Fixed Income Roundup

While December is typically a quiet month in the world of finance and investing, last month had a surprising number of important stories. Concerns over the European sovereign debt crisis dominated the intellectual bandwidth, yet there were other stories deserving of the fixed income investor’s attention.

Here are my top stories for the recent month:

• Surprise! If you want a more accurate picture of the debt levels carried in China, you have to look past official Chinese government data, Bloomberg reports. By precisely quantifying the tip of the iceberg you get a sense of the enormity of this threat to China’s economic buoyancy. Kudos to Bloomberg for conducting a piece of thorough proprietary research to uncover a big story.
• In an interview with the Financial Times, European Central Bank President Mario Draghi talked in detail about the difficulties faced in resolving the European sovereign debt crisis. For me the highlight was the forthrightness of the president when politesse is the usual and disappointing approach.
• The Financial Times reported that the debt of state and local governments outperformed all other fixed income asset classes in the United States in 2011. This is a surprising result given the strong returns on U.S. Treasuries, as well as the skepticism that has pervaded the muni market in recent years.
• The Wall Street Journal reported on why credit default swaps were triggered by American Airline’s bankruptcy but not by Greece’s sovereign debt crisis. It’s a concise and easy-to-understand overview of the relevant issues.
• Poor ethical behavior by bond issuers in Asia prompted Fidelity to publicly call for greater bondholder activism before covenants are arbitrarily modified, according to Finance Asia.

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