First Impressions

Slick Transition: ICE Clear Europe’s Paul Swann Talks NYSE Integration
JohnLothianNews.com

ICE Clear Europe is at the center of the Intercontinental Exchange’s effort to expand across Europe, as well as integrate NYSE Liffe products into its market. The clearing house has been busy trying to adjust to new regulations and structural changes in the industry, not to mention merge business lines with the former NYSE family of exchanges.

Paul Swann, president and managing director of ICE Clear Europe, said the clearing strategy for ICE has expanded greatly from just clearing energies in 2008 to now clearing credit swaps and a new host of NYSE Liffe contracts.

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Quote of the Day

“The market seems to be somewhat stretched on the downside of yields. While yields can go down a bit further still, we think on a medium-term basis they could go higher. Given the rally that we’ve seen, a lot of the news is kind of priced into markets.”

Michiel de Bruin, head of global rates at F&C Asset Management Plc in the story, “ Record-Low Borrowing Costs Leave Euro-Area Bondholders on Edge”.

Lead Stories

Dealers face revenue hit in swaps shake-up
Michael Mackenzie in New York – Financial Times
Large dealers are facing losses of $2.5bn-$4.5bn from the $13bn in revenues generated last year from large global interest rates markets as new reforms transform the US swaps market, according to McKinsey.
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***DA: All this new regulatory infrastructure needs to be borne by somebody.

Goldman Sachs Brings in New Blood for Bond Trading
Nick Kostov – MoneyBeat – WSJ
Goldman Sachs has hired two senior traders to lead its European government bond trading business, at a time when falling revenues have led to widespread job cuts in the fixed income market.
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Gross’s Pimco Fund Tops Rivals in Quarter
WSJ
The Pimco Total Return Fund has outpaced two-thirds of rival funds in the second quarter, a win for manager Bill Gross following a year of poor performance and investor outflows. The $229 billion fund has posted a total return of 1.96% this quarter through Tuesday, reflecting price gains and interest payments.
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***DA: When 2 percent is considered a success, you know it is a tough environment.

Record-Low Borrowing Costs Leave Euro-Area Bondholders on Edge
David Goodman and Lukanyo Mnyanda – Bloomberg
After a six-month rally sent borrowing costs in the euro-area government bonds to an all-time low, investors say they are wary about boosting their holdings at the current level.
Euro-region bonds rose today, set for the longest run of monthly advances since the end of 2012, after the European Central Bank unveiled an unprecedented package of stimulus measures designed to boost the economy. That’s sent yields from the Netherlands to Ireland to record lows this month, while German 10-year borrowing costs are falling toward levels plumbed only at the height of the region’s debt crisis.
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It’s Asian bonds, not equities, that are too rich
Reuters
An unusual parallel rally in Asian bonds and equities, powered for the last five years by cheap global funds, could give out soon with debt becoming a casualty of the increasing confidence in the outlook for global growth.
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***DA: How about both?

Dubai Crisis? Not for Bond Market Resisting Selloff: Arab Credit
Samuel Potter – Bloomberg
For all the losses suffered by Dubai’s stock investors this week, the Middle East sheikhdom’s bonds are showing few signs of following the rout.
While a restructuring at Arabtec Holding Co. (ARTC), the United Arab Emirates’ biggest listed construction company, is fueling the worst monthly share selloff since 2008, the yield on the emirate’s $650 million May 2022 sukuk climbed 6 basis points since the end of May to 3.5 percent yesterday, about 10 basis points of a record low. For Franklin Templeton Investments ME, even that yield move is being spurred by a surge in debt sales from the region that’s prompting investors to switch into new issues.
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Banks Can Still Have Fun Prop Trading in Rates
Matt Levine – Bloomberg
Here’s a pretty interesting Bloomberg News story about proprietary trading at Citigroup. Here’s a schematic summary: The Volcker Rule bars banks from “proprietary trading” in credit. But it allows proprietary trading in rates products such as Treasury and agency bonds. So Citi set up a prop desk to trade agency bonds, managing over $1 billion of Citi’s money. It’s run by a woman named Anna Raytcheva, who lost billions of dollars trading agency bonds during the financial crisis.
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***DA: Past performance is not necessarily indicative of future returns.

What Happens When the Vulture Funds Start Circling
Daniel Huang – MoneyBeat – WSJ
The standoff between Argentina and some hedge funds playing out in New York federal court this month isn’t the first time Wall Street has faced off with a sovereign debtor.
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Deutsche Bank back on top in European DCM
Vivek Ahuja – Financial News
Deutsche Bank is poised to reclaim top spot in the European debt capital markets bookrunner rankings for the first six months of the year, having been pushed into second spot in the latter half of last year by BNP Paribas.
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Europe rethinks how to cure its debt hangover
Ralph Atkins in London – Financial Times
A government reneges on state guarantees. Losses are inflicted on bond holders. Other investors worry they might be next. This was not Argentina but Austria, one of Europe’s most prosperous and conservative democracies.
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US debt investor opens London office
Jennifer Bollen – Financial News
A US private equity firm, whose deals include debt and equity financings, has arrived in London as it anticipates a greater volume of bargain bank sell-offs.
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***DA: Lining up to get a spot close to the auctioneer.

UK sukuk bond sale attracts £2bn in orders
Elaine Moore and Thomas Hale – Financial Times
Britain has become the first western country to issue an Islamic bond, attracting orders of more than £2bn from global investors for its sale of sharia-compliant debt.
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Greek Bonds Beat Lottery as Funds Surge on Smashed Glass
Maria Petrakis – Bloomberg
The anger against austerity, reflected in the broken windows of hundreds of Athens storefronts, led to political turmoil in 2011, the world’s biggest debt restructuring the following year and chaos as elections forced Greeks to choose between the euro and the drachma. Now, halfway through his term, Prime Minister Antonis Samaras sees recovery and redemption after Greece came to the brink of bankruptcy and sparked a contagion that engulfed Ireland and Portugal.
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***DA: The article speaks in past tense as if everything is fine, yet the unemployment rate in Greece for those under age 25 is still above 50 percent.

Central Banks

Carney at Tolerance Limit as BOE Acts to Curb Housing Risks
Ben Moshinsky – Bloomberg
Mark Carney said the biggest risks to Britain’s recovery stem from the housing market as he introduced measures to limit riskier mortgages and prevent an unsustainable buildup of consumer debt.
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***DA: Market getting frothy, no doubt.

Time for More Transparency in the Fed’s Blue Dots
Michael J. Casey – MoneyBeat – WSJ
If you think the “blue dots” of the Federal Open Market Committee’s interest-rate forecasts drew an excess of wonky analysis after last week’s meeting, just wait for the end of this year. Once the Fed’s bond-buying effort nears its close, when guessing the timing of the first rate hike becomes the only bond-investment game in town, those dots will be an all-out obsession.
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Governor Daniel K. Tarullo At The Federal Reserve Third Annual Stress Test Modeling Symposium, Boston, Massachusetts, June 25, 2014, Stress Testing After Five Years
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Currencies

RMB-sterling trading gets off to a flying start
Farah Khalique – Euromoney Magazine
Bankers are already seeing demand for direct renminbi-sterling deals, and anticipate a rise in volumes and market makers, since the announcement on Thursday it is now possible to directly trade these two currencies in China’s onshore interbank foreign-exchange market.
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BitBeat: Why Bitcoin’s Scoring in Argentina
Michael J. Casey – MoneyBeat – WSJ
In the U.S., bitcoin payment processors generally find merchants want them to immediately convert their bitcoins into dollars. In Argentina, the exact opposite occurs.
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Saul P. Sarrett Named General Counsel of Cürex Group
The Cürex Group announced today that Saul P. Sarrett has been appointed Managing Director and General Counsel , a new position at this New York, NY based institutional foreign exchange execution, product development and index data company.
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Czechs Keep Currency Cap Even as Inflation Jumped in May
Peter Laca – Bloomberg
Czech policy makers kept their koruna ceiling in place for a fifth meeting, looking past the first jump in inflation (CZCPYOY) this year as price growth held below the central bank’s forecast.
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Indexes & Index Products

LSE to Buy Frank Russell to Boost Indexes Index Business
Manuel Baigorri and Jonathan Morgan – Bloomberg
London Stock Exchange Group Plc (LSE) agreed to buy Frank Russell Co., a unit of Northwestern Mutual Life Insurance Co., for $2.7 billion to bolster its FTSE International Ltd. business.
LSE will pay for the acquisition with a rights issue of $1.6 billion and finance the rest with new and existing debt, according to a statement. The exchange said the takeover will boost earnings in the first full year. The shares jumped 6.3 percent, the most since July 2013, to 1,987 pence at 12:23 p.m. in London.
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Minimum variance indexes may struggle in China retail market
Xiao Wang – Risk.net
The Chinese market’s retail focus may mean a limited investor appetite for the minimum variance indexes that are being launched by two leading providers, according to a senior figure from a Chinese asset manager.
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***DA: Don’t invest in that which you don’t understand.

Gold

China finds $15 billion of loans tied to falsified gold deals
Reuters
Chinese gold processing firms have since 2012 used falsified gold transactions to borrow 94.4 billion yuan ($15.2 billion) from banks, the country’s chief auditor said.
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Bling for Minister Mastermind Greased Secret Turkey Gold Trade
Mehul Srivastava and Isobel Finkel – Bloomberg
As the minister in charge of Turkey’s $800 billion economy in 2013, Zafer Caglayan was facing a series of numbers that didn’t bode well for coming elections. Inflation was up, growth was slowing and the lira was weakening.
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Secretive Swiss vaults may hold missing link in platinum price equation
Reuters
Underground vaults next to a Swiss farming village may reveal one reason for the platinum market’s indifference to its biggest ever supply shock.
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