First Impressions

It is that time of year (vacation time) and as it happens many of our staff writers are on vacation or busy with our 2014 Intern Series so our usual commentary in this space will be a bit hit-or-miss for the next few days or so. All the usual great content is there below though.

Quote of the Day

There has been a mad dash into ultralong bonds. Borrowers are locking in financing at the lowest rates in a generation.”

Chris Rupkey, chief financial economist at MUFG Union Bank N.A in the Wall Street Journal’s piece: “In Bond Markets, Long Is Going Strong.”

Lead Stories

Interest rate derivatives take another hit in July
Jon Watkins – The Trade
NYSE Liffe’s short-term interest rate derivatives saw the biggest decline, with activity dipping below one million contracts a day on average, down 56% compared with July 2013.
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**Tough to keep trading no-interest rate markets.

In Bond Markets, Long Is Going Strong
Min Zeng – WSJ
Governments and companies around the world are borrowing cash they won’t have to repay for at least three decades, seizing upon this year’s unexpected fall in interest rates to lock in cheap financing for as long as possible.
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Bitcoin-Like Money Is Ecuador’s Latest Dollar-Saving Plan
Nathan Gill – Bloomberg
After mortgaging most of Ecuador’s oil and gold to finance spending, President Rafael Correa is planning to create virtual money to pay the nation’s bills. Congress last month approved legislation to start a digital currency for use alongside the U.S. dollar, the official tender in Ecuador.
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**JK – Innovation or desperation?

The euro flows of Kilimanjaro
Izabella Kaminska – Financial Times
George Saravelos at Deutsche Bank looks at what are fast becoming intensifying euro outflows and wonders if it could amount to an important idiosyncratic driver for global markets. Yesterday, for example, the market witnessed a record euro liquidation day.
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China Default Storm Seen as Record Private Bonds Mature
Bloomberg
The small companies that dominate China’s private market for high-yield bonds face rising default risks as their debt obligations soar to a record and economic growth slows to the lowest in more than two decades.
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**JK – So goes the conversion to capitalism.

Argentina Nerves Drag Distressed Bond Returns to Weakest in Year
David Yong – Bloomberg
Investors in emerging-market distressed bonds are facing the weakest quarter in a year amid Argentina’s default and political crises in Russia and Ukraine.
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Bond ladders a hit with Japan investors seeking higher returns
Shinichi Saoshiro – Reuters
Japanese fund managers spiced up a simple investment product known as bond ladders with high-grade foreign sovereign debt and created an instant hit with domestic banks and credit unions.
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Rising interest rates may revive appetite for Islamic commodity deals
Bernardo Vizcaino and Melanie Burton – Reuters
A return to an era of higher interest rates could derail attempts by Islamic finance to create alternatives to a short-term funding instrument that has dominated the industry, but which some scholars and regulators want to see replaced.
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Central Banks

Should central bankers embrace the cult of the offensive?
Matthew C Klein – Financial Times
A new article by Andrew Haldane, the Bank of England’s chief economist, is a useful reminder that the debate over how (or whether) central bankers should respond to excessive risk-taking continues to heat up as the pain of the recession gradually recedes in the US and UK.
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Goldman Sachs: Here’s What Will Happen When Fed Raises Rates
Steven Russolillo – MoneyBeat – WSJ
Goldman Sachs Group Inc. says it knows what’s going to happen when the Federal Reserve starts raising interest rates. The quick takeaway: Stocks look much more attractive than bonds–at least through 2018.
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Let’s fight the anti-inflation battle once and let’s win: Raghuram Rajan
Business Standard News
While achieving an eight per cent retail inflation rate by January 2015 is well within reach, Reserve Bank of India Governor Raghuram Rajan notes there is a second target, of six per cent by 2016. Edited excerpts from his interaction with the media after announcing the policy review:
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Currencies

Britain eyes regulation for virtual currencies
William James – Reuters
Britain on Wednesday took its first steps toward regulating the rapidly expanding use of virtual currencies, launching a study to look at the opportunities and risks presented by digital currency Bitcoin and its rivals.
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ECB Warns Hungary on Aid to Foreign-Currency Borrowers
Margit Feher – WSJ
Hungary has failed to consult the European Central Bank on its latest legislation to help foreign-currency borrowers, while the new law will strain the country’s financial sector and may harm its economy and financial markets, the ECB said Tuesday.
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Chilean Peso Declines to Lowest Level Since Recession in 2009
Jenna M. Dagenhart and Sebastian Boyd – Bloomberg
Chile’s peso fell to its weakest close since the country’s 2009 recession after a report showed that the Latin American country’s economic deceleration was steeper than expected.
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A critical autumn nears for EM currencies
Delphine Strauss – Financial Times
A year ago, emerging market investors were in full flight, as the US Federal Reserve’s plans to taper stimulus exposed economic imbalances many had previously been inclined to overlook. This summer, international capital has been flooding back.
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Indexes & Index Products

MTS And ICAP Add Eurozone Index To RepoFunds Rate
MTS, a leading fixed income electronic trading venue in Europe and ICAP Information Services (IIS), the information business of ICAP plc announce today that they are expanding the RepoFunds Rate indices to include RepoFunds Rate Euro (RFR Euro), a daily repo index for Eurozone sovereign bonds.
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Gold

Gold smugglers use back door
Paul Ploumis – Resource Investor
The Air Customs officials at the Cochin International Airport in Southern Indian state seized gold biscuits weighing 1.5 kilograms from three passengers. The officials foiled the passengers’ attempt to sneak in 13 gold biscuits worth approximately Rs.50 lakhs.
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**JK – Shoulda used more floor and frosting.

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