Sept 13. Basel calls for increased bank capital
Sept 13. Rates edged higher Friday, with ten yr note up 3 bps to 2.79%.
–Still some interesting upside call positions taken. RBS bought another 10k EOH 9875c for 7. Up to 62k long now.
–In the aftermath of european banking “stress tests” the regulatory Basel panel has ordered banks to raise common equity to at least 4.5% of assets. This rule will require other banks to follow DB’s lead and raise capital. In my opinion it shows that stress tests weren’t very meaningful in terms of measuring risk in the system. Even this new Basel rule allows banks 5 years to comply with initial requirements. As the sovereign debt situation continues to unravel, this is another case of too little, too late.
–I don’t follow corporate debt sales closely, but there seems to be quite a bit of paper being issued recently to take advantage of low rates and relatively good liquidity (according to Prudent Bear about $17B last week of investment grade paper). I think these sales can be characterized more as defensive rather than offensive…like when companies drew on bank credit lines at the start of the crisis fearing that the window would snap shut.
–Grains continue to be well bid. Another new high in Corn. Rice strong.
–We are nearer to approaching the end game where both stocks and bonds fall hard. Consumption as a % of GDP has barely fallen, still over 70%. True retrenchment has yet to hit; govt stimulus isn’t likely to spark private demand if it hasn’t already.
