Why shorting US government bonds is not a good idea

Posted on 29. Jul, 2013 by Jean Jacques Ohana in Weekly Focus

The reward of government bonds is made of three parts:

The difference between the yield and the funding rate (assuming that no Fx risk is kept and that the currency is funded at the Libor short term rate).

The curve roll down, which is derived from the steepness of the curve at the point of the yield [...]

Will financial markets climb the summer wall of worries?

Posted on 22. Jul, 2013 by Jean Jacques Ohana in Weekly Focus

Three vulnerabilities are presently threatening the financial system:

The ongoing negative spiral on US Bonds (figure 1). Ben Bernanke made a U turn on the Federal Reserve pledge to reduce the purchase of US Treasuries thus enabling long term interest rates to fall back slightly. Meanwhile, the Federal Reserve will be under pressure to taper the [...]

If you insist on betting against France, you’d better short the euro than short the French OAT

Posted on 15. Jul, 2013 by Jean Jacques Ohana in Weekly Focus

With the new downgrade of French debt by Fitch, the discussion of an “imminent attack of French debt” will with no doubt come back to the surface.

France was predicted to go under a number of times before: when it was downgraded for the first time by S&P in January 2012, when French president Hollande was [...]

Developed vs. emerging stocks: mind the gap!

Posted on 08. Jul, 2013 by Jean Jacques Ohana in Weekly Focus

The divergence between the trends of connected assets conveys a very different type of information than the decorrelation between their daily returns. While the latter corresponds to a genuine change of status (e.g. one of the assets shifts from “risky” to “safe haven” or the other way round) and is very rarely observed, the former [...]

Review of the troops after the liquidation

Posted on 01. Jul, 2013 by Jean Jacques Ohana in Weekly Focus

The global selloff which hit all asset classes at the same time made significant damage in term of financial stability.

As stated by Riskelia since March 2013, many assets were in bubble territory, in particular risky debts and equities. As showed in figure 1, equities’ exuberance is presently over.

Liquidity has clearly tightened in key systemic links [...]