Wednesday, October 26, 2016

THE SOVEREIGN'S BALL

Seems as though the hottest thing around these days is sovereign debt or at least the easiest to sell.  I neglected to mention yesterday that Austria had successfully completed an offering of five billion Euros in two tranches, one of 3 billion for eight years priced to yield -.091% and a 2 billion tranche for 70 years at 1.53%.  What's that you ask?  SEVENTY Years!?  Yep, you read it right, seventy (70) years.

Now I suppose that there are a lot of good reasons to lock ones self into a 70 year obligation at 1.53% when every central bank in the world is telling you they want inflation above 2.00% but I can't think of many.  A pension fund perhaps wants the certainty of liquidity in the future but what else?  Insurance Companies?  Yeah, maybe.  But demand was supposed to be over 7 billion which means that there must be a hell of a lot of pension funds and Insurers with the same financial profile, so I guess there was real investor demand.  Oh well, it's Austria...waltzes and schlage and the continued belief among a substantial body of the Volk that Beethoven was Austrian and Hitler was German.  Lovely bunch.  Then again, I wonder if anyone even considers the fact that in 70 years (or less) there may not be a Euro?  Guys buying this stuff don't...it's not going to be their problem.  And there is always a secondary market, right?

But not to be outdone Mexico waltzes into Europe today and peddles 1.9 billion of Euros in eight year and 15 year tranches at 1.49 and 2.27 per cent respectively.  No problema, senor.  Way over subscribed.

I suppose to the yield-starved, this looks like a heck of a deal.  To Mexico it must look fantastic.  Kudos all around.  Other than 40-odd thousand Narco killings a year what's the worry?  For 15 years, Mexico will be more or less Mexico and 15 years at 2.19%?  Sure beats Bunds.  And of course there is always a secondary market.  Good planning, good results.  Just like the Cubbies.  Oh, they lost 6-0 last night.

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