Sunday 3rd May 2015
NEWS TICKER: FRIDAY, MAY IST: MYOB will return on Monday next to the ASX, selling 228.3mshares at $3.65 in the company’s IPO. The company raised AUD833.1m, giving it an implied market capitalisation of AUD2.13bn. Bain Capital will retain 58% of the firm’s stock. “We saw a significant level of participation from eligible retail noteholders in the offer, with approximately 57% of holders exchanging their notes into shares. We see this wide range of investor interest as a strong vote of confidence in MYOB.” MYOB chairman Justin Milne says. ASX trading in MYOB shares is set to begin on 4 May under the code MYO. MYOB was listed on exchange from 1999 to 2009 – The volume of US municipal bonds soared by 42.1% in April, according to Thomson Reuters’ data; the ninth straight monthly gain. Issuers brought $37.76bn to market in 1,210 issues, up from $26.58bn in 939 issues in April 2014. Low interest rates, and the reluctance of the US Federal Reserve to raise rates over the near term has resulted in a dash by municipal issuers anxious to secure low cost funding as many refinance their debts. Other than refinancing, new issuance per se looks to be tailing off. New money transactions declined by 5.6% to $12.68bn from $13.43bn, while combined refunding and new money transactions increased 42.5% to $7.17bn from $5.03bn in April last year. Negotiated bond sales increased 62.4% to $28.97bn from $17.84bn, competitive deals rose 15.4% to $8.62bn from $7.47 billion and private placements plunged 87.2% to $162mn from $1.26bn. Sales of revenue bonds increased 49.9% to $22.84bn in 421 deals from $15.24bn in 306 deals. General obligation bond volume jumped 29.9% to $14.73bn in 788 issues from $11.34bn in 633 issues. Tax-exempt deals were up 42.4% to $33.88bn, while taxable deals were 24% higher to $3.30bn.Fixed-rate issues increased to $36.75bn in 1,167 issues from $24.85bn in 891 issues the previous year. The volume of deals with bond insurance more than doubled in par amount wrapped to $2.54bn in 161 deals from $1.06bn in 104 transactions. California claimed the top spot among states with $21.47bn of issuance thus far in 2015, up from its No. 2 ranking in the same period of last year with $12.03bn. Texas dropped from first to second with $17.85bn, an increase from $12.31bn the year before. New York remained in third place with $11.91bn so far this year, up from $10.29bn year to date - This morning Lloyds Banking Group said that in Q1 it had made a net profit of £913m and underlying profit was up 21% on the same period last year, to £2.2bn. Moreover, the group said that it was raising its net interest income target above the original target of 2.55%. Graham Spooner, investment research analyst at The Share Centre, says: “These results are good news for investors as they are ahead of forecasts and demonstrate a continued improvement in the company’s performance. The part UK government owned bank additionally reported that it has been benefitting from a resurgent British economy which has led to reduced bad loans and fuelled demand for mortgages. Lloyds announced its first dividend in February since being bailed out and investors should acknowledge that the increasing signs of recovery will boost hopes for a significant dividend growth in the near future. Analysts have become a little more positive on the group and its long term restructuring plans, which appear to be happening faster than expectations. However … the sector [remains] under pressure, as a result of regulatory issues and ahead of the next government sale.” - The Straits Times Index (STI) ended 0.24 points or 0.01% higher to 3487.39, taking the year-to-date performance to +3.63%. The top active stocks today were SingTel, which declined 0.23%, OCBC Bank, which declined 1.84%, DBS, which gained 0.19%, UOB, which gained 0.29% and Keppel Corp, with a 1.02% fall. The FTSE ST Mid Cap Index gained 0.47%, while the FTSE ST Small Cap Index rose 0.18%. The outperforming sectors today were represented by the FTSE ST Real Estate Holding and Development Index, which rose 1.00%. The two biggest stocks of the Index - Hongkong Land Holdings and Global Logistic Properties – ended 2.02% higher and 2.23% higher respectively. The underperforming sector was the FTSE ST Consumer Goods Index, which slipped 1.04%. Wilmar International shares remained unchanged and Thai Beverage declined 3.38%.

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The European Review

By Patrick Artus, chief economist at Natixis

Target 2 accounts: The equivalent of currency interventions, and a very good indicator of the risk that the euro may break up

Wednesday, 20 June 2012 Written by 
Target 2 accounts: The equivalent of currency interventions, and a very good indicator of the risk that the euro may break up When the Bundesbank’s (Germany's) Target 2 account (which is positive) increases while another euro-zone country’s Target 2 account becomes more negative, this is equivalent to a German currency intervention aimed at stabilising the exchange rate between Germany and this other country, and therefore at preventing a break-up of the euro. In a completely similar manner, when China accumulates foreign exchange reserves in dollars to prevent an appreciation of the RMB, the People's Bank of China accumulates an asset and the United States a liability, and there is monetary creation (in RMB). So the size of the Target 2 accounts of the national central banks in the euro zone corresponds to the size of the foreign exchange reserves that the euro-zone countries with a strong currency have to accumulate to prevent a break-up of the euro; it is therefore a very good indicator of the risk of a break-up. http://www.ftseglobalmarkets.com/

When the Bundesbank’s (Germany's) Target 2 account (which is positive) increases while another euro-zone country’s Target 2 account becomes more negative, this is equivalent to a German currency intervention aimed at stabilising the exchange rate between Germany and this other country, and therefore at preventing a break-up of the euro. In a completely similar manner, when China accumulates foreign exchange reserves in dollars to prevent an appreciation of the RMB, the People's Bank of China accumulates an asset and the United States a liability, and there is monetary creation (in RMB). So the size of the Target 2 accounts of the national central banks in the euro zone corresponds to the size of the foreign exchange reserves that the euro-zone countries with a "strong currency" have to accumulate to prevent a break-up of the euro; it is therefore a very good indicator of the risk of a break-up.

The size of the Target 2 accounts held by national central banks in the euro zone

Germany and the Netherlands hold substantial Target 2 assets (respectively EUR 650bn and EUR 140bn), while Greece, Spain, Italy and Ireland have substantial Target 2 debts (respectively EUR 98bn, EUR 285bn, EUR 280bn and EUR 117bn).



Fundamentally, these are currency interventions

Let us take, for example, the Germany/Spain pair. If the Bundesbank lends to the Bank of Spain, there is an increase in Germany's positive Target 2 account and in Spain’s negative Target 2 account. This corresponds to a loan from Germany to Spain, or to a purchase of Spanish assets by the German central bank.

If this purchase had not taken place, Spain would be unable to finance its external deficit, and would be forced to pull out of the euro and let its currency depreciate to the point where capital inflows covered its external borrowing requirement.

Therefore, this is the exact equivalent of a currency intervention aimed at ensuring the stability of the exchange rate between Germany and Spain: the country with a "strong currency" buys assets of the country with a "weak currency" to stabilise the exchange rate.

Similarity with the China/United States pair

When China accumulates foreign exchange reserves in dollars to prevent an excessive appreciation of the RMB against the dollar, the People's Bank of China holds US assets and the United States, conversely, has a debt to China.

This operation increases the size of the balance sheet of the People's Bank of China, and therefore leads to monetary creation.

Likewise, when the Bundesbank lends to central banks in the Southern euro-zone countries, and these central banks subsequently lend these funds to the banks in their own countries, there is a creation of monetary base in euros.

Target 2 accounts measure the risk of a break-up of the euro

The size (positive or negative according to the country) of the Target 2 accounts held by the central banks in the euro zone therefore represents the size of the foreign exchange reserves that the euro zone countries with a "strong currency" have to accumulate to ensure the euro’s sustainability ("exchange-rate stability" between euro zone countries). The more the size of these accounts increases, the higher the risk that the euro may break-up.

Positive Target 2 accounts surged from the summer of 2011, and this went hand in hand with a period of pressure on the interest rates on peripheral government bonds and on risk premia on banks.

Patrick Artus

A graduate of Ecole Polytechnique, of Ecole Nationale de la Statistique et de l'Adminstration Economique and of Institut d'Etudes Politiques de Paris, Patrick Artus is today the Chief Economist at Natixis. He began his career in 1975 where his work included economic forecasting and modelisation. He then worked at the Economics Department of the OECD (1980), before becoming Head of Research at the ENSAE. Thereafter, Patrick taught seminars on research at Paris Dauphine (1982) and was Professor at a number of Universities (including Dauphine, ENSAE, Centre des Hautes Etudes de l'Armement, Ecole Nationale des Ponts et Chaussées and HEC Lausanne).

Patrick is now Professor of Economics at University Paris I Panthéon-Sorbonne. He combines these responsibilities with his research work at Natixis. Patrick was awarded "Best Economist of the year 1996" by the "Nouvel Economiste", and today is a member of the council of economic advisors to the French Prime Minister. He is also a board member at Total and Ipsos.

Website: cib.natixis.com/research/economic.aspx

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