial production up 9% in May over previous year

In May, the seasonally adjusted index of industrial production increased by 0.8 per cent to 99.5 points

Seasonally adjusted industrial production increased by 0.8 per cent in May over the previous month. When compared to May 2014, the index of industrial production adjusted for working days went up by 8.9 per cent.

In May, the seasonally adjusted index of industrial production increased by 0.8 per cent to 99.5 points. An increase was registered in the production of consumer goods (1.3 per cent), while decreases were registered in the production of capital goods (2.1 per cent), intermediate goods (1.4 per cent) and energy (0.3 per cent).

When compared to the corresponding month last year, the index of industrial production adjusted for working days went up by 8.9 per cent. Increases were registered in the production of intermediate goods (16.5 per cent), consumer goods (10.4 per cent) and energy (0.3 per cent). A decrease was registered in the production of capital goods.

http://www.maltatoday.com.mt/business/business_news/54844/industrial_production_up_9_in_may_over_previous_year#.VZyse_ntmko

UBS and Morgan Stanley passed wealth management milestones.

UBS and Morgan Stanley passed wealth management milestones.

The assets each of the companies manage for the world’s wealthy topped $2 trillion for the first time, according to a Scorpio Partnership report. The two banks are the market share leaders of a $20.6 trillion industry.

UBS Group AG and Morgan Stanley increased the assets they manage for the world’s wealthiest people to more than $2 trillion for the first time, according to a study.

Assets under management at Zurich-based UBS rose 3.5 percent to $2.04 trillion last year, the most globally, according to an annual study by Scorpio Partnership, a London-based consulting firm. Morgan Stanley ranked second with $2.03 trillion as assets grew 6.1 percent.

“The global wealth management industry had a solid business year in 2014 in terms of financial results for the operating model,” Scorpio said. “In spite of financial market uncertainties and currency volatility, most lead players experienced overall growth in client volumes.”

 The wealth-management industry managed $20.6 trillion in investible assets of high net worth individuals at the end of December. The top 10 managers accounted for 47 percent of the market, with UBS controlling 9.9 percent, Scorpio said.

While UBS ranked first for the third straight year, JPMorgan Chase & Co. increased assets 19 percent to $428 billion, the fastest-growing of the top 10 managers. BMO Financial Group of Canada rose 10 places to 11th, as acquisitions helped assets surge 80 percent to $326.4 billion.

Average growth in assets under management for more than 200 firms in the study climbed 3.4 percent, compared with almost 15 percent in 2013. Cost to income ratios rose 90 basis points, or 0.9 percentage point, to 84.4 percent as operating efficiency declined.

“The operating model is facing major growing pains to accommodate the expectations of financial groups for wealth management divisions to deliver sustained high margin results,” said Sebastian Dovey, managing partner at Scorpio.

A number of firms, mostly based in Europe, were adversely affected by the euro’s weakness, Scorpio said. BNP Paribas SA and HSBC Holdings Plc, ranked eighth and ninth globally, saw assets shrink by 6.2 percent and 4.5 percent, respectively.

http://www.bloomberg.com/news/articles/2015-07-07/ubs-morgan-stanley-lead-wealth-managers-with-record-2-trillion