By: Kurt Schacht
Is it just me, or have credit rating agencies (CRAs) lapsed right back into their old habits? Once upon a time — 4,000 Dow points ago — we at CFA Institute and various governments around the globe lambasted the ratings firms for negligence particularly in how they assigned and monitored ratings to asset-backed debt. Triple AAA ratings were awarded with a “wink and nod,” as it turns out.
Two short years later, we have seen a return of the wink-and-nod agreement in the municipal bond and sovereign debt space. Is it possible for these ratings firms to successfully navigate the politics of putting whole countries, or various states within the U.S., on credit watch? How about a credit downgrade of the U.S. itself?
The impact of such credit actions on the market for existing debt securities — much less the new issues needed to refund and roll over debt to ensure continued solvency for all these parties — can be quite significant. If the raters fear such impact and avoid or defer the hard decisions, we all know the ratings themselves mean little in terms of actual credit quality.
As an example, Moody’s says only that it may lower ratings for Portugal, perhaps as much as two “notches.” Meanwhile, the whole euro zone remains under close scrutiny for similar ratings adjustments. Not much Yuletide cheer there. Clearly they are aware of how “more candid” reflections of credit can erode investor confidence.
In these shaky, economic times, the same governments who complained about the miserable failure of the ratings process back in the day are now a bit more, shall we say “tolerant.” Tolerance, in fact, may be the least of it — they’re begging for restraint in any downgrades. In that spirit, we reserve the right to revise our own ratings of CRAs either lower, or higher, depending on whether they choose to show some spine in this environment. So surprise us CRAs!
Culled from: http://blogs.cfainstitute.org/credit-rating-agencies-call-the-amnesia-hotli
Happy Holidays
Wednesday, 29 December 2010
Monday, 8 March 2010
Euro Looks For Direction as Concerns Over Greece Wane Read more: DailyFX - Euro Looks For Direction as Concerns Over Greece Wane
The Euro has traded lower on the day despite growing confidence that Greece will be able to correct their deficit issues and measures are being discussed to prevent a repeat amongst other member nations. A European monetary fund is being proposed by the E.C. to act as a lender of last resort, but opposition is already mounting against the proposal which is giving it little weight.
EUR/USD
The Euro has traded lower on the day despite growing confidence that Greece will be able to correct their deficit issues and measures are being discussed to prevent a repeat amongst other member nations. A European monetary fund is being proposed by the E.C. to act as a lender of last resort, but opposition is already mounting against the proposal which is giving it little weight. A pull back in risk appetite has helped drag the EUR/USD lower as the pair continues to see a 42% correlation with equity markets. Meanwhile, the deficit issues in Europe have seen interest rate expectations grow in influence to 28% from 8% a week ago. Slow growth, subdued inflation and the credit issues pushed out the horizon for a rate hike which added to the bearish Euro sentiment. The brighter outlook for Greece helped the Euro and yield expectations regain their footing which has reinforced the relationship between the two.
0308pd1
ECB Interest Rate Expectations
Overnight Index Swaps turned higher and are now pricing in 63 bps of rate hikes over the next twelve months. This is sharply higher from 49.8 on February 26th, when concerns over Greece’s troubles reached their peak. An improvement in January German industrial production by 0.6% along with a 4.3% gain in German factory orders is evidence that growth is continuing in Europe’s largest economy. The upcoming German trade balance and EZ industrial production are the only upcoming releases that have any potential to impact the outlook for yields. To discuss this and trading ideas join the EUR/USD forum.
0308pd2
FOMC Interest Rate Expectations
Fed funds futures continue to point toward rates remaining on hold for an extended period of time with a zero percent chance for a hike at the FOMC’s upcoming meeting. The stronger than expected NFP report was only able to raise the chance of tightening beginning in April to 5.8% from 2.9%. Looking out to August, markets are still leaning toward the central bank leaving monetary policy unchanged with a 31.5% chance of a rate hike. Advance retail sales for February has the most potential to alter expectations, the early forecast for a 0.1% decline in consumption may only serve to push out the horizon for future tightening.
0308pd3
Risk
Stock markets took a breather today after Friday’s rally on the back of the strong labor report which has the Dow threatening a rising trendline. Depending from where you draw the upper bound of the current triangle formation, we may have seen a break above on Friday (which loses weight with today’s subdued price action) or it is currently being threatened and a retracement is still a possibility. U.S. Advance retail sales is the only major event risk on the week which could lead to further consolidation until Friday’s release. Discuss this and other fundamental data join the Economics Forum.
0308pd4
Read more: DailyFX - Euro Looks For Direction as Concerns Over Greece Wane http://www.dailyfx.com/forex/fundamental/article/drivers_of_price_action/2010-03-08-2003-Euro_Looks_For_Direction_as.html#ixzz0hcps0YjX
EUR/USD
The Euro has traded lower on the day despite growing confidence that Greece will be able to correct their deficit issues and measures are being discussed to prevent a repeat amongst other member nations. A European monetary fund is being proposed by the E.C. to act as a lender of last resort, but opposition is already mounting against the proposal which is giving it little weight. A pull back in risk appetite has helped drag the EUR/USD lower as the pair continues to see a 42% correlation with equity markets. Meanwhile, the deficit issues in Europe have seen interest rate expectations grow in influence to 28% from 8% a week ago. Slow growth, subdued inflation and the credit issues pushed out the horizon for a rate hike which added to the bearish Euro sentiment. The brighter outlook for Greece helped the Euro and yield expectations regain their footing which has reinforced the relationship between the two.
0308pd1
ECB Interest Rate Expectations
Overnight Index Swaps turned higher and are now pricing in 63 bps of rate hikes over the next twelve months. This is sharply higher from 49.8 on February 26th, when concerns over Greece’s troubles reached their peak. An improvement in January German industrial production by 0.6% along with a 4.3% gain in German factory orders is evidence that growth is continuing in Europe’s largest economy. The upcoming German trade balance and EZ industrial production are the only upcoming releases that have any potential to impact the outlook for yields. To discuss this and trading ideas join the EUR/USD forum.
0308pd2
FOMC Interest Rate Expectations
Fed funds futures continue to point toward rates remaining on hold for an extended period of time with a zero percent chance for a hike at the FOMC’s upcoming meeting. The stronger than expected NFP report was only able to raise the chance of tightening beginning in April to 5.8% from 2.9%. Looking out to August, markets are still leaning toward the central bank leaving monetary policy unchanged with a 31.5% chance of a rate hike. Advance retail sales for February has the most potential to alter expectations, the early forecast for a 0.1% decline in consumption may only serve to push out the horizon for future tightening.
0308pd3
Risk
Stock markets took a breather today after Friday’s rally on the back of the strong labor report which has the Dow threatening a rising trendline. Depending from where you draw the upper bound of the current triangle formation, we may have seen a break above on Friday (which loses weight with today’s subdued price action) or it is currently being threatened and a retracement is still a possibility. U.S. Advance retail sales is the only major event risk on the week which could lead to further consolidation until Friday’s release. Discuss this and other fundamental data join the Economics Forum.
0308pd4
Read more: DailyFX - Euro Looks For Direction as Concerns Over Greece Wane http://www.dailyfx.com/forex/fundamental/article/drivers_of_price_action/2010-03-08-2003-Euro_Looks_For_Direction_as.html#ixzz0hcps0YjX
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