Fixed Income Roundup: Stop Worrying about Europe

January 2012 will likely be remembered by investors as the month in which they stopped worrying about Europe and began discounting other issues.

Here are my top stories for January 2012:

• China Daily interviewed Chinese Premier Wen who stated that “China’s government debt is at an overall ‘safe and controllable’ level.” This story is especially important in the context of possible economic volatility in China caused by its upcoming change of government, the European sovereign debt crisis, the United States’ election year, the change of government in North Korea, and Japan’s continued recovery from the 2011 earthquake.
• The Financial Times reported on defaults in China’s domestic bond market. This challenges the optimistic statements from the Chinese government.
• Bloomberg reported that Germany priced the first ever negative nominal yield treasury bill. While the price soon corrects in secondary market trading, it remains a mystery why these 6-month bills sold at all. Check out the robust and informed discussion about the negative nominal German yield on the CFA Institute Members group on LinkedIn.
• January saw much lower volatility in global financial markets. This seemed largely in response to the European Central Bank’s willingness to intervene in Europe to help stave off a sovereign debt crisis. However, according to the Wall Street Journal’s European edition, ECB Governing Council member Ewald Nowotny indicated that the ECB was seeking an end to its bond buys. In other words, it may be time for investors to start thinking about Plan B.
• Along the same lines as the preceding story, EU leaders have begun to consider that austerity alone might not save Europe from its sovereign debt vortex. Instead, strategies at improving economic competitiveness are now being discussed, according to the International Herald Tribune.
• Liquidity has dried up around the world as haunted investors recall the events of 2008–09. Thus, any sign of increased capital raising and capital flows is a welcome relief. Thankfully, corporate bond trading volumes are picking up, according to the Financial Times.

For more news and trends, visit the Fixed Income Community of Practice.