Three months ago, I said that investors and journalists had largely moved on from the European sovereign debt crisis. Yet in the past month, the crisis has regained prominence in the forefront of the consciousness of pundits. Interestingly, most of the concern is arising not out of new events but rather out of the movement and consequences of the eurozone's titanic debt. Although Europe is again the center of gravity for fixed-income investors, there are still many peripheral stories deserving of attention. Here then is a recap:
- European Bedfellows. One source of the European sovereign debt crisis, in my opinion, is the incestuous relationship between Europe’s businesses, banks, and nations. Because of intranational cross holdings of securities, it has been “united we stand, united we fall.” Yet, there are reports that European companies are starting to turn away from local banks and to markets to raise new capital.
- European Citizens Vote for the “New” Old Order. Votes in Holland, Greece, and France indicated that finance has the capability of radicalizing the politics of nations with some citizens in Greece electing neo-Nazis to parliament. Beyond the election results — which were widely covered — is news about the willingness of eurozone countries to discuss economic growth, and not just austerity, as a way of exiting the global financial crisis. Meanwhile, the talk is of Greece leaving the eurozone and of Spain collapsing further.
- How Low Can Yields Go? Yields in so-called “safe harbor” sovereign debt keep falling as investors pile into these issues. The question has been: How negative would yields have to go before investors balked at the notion that they were paying the government for the privilege of borrowing their money? Debt auction buyers finally said “nein” in Germany. Meanwhile, in the United States, buyers were reportedly tired of buying investment-grade credit.
- Chinese Yuan Rumblings. As I have been writing about for months, China wants the yuan to be a global currency, and China is willing to make dramatic changes for the Yuan to be preeminent. The latest sign is that Chinese corporations are going to be able to borrow yuan offshore for their business financing needs.
- Eliminating the Bond Market Middleman. Tired of investment banks making fat spread commissions for what is essentially information discovery, Blackrock announced it is going to create its own bond market trading platform.
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