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The Wealthfront Cash Account Now Has A 2.29% APY

Our cash account has gotten over $1 billion in deposits in less than a month, earning clients over $2.5 million in interest. And now a great thing is even better: We’re raising the annual percentage yield (APY) on our cash account from 2.24% to 2.29%

The post The Wealthfront Cash Account Now Has A 2.29% APY appeared first on Wealthfront Blog.

from Surety Bonding Solutions https://blog.wealthfront.com/the-wealthfront-cash-account-now-has-a-2-29-apy/

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Dating In Debt: Why More People Are Saying No To Toxic Financial Baggage

When you’re thinking or talking about integrating finances — even hypothetically, before the first date, when you imagine how this person might fit into your life — the stakes are huge.

The post Dating In Debt: Why More People Are Saying No To Toxic Financial Baggage appeared first on Wealthfront Blog.

from Surety Bonding Solutions https://blog.wealthfront.com/dating-in-debt/

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6 Things You Could Do With Your Cash — And How To Decide What Goes Where

Figuring out what to do with your cash is definitively what we would call “an opportunity” as opposed to “a problem.” Needing to make strategic decisions about how and where to put your cash to work means that you have it, which, let’s be honest, is already a relief and a win. We just thought

The post 6 Things You Could Do With Your Cash — And How To Decide What Goes Where appeared first on Wealthfront Blog.

from Surety Bonding Solutions https://blog.wealthfront.com/6-things-you-could-do-with-your-cash-and-how-to-decide-what-goes-where/

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The changing nature of market liquidity – understanding banks’ corporate bond inventory

When looking at the risk premium embedded in the extra return you receive in owning corporate debt versus “risk free” governments, one of the factors that we have to take into account is the less liquid nature of corporate bonds. This adds to the potential risk premium from a liquidity and transaction cost perspective. A constant theme since the financial crisis has been the belief that the crash removed the abundant liquidity of the corporate bond market, and therefore corporate spreads should now be intrinsically wider.

The first chart below shows the annual moving average of dealer inventory from 2006 to date, this peaked near $200 billion and has collapsed towards $20 billion, a 90 percent drawdown in committed capital. By definition, this does not sound good for liquidity and corporate bond risk premiums.

The second chart shows actual dealer volume over the same period. This has roughly doubled from peak to trough from circa $12.5 billion to $25 billion.

The obvious conclusion is that whilst capital committed has collapsed, real turnover has increased. This is depicted in the final chart below.

Inventory management has significantly improved from 5 percent turnover in the summer of 2008 to 80 percent as of now; that’s a considerable  change. This change is highly understandable though, given the increase in banks cost of capital from a market and a regulatory perspective post the financial crisis. It is fairly clear that the bloated inventory of the past was not designed to facilitate trading, but more indicative of the traditional bank lending nature of these institutions (trading books then were often given an “available for sale”  break not available in traditional lending). These days it appears that inventory is primarily there for trading, not investing. This is a healthy outcome for the market, the weakness in corporate bonds in the financial crisis was exaggerated by banks removing their investment inventory from their bloated balance sheets in the midst of a funding crisis. This technical environment is no longer present, which is good news for the corporate bond asset class.

Commentators constantly point to the collapse in investment bank balance sheets as a Cassandra with regard to corporate bond spreads. These concerns are understandable, but analysis of the numbers show that the bloated balance sheets of the past were not a good guide to probable liquidity, and one could argue these positions actually increased the volatility and the pain of the financial crisis.

from Surety Bonding Solutions https://www.bondvigilantes.com/blog/2019/04/04/changing-nature-market-liquidity-understanding-banks-corporate-bond-inventory/

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How You Should Save For Short-Term vs. Long-Term Goals

Being mindful and deliberate about how and where you’re saving is optimal to maximize the growth of your money and make cash easily accessible when you need it? That’s next level.

The post How You Should Save For Short-Term vs. Long-Term Goals appeared first on Wealthfront Blog.

from Surety Bonding Solutions https://blog.wealthfront.com/short-term-long-term-saving/

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Tax Time Guide: What You Need To Know About Next Year’s Taxes Right Now

Most of us only think about taxes once a year: when April starts to loom. But it’s good to get started early.

The post Tax Time Guide: What You Need To Know About Next Year’s Taxes Right Now appeared first on Wealthfront Blog.

from Surety Bonding Solutions https://blog.wealthfront.com/tax-time-guide-what-you-need-to-know-about-next-years-taxes-right-now/

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Eskom, Pemex: two distinct stories but a similar root of problem

Fully government-owned corporate bond issuers (or quasi sovereigns) are one of the most interesting areas of emerging market debt investing, due to the hybrid nature of their credit risk: partly corporate credit, partly sovereign risk. Venezuela’s national oil company PDVSA is an example of what can go wrong, as it is in default. Bond investors are therefore currently spending more time looking at Pemex and Eskom, in order to assess whether they could follow a similar path in the future.

As Mexico’s national oil company, Pemex is strategically important for the country. Oil revenues contribute to approximately 20% of Mexico’s budget and Pemex is one of the largest employers in the country. Due to a lack of investment in its upstream segment for years, oil production has been heading south at a significant pace; cash flows have suffered from the lower oil price since 2014 and a substantial tax rate (as the company is the cash cow of Mexico’s budget). Meanwhile, Pemex has continued to tap the bond markets to fund its sizeable and recurring cash burn (i.e. bond investors are effectively funding the Mexican budget through Pemex) due to the misleading “implicit guarantee” from the government. (The concept of implicit guarantees had been discussed in a previous blog here). Today, the company is facing refinancing risk as debt maturities pile up and investors have realised that the company is technically insolvent, with more than $100 billion of debt, enormous unfunded pension liabilities and a negative equity balance.

South-Africa’s Eskom runs more than 90% of the electricity market in the country. Rated BBB- in 2014, Eskom was investment grade a few years ago. However, given that the company under–invested and misallocated capital for a decade, it has come under huge financial stress in the past 4 years, as electricity demand stagnated and regulated tariffs increased at a lower pace than fixed costs. In addition, municipal arrears have soared and various corruption scandals at the top management level resulted in a lack of stable leadership for years (10 CEOs in 10 years). Throughout the period, financial costs increased materially and Eskom found itself generating just enough cash from operations to pay for its interest expenses. That meant all capex had to be funded inorganically. While the government provided cash injections for several years, the company also chose to incur debt. Eskom’s credit rating is now CCC+ and the company is said to be struggling to pay for coal procurement.

Two different countries, two different sectors but one common denominator: they are both fully-owned by their respective government and the above table shows the magnitude of the challenge for their respective countries. Both Pemex and Eskom are textbook examples of poor governance due to historical short-term political considerations that came at the expense of strategic investments which should have paid off well beyond any political mandates. Transparency is a critical element of governance. It holds management accountable and significantly reduces corruption risk. In my experience, emerging market fully government-owned corporate issuers in their vast majority have weaker transparency/disclosure than majority-owned and/or listed corporate bond issuers. But paradoxically, instead of taking this full ownership structure as a red flag, bond investors tend to discount the elevated governance risk with the lower probability of default, on the assumption that governments will always financially support their strategic assets. This is not a sensible way of investing in corporate assets. The fact that fully-owned quasi-sovereign bonds are part of the emerging market sovereign bond index (JP Morgan’s EMBI index), even when there are no sovereign guarantees, is not helpful and should be questioned. Any emerging market corporate asset analysis must encompass a sovereign risk assessment; if quasi-sovereigns were part of the corporate index they would be under much more scrutiny by corporate analysts.

Both Pemex’s and Eskom’s governments have recently come out with sovereign support packages which certainly will reassure investors (albeit to varying degrees) and reinforce their views that both companies are sovereign investments and hence face sovereign-like default risk. However, to date, the actual details of state support are disappointing and unlikely to move the needle. Along with sovereign support, improving transparency and governance might be key to restore investors’ confidence over time. But how do you do that? It is unlikely to come from a new government – we have all heard that story before. One of the most credible options is to partially list parts of their businesses to force those companies to adopt financial market reporting requirements and generally-admitted sound business practices. Eskom and Pemex are both strategic assets and it is understandable that the people of South Africa and Mexico want to retain their control, but it would take just a small publicly listed ownership to make these changes happen. Brazil’s national oil company Petrobras is publicly listed and majority-owned by the government of Brazil and is a good example of a transformational turnaround when a government accepts to partially step back on business strategy. Listing not only brings transparency, but also attracts private expertise that may bring checks and balances to political considerations, i.e. exactly what Pemex and Eskom have been missing for years, if not decades. Partial privatisation will make their bonds fall out of the sovereign index (expect forced selling pressure in this case) into the corporate universe and over time, would receive the necessary bond investor due diligence that they deserve. There is no perfect fix, but the short-term political cost of partial privatisation is likely to be more than offset over time by savings on sovereign support to poorly-run businesses.

The current political rhetoric in Mexico however makes any sort of partial privatisation unrealistic in the near term. Pemex roughly pays over 40% of revenues and 85% of EBITDA in tax and royalties, so an easy fix for the government would be to reduce tax to a “normal” level. In this way, the company could generate enough cash to organically fund its investment needs upstream, in order to revive production. But from a sovereign perspective, this may prove challenging as Pemex contributes to 9% of Mexico’s budget revenues, so the government would need to source revenue elsewhere. Tax collection is very low in Mexico and under President Lopez Obrador, new tax increases and spending cuts are unlikely. In the event that the Pemex situation doesn’t get fixed quickly, we estimate that Pemex’s cash burn will cost Mexico 1% of GDP per annum. Should Pemex not have access to debt markets for refinancing, the bill will go up to 1.7%. At this stage, Pemex may contemplate issuing fully and unconditional sovereign guaranteed bonds.

Eskom’s situation is arguably worse. Whilst its debt levels account for “only” 7.8% of GDP vs 10.8% for Pemex, Eskom’s underlying cash flow generation is deeply negative and cannot be fixed by a tax cut from the government or issuance of additional sovereign guarantees. A capital injection is therefore needed to operate as a going concern. The recently announced breaking down of the electricity sector with a separate transmission business might open the door to privatisation in the future and is a good step forward – definitely more credible than the Pemex support plan. However, the upcoming general elections will be a big challenge in order to implement any meaningful reforms in the short term. The total bill for South Africa may come at 1.6% of GDP p.a. in the next few years.

The Pemex and Eskom cases are today’s problem, but they offer great lessons for predicting tomorrow’s potential credit deterioration of emerging market fully-owned quasi-sovereigns. With that in mind, red flags exist in China where highly-rated state-owned enterprise issuers require a cautious approach by investors, as it often starts with weak transparency.

To read more on Quasi-Sovereigns in Emerging Markets, see our panoramic.

from Surety Bonding Solutions https://www.bondvigilantes.com/blog/2019/03/27/eskom-pemex-two-distinct-stories-similar-root-problem/

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Our Portfolio Line of Credit Is Fast, Easy — And Now Available To More Wealthfront Clients

Today, our Portfolio Line of Credit, which gives clients fast access to cash for up to 30% of the value of their taxable investment account, is available to all Wealthfront clients with a taxable account of $25,000 or more. It's an effortless option when you need some quick cash to cover a tax or credit card bill or to kick off a large purchase, like a new car or home renovation.

The post Our Portfolio Line of Credit Is Fast, Easy — And Now Available To More Wealthfront Clients appeared first on Wealthfront Blog.

from Surety Bonding Solutions https://blog.wealthfront.com/portfolio-line-of-credit-25k/

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How The High Interest Rate On Wealthfront Cash Accounts Does What Banks Refuse To Do

Since we launched our cash account, we’ve been asked one question far more often than any other: how are we able to get you 2.24% APY interest on your money, especially considering that traditional banks only pay 0.10% APY on average? The answer is simple: Those banks are able to pay more, too — they just don’t.

The post How The High Interest Rate On Wealthfront Cash Accounts Does What Banks Refuse To Do appeared first on Wealthfront Blog.

from Surety Bonding Solutions https://blog.wealthfront.com/how-the-high-interest-rate-on-wealthfront-cash-accounts-does-what-banks-refuse-to-do/

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Despite Brexit, Sterling credit holds up with a surprise front runner

With Brexit in every headline, it’s hard not to form an opinion on the possible outcome for the UK. Investors are getting increasingly edgy about the impact on certain asset classes, and I have read many articles predicting which sectors will do well in various exit scenarios. Sterling credit has remained healthy since the referendum, led by robust fundamentals and not by politics as the pound has been.

The sterling credit universe (as defined by the iBoxx £ Corporate Bond Index) is largely an internationally influenced index, much more correlated with what is going on in Europe and the US than in the UK domestically. Of the top ten issuers, only two have their full working operations within the UK (namely Heathrow Airport and Thames Water), while the top issuer by index weight (3.3%) is French utility company, EDF. Which just goes to show the international nature of the index – and indeed perhaps some of the reason it has proven to be robust, with only 49.8% of the index British.

Since the beginning of the year the index has returned 3.3% (at 12 March 2019), while 2018 saw negative returns of –2.2%. By 6th February, the sterling corporate index had regained all of its 2018 loss.  The credit wobbles of Q4 18 offered good value and some better entry points to investors, particularly in the financials sector. The sterling financials index returned 3.3% year to date (12 March 2019) – clearly the market has been somewhat assisted by recent headlines of potentially softer Brexit scenarios. We have seen heavily oversubscribed books for recent sterling deals, highlighting the difficulty in buying inventory with dealer positions low.

Looking more closely at the companies which have performed best year to date, we observe that it’s the challenger banks which have rallied most. Challenger banks are smaller, recently created banks which distinguish themselves from more established banks by modernising technology which aims to avoid the cost and complexities of traditional banking. Some such names are spins offs from larger institutions following divestment or wind-downs of larger, mainstream banks.

In the current environment dealers are looking for higher beta opportunities and, having underperformed in 2018, challenger banks offered some attractive yields. Take TSB for example (a divestment of Lloyds, sold to Spanish bank Banco Sabadell in July 2015).  Year to date, the spread compression is much more significant than in the case of Lloyds, an established name in the UK banking sector. Does TSB pose more risk? Yes, of course, but with its low credit risk business model (they are mostly exposed to prime UK residential mortgage loans, which historically have borne very low loss rates through the cycle), one could make the case that investors are being well-compensated for this in the spread.

Investors have come to expect a surge in issuance from mainstream banks in the first quarter but dealers are still awaiting significant action in the primary markets so far this year.  In the meantime, investors need to park their cash somewhere.  While they are naturally higher beta credits, perhaps this is one reason that challenger banks continue to rally harder than their mainstream counterparts (Lloyds 4.875 27’s now offer 1.8% versus a high of 2.1% in January – compare TSB 5.75 26’s at 5.3% versus 6.6% in January).

In a risk on environment, and with issuance less than expected, the Lloyds bond returned 1.16% year to date on a price return basis versus TSB’s 2.55%. Not necessarily a return profile you’d expect from a sector worried about the implications of Brexit.

Over the coming weeks we will find out what Brexit looks like but one thing is for sure: sterling credit – and particularly financials – remains constructive and risk on.  With a surprisingly robust UK economy, sterling credit dominated by so many global businesses, and expected issuance not materialising, there are perhaps good reasons to put cash to work in sterling credit and in higher beta financials.  It might be the right time to invest in credit that has previously had a “no deal” premium built into spreads which is looking decreasingly likely to materialise.

from Surety Bonding Solutions https://www.bondvigilantes.com/blog/2019/03/20/despite-brexit-sterling-credit-holds-surprise-front-runner/

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Start Earning 2.24% APY on Your Cash Today

Today we are excited to announce that the Wealthfront FDIC Insured Cash Account is available for everyone! Earn 2.24% APY with no fees, unlimited transfers, and FDIC insurance covering up to $1 million.

The post Start Earning 2.24% APY on Your Cash Today appeared first on Wealthfront Blog.

from Surety Bonding Solutions https://blog.wealthfront.com/start-earning-2-24-apy-on-your-cash-today/

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Should investors care about GDP data revisions in emerging markets? A Benin case study

Statistical data represents only an approximation of reality, and sometimes not a very good one. Generally, the less economically developed a country is, the worse the quality of the data provided by the government authorities. This increases the likelihood of later revisions, as new facts are uncovered or the methodology adjusted to better reflect the changing reality. Investors in emerging markets are well-accustomed to making their decisions based on such caveats, but data inaccuracies can be significant and revisions after the initial release of data are common.

Arguably, the most important macroeconomic indicator of a country is its GDP. According to a 2016 study by the Office for National Statistics in the UK (which compared the GDP revisions of OECD countries), most countries tend to underestimate GDP growth in their early data releases. Estimating GDP during turning points in the economic cycle has proven to be particularly problematic, with larger revisions increasing around those periods. Overall however, the revisions for OECD countries tend to be relatively small, even a few years after the initial release, very rarely exceeding 0.5% of GDP.

The situation can be different in emerging market economies, where revisions tend to be larger; even in those countries with well-developed economic statistics. For example, real GDP growth for Turkey in Q4 2016 and Q1 2017 was revised by 1% and 0.7% of GDP respectively, as soon as the quarter after the initial release. In another example, Russia’s GDP growth for 2015 was revised to -2.5% a couple of years after the initial estimate of -3.7%, while 2016 was revised up to +0.3% from -0.6% earlier. These revisions however are insignificant when compared to those observed in some of the frontier markets of Africa and Asia. In recent years, a few Sub-Saharan Africa economies have seen GDP revised up by as much as 25-40%. A standalone case is Nigeria which revised its GDP up by 90% in 2014, making it the largest economy in Africa overnight.

How should the market react to such revisions? Well, in many cases the revisions appear warranted. In fact, the IMF recommends the base years used for GDP calculation to be updated every 5-10 years. This especially applies to countries with rapidly changing economic structure as the role of IT, telecom and financial sectors rises. In addition, the share of shadow economy in developing countries also tends to be high, leaving significant potential for the governments to formalise and include it in GDP. For example, in Nigeria’s case the reference base year for calculating GDP was 1990, indicating that the 2014 revision was clearly long overdue. The structure of GDP also significantly changed: the services’ sector share of GDP doubled to 50%, at the expense of the hydrocarbon and agriculture sectors.

The latest trend appears to be an announcement of an upcoming GDP revision – rather conveniently –  just before a debut Eurobond issue. In February, Uzbekistan made a successful placement of five-year and ten-year Eurobonds (USD 500 million each) at favourable yields. A few months prior, the country’s GDP data was revised upwards by 18% for 2017 and 28% for 2018. While this revision improved the country’s public and external finance ratios, it is nevertheless unlikely to have caused a material increase in investor demand for the Eurobonds. The reason is that Uzbekistan’s public debt has been low anyway, having stabilized around 25% of GDP. Meanwhile, the country has very high international reserves at 55% of GDP (one of the highest ratios globally) which more than covers its external debt. In fact, the positive investor sentiment was likely driven by an ambitious reform programme launched by the government, with the first successes already visible. As part of it, the quality and availability of statistics also improved, which was recognized by the IMF.

This week another reform-oriented country, Benin, is planning to take advantage of relatively favourable market conditions by issuing a debut Eurobond. The fundamental case for investment appears to be somewhat weaker though. While GDP growth rates have been robust in recent years, the economy is very highly exposed to agriculture and its main trading partner, Nigeria. Running high current account deficits in recent years has led to a rapid accumulation of external debt which jumped to 28% of GDP in 2018. A somewhat mitigating factor is the country’s membership in the West Africa Economic and Monetary Union. At the expense of an independent monetary policy, it provides Benin with low inflation and access to the union’s pooled international reserves (the country’s own reserves are low). However, the main pressure point has been the fiscal policy. The country was running 6-7% of GDP budget deficits for a few years, causing public debt to rocket from 25% of GDP in 2013 to 55% of GDP in 2018. The government has recently embarked on an ambitious fiscal consolidation path, but risks are to the downside given the uncertain efficiency of new tax measures and the upcoming election period (parliamentary elections are scheduled for April this year, while presidential elections are due in 2021).

With regards to data revisions, a few months ago the authorities announced that 2015 GDP would be revised up by at least 36% (the revisions for subsequent years are not yet finalised). On the one hand, the necessary formalities have been observed – the country will update its base year from 2007 to 2015 in collaboration with the IMF, change the methodology to the latest one adopted by the UN, and improve its coverage of the informal sector. On the other hand, the timing of the announcement of the revision is questionable. The new GDP figures are not yet incorporated in the official statistics (the revisions are expected to be finalized later this year), but it is already clear that the worrisome fiscal and external finance ratios are likely to significantly improve as a result. In particular, high budget deficits would no longer look so alarming, while public debt would “drop” closer to 40% of GDP.

How should the market perceive these upcoming changes? Opinions already differ at the credit rating agencies. In its December 2018 report, S&P mentioned that “the rebasing is unlikely to have any effect on Benin’s sovereign credit rating”. In a stark contrast, Fitch in its March 2019 report listed “an improvement in public and external finance ratios resulting from revisions of national accounts statistics in line with international standards” among the main factors that could trigger positive rating action. The fair approach is perhaps somewhere in the middle, though my personal opinion is somewhat closer to the S&P’s position.

There are a few points to keep in mind. Firstly, while Benin’s debt ratios are expected to significantly improve, the direction of government policies should be clearly more important from investors’ perspective. Given the evidence of rapid debt accumulation in recent years, Benin could be back to having above 50% of GDP debt ratio in just two-three years, should the current expansionary policies fail to adjust. Secondly, in theory, the inclusion of the previously unrecorded informal sector should have consequences not only for GDP, but for all other economic indicators as well. For example, one consequence could be higher government spending and more difficult revenue collection from the newly-included parts of the economy (implying a likely drop in revenue to GDP ratio), which could lead to a structural deterioration of Benin’s fiscal balances. Finally, the degree of a country’s indebtedness does not necessarily have to be represented only as a ratio to GDP: for example, Benin’s high debt-to-revenue ratio might not change as significantly, if the previously unrecorded part of the economy does not generate a lot of revenues.

What will investors make of all these arguments? We will likely know very soon as Benin places its Eurobond this week.

from Surety Bonding Solutions https://www.bondvigilantes.com/blog/2019/03/19/investors-care-gdp-data-revisions-emerging-markets-benin-case-study/

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Bond indices are shifting their attention to China – so should you

It is widely recognized that China is globally well-integrated from a trade perspective (it accounted for 13% of total world exports in 2017 according to the WTO). Yet in comparison, its financial markets remain in relative isolation. Indeed, despite having the 2nd largest equity and 3rd largest bond markets in the world (currently around $13 trillion), foreign participation in these markets remains extremely low: China still scores below India in terms of foreign participation in its equity and bond markets according to the IMF.

The situation is changing however, and China’s domestic financial markets are slowly beginning to open. This became apparent in 2011, when the renminbi Qualified Foreign Institutional Investor Scheme (RQFII) was introduced. The program allowed qualified investors to access directly the China Interbank Bond Markets (CIBM), where previously relatively strict quotas were in place. More recently, the creation of the Bond Connect (northbound link) program in July 2017 further relaxed the restrictions for eligible foreign investors in accessing the CIBM via Hong-Kong. While some operational challenges remain, these initiatives from the Chinese authorities convinced Bloomberg Barclays to include Chinese renminbi-denominated (RMB) government and policy bank securities to the Bloomberg Barclays Global Aggregate Index (including the Global Treasury and EM Local index families) in April 2018. Over time the index provider estimates that RMB bonds will be the fourth largest currency component in the index after the US dollar, the euro and the Japanese yen. This was a big win for the Chinese authorities only a year after MSCI’s decision to include China A shares to their suite of EM equity indices.

So how should RMB government debt play a role in global bond portfolios? Well, with a current yield of about 3.15% and low levels of historic volatility, 10-year Chinese government bonds (CGBs) seem fairly attractive from a purely risk and return perspective. This seems especially true in today’s yield-deprived sovereign bond world, where many central banks have pledged to keep interest rates at rock bottom levels in the near term. And though the correlation of RMB government bonds may increase over time as the Chinese market becomes more integrated, they currently offer great diversification benefits versus the rest of the Bloomberg Barclays Global Aggregate index. It must be noted though that, from a currency perspective, the renminbi does not currently benefit from the same defensive characteristics as those exhibited by the typical safe haven currencies (for example the Japanese yen, the US dollar, the Swiss franc and to some extent the Euro).

Morgan Stanley Research estimates that up to $100 billion could flow into Chinese bond markets on the back of the index inclusion alone. J.P. Morgan has also put China on “index watch” for inclusion in the GBI-EM indices. Should this materialize, in time CGBs could make up 33% of the GBI-EM Uncapped index and 10% of the GBI-EM Global Diversified index.

For investors involved in emerging market debt, A+ rated Chinese government bonds sit firmly on the defensive side of the EM sovereign debt risk spectrum (see chart below). Because of this, they may have slightly less appeal strategically for EM debt fund managers (who tend to be overweight the higher yielding EM sovereign names over the long term). On the other hand, as the Chinese authorities gradually step back from the bond and currency markets, CGBs could represent a great opportunity for fund managers to add value through active management.

In addition, the prospect of low inflation and further fiscal and monetary stimulus in the face of the current economic slowdown could also make Chinese government bonds attractive in the near term. It can also be argued that as Chinese financial assets become more mainstream in 2019, the People’s Bank of China (PBoC) will be willing to use a further portion of its $3 trillion of foreign reserves to maintain stability in the currency, as it did last year

While China’s commitment to opening its financial markets to foreigners is sincere, it is also likely that this will take time. First of all, the authorities will move with extreme caution as more volatile capital flows can represent a systemic risk and a threat to China’s economic and financial stability. In addition to this, the issue of credit markets needs to be addressed further: foreign participation in RMB credit markets is almost inexistent (estimated at 1% according to Deutsche Bank research), because many Chinese corporations benefit from an implicit state guarantee that has kept their funding costs lower and their credit ratings higher that they would be if only market forces applied. Opening China’s credit markets means putting these firms on a level playing field with the rest of the world. This adjustment has already started to take place and led to a record amount of corporate defaults in China in 2018. Additionally, further developments in areas such as corporate governance, transparency and integrity of data will also be required.

Despite these challenges in opening its markets, there are clear benefits to China. Providing easier market access to foreigners will allow a much more efficient allocation of capital in the country. It also comes at a time when China’s current account balance has been on a steady decline and is expected to move towards a more balanced – or even slightly negative – structural position. In this respect, opening the capital account should help rebalance the Chinese economy’s external position. Whatever the outcome for China, as these events unfold it is important for global fund managers gradually to shift their attention towards the East.

from Surety Bonding Solutions https://www.bondvigilantes.com/blog/2019/03/18/bond-indices-shifting-attention-china/

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Could ‘Green Bunds’ be a cure for Europe’s economic malaise?

Compared to one and a half years ago, when the prevailing narrative was still revolving around global synchronised growth, the economic outlook for Europe has darkened significantly. From ‘peak optimism’ levels in late 2017, Euro area real GDP growth has slowed to 1.2%, while Eurozone manufacturing PMI has dropped by more than ten points. Even the notoriously optimistic ECB eventually had to come to terms with reality, slashing their 2019 GDP growth forecast from 1.7% to a dismal 1.1%.

One possible way for Europe’s limping economies to brace themselves against these negative trends and perhaps prevent full-scale ‘Japanification’ would be to suspend austerity and dial up fiscal stimulus to boost economic activity. As Europe’s biggest economy and long-time growth engine, the onus lies first and foremost on Germany, some would argue. And, of course, funding costs would be exceptionally cheap. At current yield levels, Germany would only have to pay around 0.7% in interest when borrowing money for 30 years. Even when taking today’s low inflation expectations with the 30-year euro area breakeven rate at c. 1.4% at face value, funding costs would be negative in real terms. When borrowing over shorter periods, interest rates would be negative even in nominal terms with Bund yields below zero up until nine years to maturity. Investors do actually pay Germany for the privilege of buying the country’s sovereign debt!

Clearly, Germany should seize the moment and issue tons of Bunds, right? A large portion of my fellow German compatriots would vehemently disagree. They’d argue that a balanced federal budget – the proverbial ‘schwarze Null’ (black zero) – and a debt-to-GDP ratio in compliance with the Maastricht criteria of 60% should take priority over boosting the economy via fiscal expansion. There are valid reasons for this position, of course, above all financial stability in the euro area: If Germany abandoned austerity and went on a debt-fuelled spending spree, it would be politically difficult, if not impossible, to demand fiscal discipline of other euro area countries. This would increase the risk of another eurozone debt crisis, followed by expensive bailouts and ultimately debt mutualisation or monetisation.

However, I believe that there is more to Germany’s fervent debt aversion. Without wanting to indulge myself too much in kitchen sink psychology, for many Germans the issue of national debt seems to raise deep ethical concerns, perhaps amplified by the close proximity of the German words ‘Schulden’ (debt) and ‘Schuld’ (guilt). It’s a widely held belief that a responsible government ought to live within its means. Issuing debt is often regarded as unscrupulously borrowing money from future generations, irrespective of attractive funding costs or use of proceeds.

But if the German disdain towards debt-financing originates at least in part from ethical concerns and worries about long-term sustainability, then green bonds – or rather ‘Green Bunds’ – may be the answer. Green bonds are debt instruments that are issued to provide funds for designated environmentally-friendly purposes. For example, Spanish telecommunications provider Telefónica issued a green bond in late January with the intention to use the proceeds of €1 billion for improvements in the company’s energy efficiency by switching from copper to fibre optic networks in Spain.

Green bonds are not limited to the corporate sector, of course. In fact, several European countries have issued decent volumes of green bonds in recent years. Belgium, for instance, very recently raised €4.5 billion via a green bond, while France has around €16.5 billion in green bonds outstanding. Poland issued another two green bonds in February, bringing the country’s total green debt to €3.75 billion.

Thus, there seems to be ample investor demand for sovereign green bonds. The market would be deep enough to absorb billions in new issuance. And since green bonds specifically address the issues of ethical finance and long-term sustainability, they might be a suitable vehicle to increase Germany’s willingness to raise debt levels and stimulate economic growth by investing proceeds into environmentally-friendly projects. And various German entities, such as state-owned development bank KfW, have already used green bonds. The next logical step would be the issuance of green German government bonds: Green Bunds.

from Surety Bonding Solutions https://www.bondvigilantes.com/blog/2019/03/11/green-bunds-cure-europes-economic-malaise/

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Introducing Future Planning For One-Time Expenses

As of today, Wealthfront’s free financial planning allows you to account for future one-time expenses, making you more equipped than ever to clear a path in your financial landscape in anticipation of big spending moments coming up in your life. At Wealthfront, we’ve always been here to help you map out your long-term financial gameplan,

The post Introducing Future Planning For One-Time Expenses appeared first on Wealthfront Blog.

from Surety Bonding Solutions https://blog.wealthfront.com/introducing-future-planning-for-one-time-expenses/

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Wealthfront’s Guide to Equity & IPOs

As companies like Airbnb, Lyft, Pinterest, Slack, Uber, and others gear up for multi-billion-dollar IPOs this year, we know that employees are often left with more questions than answers about their equity compensation. We collected our most popular advice on valuing equity, exercising options, selling stock, and managing a windfall into a comprehensive Guide to Equity & IPOs.

The post Wealthfront’s Guide to Equity & IPOs appeared first on Wealthfront Blog.

from Surety Bonding Solutions https://blog.wealthfront.com/announcing-our-guide-to-equity-ipos/

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Tax Time Guide: 5 Easy Things You Must Do Before Filing Your Taxes This Year

Digging into the hard details of your taxes may not be as fun as, say, that upcoming ski trip to Tahoe — but it is important. Plus, learning about what deductions and credits are available to you could save you a serious amount of money, and that’s never something to be bummed about.

The post Tax Time Guide: 5 Easy Things You Must Do Before Filing Your Taxes This Year appeared first on Wealthfront Blog.

from Surety Bonding Solutions https://blog.wealthfront.com/tax-time-guide-5-things-you-must-do-before-filing-your-taxes/