Good morning

The headlines:
  1. In Eurozone news, the pressure is properly hyping around Spain. This after the near-tragedy of Spain’s debt auction yesterday. Spain sold 2.59 billion euros worth of bonds in the auction – which was just above the minimum amount that it had planned, but well below the maximum of 3.5 billion. At the same time, average bond yields have increased by almost 100 basis points since last month’s sale (on 5 year benchmark bonds). What does all this mean? Well I often hear the non-finance friends (and some of the finance-type friends as well, if I’m honest), shaking their heads at these governments taking on more debt. And I remind them that they are likely not taking on more debt so much as “rolling” old debt. And by that, I mean that loans have time limits. As those time limits fall due, you can either repay the loan, or take out a new loan to repay the old one: leaving your debt position unchanged. Unfortunately, if investors are worried about the fiscal deficit that you have going (government spending more than it generates in revenue), and especially about your shooting past the EU fiscal deficit ceiling of 3%; well then they’re not going to want to buy your bonds. Unless they’re cheap. And in bond terms, “cheap” means that your bond is offering a higher yield than a similar one (just one of better credit quality). Hence the rise in yields. But as it gets more expensive to borrow, it means that you need to borrow more in order to repay your old loans, cover you fiscal deficit, AND cover the new higher interest cost. Cue: vicious cycle. And now, some of the local administrations in Spain have been shut out of capital markets, and therefore prevented from refinancing their debts. This means that the government has to carry them – and then, more pressure. Ay ay ay. Link: Rajoy says Spain in “extreme difficulty”.
  2. Almost immediately after the news above, Mario Draghi (European Central Bank president) said that talks of the ECB withdrawing its support from the euro-area banks are “premature”. Draghi is under pressure to “exit” (ie. withdraw the ECB support), as the 30% increase in the ECB’s asset base (ie. the credit it has extended – which becomes an asset to the ECB as it is now owed the money back) is threatening to cause inflation in the Eurozone above the 2% target for the region. Link: Draghi: No ECB exit.
  3. In more fun news, there is some JP Morgan scandal around dealmaker Ian Hannam (JPM’s Global Chairman of Equity Capital Markets), who resigned on Tuesday after being fined by UK regulators for trading on inside-information. I’d make some comments, but there is an awesome blogpost by my new favourite blogger Matt Levine on the topic. He actually uses the phrase “unspeakably awesome”. I am in awe. Link to ML’s post: A Word by the unspeakably awesome Matt Levine. And here’s the Bloomberg Link: Hannam in the Eye of the FSA Storm.
  4. Gold traders are apparently bearish for the first time in 2012. This is after the Fed dampened hopes of more stimulus measures (means less flocking to buy gold in panic), and jewellers in India (the world’s biggest bullion market) go on shut-down strike to protest a new tax. According to the Bombay Bullion Association, Indian imports of gold have plunged by 81% in March as Indian jewellers remained shut for their 19th day. Indian jewellers apparently sell more gold than the Australian and US mines combined can produce in a year (and Australia and the US are the largest gold producers after China, apparently). The tax under protest is a 1% excise dute on non-branded gold ornaments. Crazy. However – the Austrian Economists will tell you that the real use of gold is as a store of value, so the decorative side is less relevant. On the other hand, Indian weddings. Link: Gold Traders Bearing up under Pressure.
  5. And the African Business News in brief. Link: ABN Briefs. The highlights:
    • The Zimbabwean Government is looking into complaints from the Mining Industry that new mining taxes will take 60% of every dollar the mines make. Generally, the Zimbabwean Government seems to react against complaint, rather than in favour of it. The dice are spinning.
    • Kenya held its key lending rate constant at 18%.
    • South Africa’s Department of Energy “to review the mechanism used to set the country’s fuel prices”.
That’s all for now.
Have a good day.