Dec 30. EU Bank rules: Lose slowly by depositing at negative rates, or all at once in a bail in

–Happy New Year!
–Little net change in rates yesterday.  As has been a recent pattern, as the treasury ended the last leg of the weekly auctions, yesterday being the 7 year, treasuries rallied.  Some of that support came from weakness in equities, though open interest is SPH was down, suggesting modest end of year liquidation.
–Today’s news includes Chicago PMI, expected at the noncommittal level of 50.0, having been 48.7 last.
–Russian Ruble made a new low yesterday, in part related to oil.  Similarly, Mexican Peso is going out at its lowest level of the year, and Canada is close, making imports from immediate neighbors cheaper.
–I saw a couple of references yesterday to a bank in Portugal (Novo Banco) being bailed out, with large losses for bondholders.
The key point here is that actions were taken before year end because new EU ‘bail-in’ rules take effect in 2016, which will mean losses for depositors when banks fail.  As opposed to losses which now occur simply due to negative rates.  The US policy is to keep the banks financial strong and stable to provide support for the financial infrastructure of the economy.  Well, I guess that’s the policy.  It might also be to concentrate power in the biggest banks and provide them with zero funding rates in order to extract repayment in the form of multi-million dollar fines every now and then in an effort to make the legal and regulatory apparatus appear as if it has some value.  In any case, the EU bail-in rules almost seem preordained to failure.  I suspect we’ll see at least one high profile episode sometime in the first half that will test this rule.

Posted on December 31, 2015 at 5:22 am by alexmanzara · Permalink
In: Eurodollar Options

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