Time Bomb? Banks Pressured to Buy Government Debt - News and Current Events | futures io social day trading
futures io futures trading


Time Bomb? Banks Pressured to Buy Government Debt
Updated: Views / Replies:240 / 0
Created: by kbit Attachments:0

Welcome to futures io.

(If you already have an account, login at the top of the page)

futures io is the largest futures trading community on the planet, with over 90,000 members. At futures io, our goal has always been and always will be to create a friendly, positive, forward-thinking community where members can openly share and discuss everything the world of trading has to offer. The community is one of the friendliest you will find on any subject, with members going out of their way to help others. Some of the primary differences between futures io and other trading sites revolve around the standards of our community. Those standards include a code of conduct for our members, as well as extremely high standards that govern which partners we do business with, and which products or services we recommend to our members.

At futures io, our focus is on quality education. No hype, gimmicks, or secret sauce. The truth is: trading is hard. To succeed, you need to surround yourself with the right support system, educational content, and trading mentors – all of which you can find on futures io, utilizing our social trading environment.

With futures io, you can find honest trading reviews on brokers, trading rooms, indicator packages, trading strategies, and much more. Our trading review process is highly moderated to ensure that only genuine users are allowed, so you don’t need to worry about fake reviews.

We are fundamentally different than most other trading sites:
  • We are here to help. Just let us know what you need.
  • We work extremely hard to keep things positive in our community.
  • We do not tolerate rude behavior, trolling, or vendors advertising in posts.
  • We firmly believe in and encourage sharing. The holy grail is within you, we can help you find it.
  • We expect our members to participate and become a part of the community. Help yourself by helping others.

You'll need to register in order to view the content of the threads and start contributing to our community.  It's free and simple.

-- Big Mike, Site Administrator

Reply
 
Thread Tools Search this Thread
 

Time Bomb? Banks Pressured to Buy Government Debt

  #1 (permalink)
Elite Member
Aurora, Il USA
 
Futures Experience: Advanced
Platform: TradeStation
Favorite Futures: futures
 
kbit's Avatar
 
Posts: 5,872 since Nov 2010
Thanks: 3,301 given, 3,332 received

Time Bomb? Banks Pressured to Buy Government Debt

US and European regulators are essentially forcing banks to buy up their own government's debt—a move that could end up making the debt crisis even worse, a Citigroup analysis says.

Regulators are allowing banks to escape counting their country's debt against capital requirements and loosening other rules to create a steady market for government bonds, the study says.

While that helps governments issue more and more debt, the strategy could ultimately explode if the governments are unable to make the bond payments, leaving the banks with billions of toxic debt, says Citigroup strategist Hans Lorenzen.

"Captive bank demand can buy time and can help keep domestic yields low," Lorenzen wrote in an analysis for clients. "However, the distortions that build up over time can sow the seeds of an even bigger crisis, if the time bought isn't used very prudently."

"Specifically," Lorenzen adds, "having banks loaded up with domestic sovereign debt will only increase the domestic fallout if the sovereign ultimately reneges on its obligations."

The banks, though, are caught in a "great repression" trap from which they cannot escape.

"When subjected to the mix of carrot and stick by policymakers...then everything else equal, we believe banks will keep buying," Lorenzen said.

Institutions both in the U.S. and abroad have been busy buying up their national sovereign debt [cnbc explains] for years, he found.

Spanish banks bought 90 billion euros worth while Italian firms picked up 86 billion euros just between November and March. Even in the UK, which has avoided a debt crisis as it is outside the euro zone and able to set its own monetary policy, banks have increased holdings of gilts by 100 billion pounds over the past few years.

And in the U.S., banks, though having "comparatively low holdings" of Treasurys, have bought $700 billion of American debt since 2008.

"Ask the simple question: Why are banks buying sovereign debt when yields are either near record lows, or perhaps more interestingly, when foreign investors are pulling out?" Lorenzen wrote.

He thinks he has the answer.

For one, the European Central Bank's [cnbc explains] Long-Term Refinance Operations provided guarantees for the debt, which Lorenzen deems a "heavily sweetened form of financial repression given the pressure banks were under" to buy.

"Banks have ended up buying bonds at yields where they would happily have sold them only a few months prior," he said.

Moreover, banks are allowed to not count the sovereign debt against their Basel capital requirements. Also, Lorenzen argued, European banks have escaped the onus of stress tests this year, a less-than-subtle hint that authorities are willing to tolerate a bit of looseness in banks so long as they are helping to stave off a full-blown debt crisis.

"One doesn’t have to be too cynical to hypothesize that all the disclosures on sovereign exposure have become a bit of a political liability at a point in time where the only buyers in size of periphery sovereign debt are periphery banks funded by the ECB," he said.

"As long as funding for sovereigns in markets remains in jeopardy, and as long as there is no clear move towards proper fiscal solidarity in Europe, we reckon there will be a strong political incentive to make banks captive buyers. That implies a move away from marking sovereign debt to market, away from raising risk weights, away from capital ratios that don't risk weight assets and away from stress tests incorporating government bonds."

For investors in bank bonds, the news is good — for now.

"As long as policy remains to sustain the status quo, bondholders should come out fine. Conversely, if the burden becomes too great, then the alternative will most probably involve a radical departure from current convention — to the detriment of bondholders," Lorenzen said.

"We suspect this binary outcome requires a political judgement that many funds are not particularly well placed to make." he added. "Instead of those economics, accounting and finance degrees perhaps you should have done political science after all."


News Headlines

Reply With Quote

Reply



futures io > > > > Time Bomb? Banks Pressured to Buy Government Debt

Thread Tools Search this Thread
Search this Thread:

Advanced Search



Upcoming Webinars and Events (4:30PM ET unless noted)

Jigsaw Trading: TBA

Elite only

FuturesTrader71: TBA

Elite only

NinjaTrader: TBA

Jan 18

RandBots: TBA

Jan 23

GFF Brokers & CME Group: Futures & Bitcoin

Elite only

Adam Grimes: TBA

Elite only

Ran Aroussi: TBA

Elite only
     

Similar Threads
Thread Thread Starter Forum Replies Last Post
Consumers Having Easier Time Paying Debt: Banks' Body Quick Summary News and Current Events 0 April 5th, 2012 07:30 AM
U.S. banks bought more government and related debt in the first two months of 2012 th GridKing News and Current Events 0 March 12th, 2012 08:41 AM
Now Spain: Debt Crisis Claims Another Government Quick Summary News and Current Events 0 November 20th, 2011 10:10 PM
Raise Ceiling but Beware of 'Debt Bomb': Prince Alwaleed Quick Summary News and Current Events 0 May 20th, 2011 10:00 AM
Italy Is the Ticking Time Bomb: Economist Quick Summary News and Current Events 0 July 6th, 2010 06:40 AM


All times are GMT -4. The time now is 12:50 PM.

Copyright © 2017 by futures io, s.a., Av Ricardo J. Alfaro, Century Tower, Panama, +507 833-9432, info@futures.io
All information is for educational use only and is not investment advice.
There is a substantial risk of loss in trading commodity futures, stocks, options and foreign exchange products. Past performance is not indicative of future results.
no new posts
Page generated 2017-12-13 in 0.07 seconds with 19 queries on phoenix via your IP 54.82.79.109