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Bunds In Dollar Terms: Picture Not Quite So Pretty
Recently, economic pundits have been basking in the glow of the long Bund trade: it is the safe haven in Europe, it is the risk-free trade, etc, etc. And indeed, Bunds have been surprisingly tight in absolute spread terms, with the 10 Year German note trading well inside of its US counterpart. However, in a globalized market nothing is absolute: indeed, US investors, or any other Dollar-based managers, who have used dollars to purchase German EUR-denominated securities, are now holding on to substantial unrealized FX-based losses. In fact, as the attached chart demonstrates, the Bund alone has seen an FX-adjusted loss of 5.6% since April 30 alone. So imagine how investors in other less-than perfect Sovereign bonds have fared over the past month: in addition to seeing massive capital losses, bailout notwithstanding, they now have to contend with FX losses as well. And now that there are disclosures that either Germans or French politicians could openly pull the plug on the euro, just who will be willing to invest USD to buy EUR-denominated securities. We are confident the ECB is fully aware of the sudden drought of foreign investors for European sovereigns, which is why we believe the full and outright monetization announcement is at most days away.
And it gets worse: if banks were actually concerned about risk/return, those FX adjusted margin calls on hundreds of billions in Bund exposure would promptly commence the mother of all sell offs, especially in this "safest" of all European securities.
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Um... do you guys hear something? (What's that sound?)
That is the sound of inevitability.
http://www.youtube.com/watch?v=x5m1A7zoIcc
The sound of the Canadian dollar tanking along with half it's money hedge (breadbasket) it picked up during the last year of Paul Martin.
everything will be cheaper soon enough. except guns food and of course a medium of exchange. Gold and Silver.
May I recommend the deer slug for a more urbain environment sir?
src="http://images.cabelas.com/is/image/cabelas/s7_210854_imageset_01?$main-Large$">
Your shoulder already hates you, why declare war on it?
Stop the Presses! For once Ackermann told the Truth!
Deutsche Bank CEO Joseph Ackermann yesterday on German TV commenting on the Debt Jubillee Proposal by murdered former DB CEO Alfred Herrnhausen :
Maibrit Illner : Mr Ackermann, you are the Chef of the International Bank Association. Would you not be able to submit such a proposal to your Colleagues who managed to get out of this crisis scot-free?
Ackermann : I think the same that happened to Mr Herrhausen would happen to me…
In German - The excerpt starts at 12 min 38 sec.
Maibrit Illner : Herr Ackermann, Sie sind Chef de Internationalen Banken Verbandes, hätten Sie eine solche Forderung nicht einfach stellen können an alle Ihre Kollege die richtig sauber aus diese Krise gekommen sind?
Ackermann : Ich glaube ich es wäre mir genauso gegangen wie Herr Herrhausen…
http://www.zdf.de/ZDFmediathek/beitrag/video/1042802/Maybrit-ILLNER-Vors...
Get's my vote for Top 10 plays of the day.
When the EZ monetizes, does the dollar blast off because of flight to safety or explode on the pad because everyone figures the jig is up?
Don't know, just asking.
I vote blast off... relative to everything else... except PM of course.
Maybe two or three weeks ago (can't remember where, maybe El-Erian's Barron's article) PIMCO was saying German Bunds were a good place to be. Do you think they really got wacked or were they just trying to create buyers for their position?
http://europe.pimco.com/LeftNav/PIMCO+Group+Spotlight/2010/Secular+Outlook+El-Erian+May+2010+Driving+Without+a+Spare.htm
They have been pretty big supporters of Germany for some time. I don't think they are talking out of both sides of their mouth. Germany is the only nation with real powder over there... they have been saying so for the past 2 yrs.
Your name! Love IT! I am sure Greenspan would be proud! "Invisible Hand"
PIMCO? Nooooooooooooooo!? They would NEVER do such a thing what do you think they are? Self Serving Pricks who don't align their interests with profitable interests of their clients?
Are you insinuating PIMCO does NOT! put their clients first? Nooooooooooooooo!?
PIMCO is just hedging and market making, which we half to have… we need a 2 sided coin (Heads or Heads) or how else can we always win.
A good disciplined approach to any deal is too short whatever you are investing in, or put your client’s money in and get your monies out of.
PFODX :)
The March 2009 bear market rally ended last week.
http://tinyurl.com/39ptoac
http://www.zerohedge.com/forum/latest-market-outlook-1