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The European Debt Investor Landscape
Peak Issuer Demand for Funding Faces Multiple Challenges from Investors
May 11, 2011--Highlights
The continued smooth functioning of the debt markets for the government, bank
and corporate sectors is essential to the functioning of Europe’s economy. In this fifth year since the start of the financial crisis, debt is in high demand from European issuers: many banks require capitalisation to comply with Basel III; and government deficits need funding. For example, Fitch Ratings estimates the latter
need to raise EUR1.8trn in the market in 2011 to finance large deficits and to roll over funding.
At the same time, the region’s debt investors are facing a number of challenges, including new regulation, such as Solvency II (SII), which could lead to en masse changes to asset allocation. This could potentially result in a shift in the tectonic
plates of investor funds, leading to significant changes in the availability, cost and
tenor of funding for borrowers. Fitch, however, notes that the SII proposals are still at a draft stage, potentially subject to material amendments, and that large insurers are likely to use internal models whose impact on asset allocation might diverge from the standard framework.
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Source: Fitch Ratings
New EDHEC-Risk Institute research affirms that issuing inflation-linked bonds substantially increases firm value
May 11, 2011--In a climate of increasing inflation uncertainty, EDHEC-Risk Institute has released a new study analysing optimal corporate debt management policies. The study, produced as part of the research chair on “The Case for Inflation-Linked Corporate Bonds: Issuers’ and Investors’ Perspectives,” in partnership with Rothschild & Cie, entitled “Optimal Design of Corporate Market Debt Programmes in the Presence of Interest-Rate and Inflation Risks,” examines the optimal liability structure when the issuer faces such instruments as fixed-rate debt, floating-rate debt, and inflation-linked debt.
The authors of the study, Lionel Martellini, Scientific Director, and Vincent Milhau, Senior Research Engineer, EDHEC-Risk Institute, introduce a general framework with which a corporation subject to default risk may make optimal debt-management decisions.
The main findings of the study are the following:
Debt management has an impact on capital structure. A primary contribution of the paper is to provide a joint quantitative analysis of capital-structure decisions and debt-structure decisions within a standard continuous-time model in the presence of interest-rate and inflation risks.
An optimal debt structure can facilitate substantial increases in firm value. Issuing floating-rate bonds or inflation-linked bonds may increase risk from the perspective of pure debt management, but it may decrease risk from the perspective of integrated asset/liability management. From this trade-off emerges an optimal debt structure, and one can show that under mild simplifying assumptions, minimising the volatility of assets nets of liabilities is equivalent to minimising the risk-adjusted probability of default, which is in turn equivalent to maximising firm value.
A number of corporations would benefit from issuing inflation-linked bonds, bonds usually associated with sovereign states. If a firm’s revenues grow with inflation, issuing some inflation-linked debt can be a natural hedge.
NYSE Euronext Lisbon lists Commerzbank Factor Certificates on commodities
Bank lists 44 certificates on 11 different commodities and reinforces available product offer-
May 2011 – NYSE Euronext today has listed new Factor Certificates issued by
Commerzbank. With this issue, Commerzbank reinforces the current offering of this type of financial
products on NYSE Euronext in Lisbon. Commerzbank adds a new range of 44 new certificates with 11 different commodities as underlying - gold, silver, copper, corn, wheat, oil (Brent and WTI), natural gas, cocoa, coffee and sugar.
Factor Certificates offer on-exchange leverage participation to the daily performance of a specific
underlying with no maturity and a pre-defined fixed leverage. Several fixed leverage levels are
available allowing investors to select the leverage level corresponding to their individual risk profile.
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Source: NYSE Euronext
D Börse staff urge rejection of takeover
May 11, 2011--Deutsche Börse’s employee representatives have urged shareholders to reject the stock exchange operator’s takeover proposal for NYSE Euronext, reflecting worries about job cuts in the wake of a merger.
The works council, which represents the German stock market group’s employees, called on shareholders to vote against the proposed offer.
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Source: FT,com
Pace of UK Growth Under Threat
May 10, 2011--Britain's economy is unlikely to grow as fast as before the financial crisis because its most productive sectors have been hardest hit, jeopardising government plans to cut the deficit.
A Financial Times analysis of the sectorial performance of the economy before and after the crash highlights how much banks and insurance companies boosted economic growth between 2000 and 2008.
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Source: CNBC
Europe close to compromise deal on swaps ban
May 11, 2011--The prospect of Europe imposing a permanent ban on trading in “uncovered” credit default swaps on sovereign debt has receded after senior diplomats threw their weight behind a compromise on how new short-selling rules should work.
Under a deal likely to be endorsed by European Union finance ministers next week, naked short-selling of cash government bonds would be banned.
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Source: FT.com
Restructuring Greek debt risks devastation: Commission
May 11, 2011-- The European Union economic affairs chief warned Wednesday that restructuring Greece's massive debt would have devastating consequences for the country and the eurozone as a whole.
Amid growing fears the EU may have to rescue Greece for a second time, European economy commissioner Olli Rehn said a "large part" of the Greek banking system would likely "become insolvent" if the national debt was restructured.
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Source: EUbusiness
Ireland expects economic rebound to start this year
May 10, 2011--Ireland's debt-stricken economy will start to rebound this year after three years of recession, Finance Minister Michael Noonan said Tuesday as he announced a series of job creation initiatives.
"The economy has seen three successive years of declining economic activity. Between 2007 and 2010 the volume of goods and services produced in Ireland fell by 12 percent," Noonan told parliament.
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Source: EUbusiness
Four new ETFs from ETF Securities launched on Xetra
First ETF on the volatility index EURO STOXX 50
May 10, 2011-- Four new ETFs issued by ETFX Fund Company plc have been tradable in Deutsche Börse’s XTF segment since Tuesday. For the first time, this enables investors to invest in the implied volatility of European blue chip equities with an ETF. Two further ETFX ETFs track the performance of companies in the infrastructure sector around the world and in emerging markets.
ETF name: ETFX-BofAML IVSTOXX ETF
Asset class: volatility
ISIN: DE000A1H81B1
Management fee: 0.80 percent
Distribution policy: non-distributing
Benchmark: EURO STOXX 50 Investable Volatility Index
ETF name: ETFX Dow Jones Brookfield Global Infrastructure
Asset class: equity index ETF
ISIN: DE000A1H8092
Management fee: 0.60 percent
Distribution policy: non-distributing
Benchmark: Dow Jones Brookfield Global Infrastructure Index
ETF name: ETFX Dow Jones Brookfield Emerging Markets Infrastructure
Asset class: equity index ETF
ISIN: DE000A1H8084
Management fee: 0.65 percent
Distribution policy: non-distributing
Benchmark: Dow Jones Brookfield Emerging Markets Infrastructure Index
ETF name: ETFX Dow Jones Global Select Dividend Fund
Asset class: equity index ETF
ISIN: DE000A1H81A3
Management fee: 0.50 percent
Distribution policy: non-distributing
Benchmark: Dow Jones Global Select Dividend Index
The ETFX-BofAML IVSTOXX ETF enables investors to participate for the first time in the performance of the EURO STOXX 50 Investable Volatility Index. This tracks the implied 3-month volatility of the EURO STOXX 50 – a blue-chip index containing the 50 largest equities in the euro zone.
With ETFX Dow Jones Brookfield Global Infrastructure and ETFX Dow Jones Brookfield Emerging Markets Infrastructure, investors can participate for the first time in the performance of the Dow Jones Brookfield Infrastructure index series. This contains companies that own and operate infrastructure assets. The index only includes companies which derive over 70% of their expected cash flow from the infrastructure sector, e.g. airports, communications or water. Depending on the ETF, the investment universe has a global or emerging-market focus.
The ETFX Dow Jones Global Select Dividend Fund enables investors to participate in the performance of the Dow Jones Global Select Dividend Index. The index consists of 100 equities with particularly high dividend distributions. To further strengthen the dividend orientation of the index, equities are weighted according to their dividends and not their market capitalisation.
The product offering in Deutsche Börse’s XTF segment currently comprises a total of 793 exchange-listed index funds, making it the largest offering of all European stock exchanges. This selection, together with an average monthly trading volume of €13 billion, makes Xetra Europe’s leading trading venue for ETFs.
Source: Deutsche Börse
Euro remains under pressure
May 9, 2011--The euro dropped to a three-week low against the dollar on Monday before rebounding late in New York.
The single currency had shown signs of stability early in the session, but lost ground after Standard & Poor’s lowered Greece’s sovereign credit rating lowered Greece’s sovereign credit rating and warned that further cuts were possible.
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Source: FT.com
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