As Greek PM Alexis Tsipras decided to submit the last proposal of its creditors to a referendum next Sunday 5th July, the Eurogroup has responded by stopping the aid program as of 30th June. As a result, Greece will be in arrears regarding the payment of its debt to the IMF but it will not [...]
It is often thought that an agreement over a Greek bailout would bolster the euro, thanks to an increased confidence in the stability of the euro zone. Conversely, a default of Greece or an accidental Grexit is expected to cause a decline in the euro.
The euro has nevertheless become one of the main funding currencies [...]
Time is running out for Greece and its creditors (IMF, euro zone countries) to find an agreement, at least one which could enable euro zone creditors to pursue the strategy carried out since 2010: “extend and pretend”. Extending the problem, by lending new money to Greece just to enable the country to pay back its [...]
Since Mid-April, all asset classes fell simultaneously: a basket of equities indices fell by 2%, a basket of sovereign bonds fell by 3.5% (i.e. a surge of 50 bps in yields) and commodities were just flat as illustrated in figure 1. An environment where all assets tumble at the same time translates a break in [...]
June 2, 2015
The VIX index is calculated as the weighted average of options on S&P 500. In March 2004, the CBOE introduced VIX futures contracts to facilitate volatility trading and encourage investors to use volatility to hedge equity portfolios, given the strong negative correlation between equity returns and implied volatility.
Reflecting the demand of markets participants, [...]
Apart from Germany, none of developed country is going to reduce the Government Debt/GDP ratio in 2015.
The Government debt dynamic depends on growth, inflation, leverage and primary balance. As a matter of fact, the variation in the debt ratio is given by the following relationship:
Therefore, the required primary balance to stabilize the Debt/GDP ratio is: [...]
Two major investment bubbles have landed since mid-April 2015: investors rushed to exit herding positions on long bonds and long dollar. For example, Bund yields increased by 60 bps and EUR/USD rose by 6% in a single month.
Both bubbles have moved in synch since 2011 and convey investors’ anticipations of a deflationary trend. The major [...]
Since the end of April, a significant correction has hit bonds and equities markets altogether, a feature of financial deleveraging. As a matter of fact, Riskelia Fund has been declining 0.5% since the start of May and about 2.5% from the high reached on April 15th (the max drawdown of the fund being 3.5% from [...]
Last week financial markets were driven by behavioral dynamics rather than fundamentals. As showed in figure 1, the most significant moves were the euro zone bonds tumble occurring simultaneously with the sharp rebound of the EUR currency vs. USD and JPY. Both markets were rated with giant bubbles of more than 90% on a scale [...]
The dollar rise since the beginning of the year (in particular vs. the euro) has had a major impact on assets performance in euro and dollar terms. For instance, Figure 1 shows that the performance of worldwide equities has mainly reflected the 10% rise of the dollar vs. the euro. As a matter of fact, [...]