Where's my IPO

Was anyone, other than ourselves, wondering what happened to the Bankia IPO. Scheduled originally for last Thursday, it was postponed to yesterday so as to not to conflict with St. Jean Baptiste celebrations in Québec. Then nothing.

Cinco Días is reporting that the entire plan will be postponed, possibly until September, if the Greek parliament does not approve a creditor-mandated austerity plan.

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Quick Follow-up

Possibly confirming some of what was said in yesterday's post, the bid-to-cover for today's auction of 3-month letras was a huge 9.49.

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Abominable Snowman

In the wake of the very numerous recently reported sightings of the peripheral contagion yeti over the last couple of weeks, a brief glance at the available evidence proving the existence of this beast might be in order.

On the left, readers might note that the amount of Spanish sovereign debt in the vaults of foreigners continues to approximately keep pace with increased issuance. As of the end of April, the great undifferentiated mass of guiris is the lender of record of 53.69 percent of the total circulating.

But this easy soaking up of Spanish encumbrances has not been tit-for-tat right across the curve. Again on the left, readers can see that the benightedly fearless foreigner has vastly increased his appetite for short-dated paper. In percentage terms, foreign holdings of outstanding letras del tesoro have increased from 12.76 to 55.11 since the end of 2007. The progression for bonos and obligaciones over the period has been from 42.64 to 54.26 percent.

This change in tastes must be of some concern to the people at the Tesoro - from whose figures these charts are derived. Despite this switch in preference, they have been attempting to maintain the average term of their outstanding debt at something just shy of 7 years. The natural and inevitable result of this conflict between the desires of lenders and borrowers is that the yields on long bonds - from 10 years and out - have recently been setting, if marginally, euro-era maxima. Five years and under, the super stressed zone on the Greek curve, have not.

With regard to contagion, a glance at one symptom of the disease is worth the effort. On the left is graphed the yield differential between the 10-year and the 2-year for Greece, Spain and Germany. Presumably, the previously described state of affairs is serving to 'unnaturally' steepen the Spanish yield curve. But the abominable snowman hasn't shown up yet.






As an aside, Alphaville today made mention of last week's not totally successful issue of obligaciones, referring to it as a 'busted' auction - quite clearly avoiding using the word 'failed' by at least a millimetre. Unfortunately for their take, however, the very piece in which it appears sheds some light on why Spain shut the door short of midway between their expected and maximum targets - upsetting markets in the process. The cited DB report makes mention that Spain has already issued 16 billion euros over its actual funding requirements to date this year. There's a message there for fishers of yield.

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Early returns indicate

The public news sources aren't carrying it yet, but the Bloomberg intraday yield chart seems to be saying that the auction may not have gone that well.

Will real money continue to love at 5.70, what they consistently have fallen head over heels for at 15 bps less?

Just in: The apparent difficulty is neither the yield (under secondary in the case of the 15-year), nor the bid-to-cover (2.13 for the 8- and 2.57 for the 15-year). Apparently, the Tesoro fell short of its maximum sales target. The stuff of nervous markets.






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Waiting for the draw

Awaiting with bated breath the results of this morning's Tesoro auction of 15- and 8-year bonds. At this moment, the secondary market is demanding a yield of 5.63 percent from the 10-year, 4.83 from the 5 and 3.53 from the 2. Regarding the peripheral contagion thesis, these are respectively 5, 17 and 43 basis points below the maxima set on November 30, 2010.

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Form follows function

True to form, the Spain 10-year yield, in the lead up to today's auction of 12- and 18-month letras, yesterday tagged 5.55 percent - and turned south.

More interesting, though, is the Tradeweb graphic published by the Financial Times on Sunday. It compares bond market volumes for the 10-year benchmark for Spain, Italy, Greece, Ireland and Portugal in both July of 2007 and May, 2011.

This week's calendar also features a 15-year on Thursday. Total for all the issues is 8-9 billion euros.

Also true to form was FT Alphavilles's take on the mother ship's article. We all know that they have a strict editorial policy with regards to admissible eurozone peripheral news, but to describe their hand tooled graph as evidence of 'dying peripheral bond trading volumes' is beyond the pale. For the record, summing the values in Tradeweb's chart shows PIIGS 10-year volumes increasing by 3.5 billion euros over the period.

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Beggars and choosers

Way back in October of 2008, in a piece which straightforwardly places the responsibility for our current mess in the hands of Sigmund Freud, we revealed to our readership what we consider to be the fundamental law governing the outcome of bets on future events - often referred to as 'investments'...

- you can't cash a ticket in a one-horse race on the 31st of the month if your rent is due.*

It is, of course, of no real concern that Telefónica has decided to delay the IPO of its Atento unit because of miserable equity market conditions everywhere. But Bankia is another matter. Planning to begin its own initial public offering next week with a July 13th target for the first trading day, the unholy, very large and tremendously needy alliance of a variety of cajas de ahorros - led by Caja Madrid - is on the verge of postponing the event until the autumn for the very same reason.

This is something Rodrigo Rato wanted to avoid, because it will then take place into the teeth of what will be one of Europe's biggest, and likely the most appealing, IPO of 2011 - that of Loterías y Apuestas del Estado. The Spanish national lottery operator, most famous for the annual December drawing of 'el gordo', is said to be going to offer some 10 billion euros of itself to the public. Resistant to the vagaries of economic growth and decline (one really has to live here to understand how that works, although the photo shows the aftermath of a win in a lucky town), LAE seems to be promising to disburse around 80 percent of its profits in the dividend. The real feature, however, is that the payout will be made on a monthly basis. As if Bankia didn't have to wonder how selling its stock to its own depositors could truthfully be described as progress in the battle for capital, a Spanish standard-issue 5 percent yield from the lottery would provide serious competition to everybody's entry in the term deposit wars.

*Those still waiting for another 2000-style stock market crash might consider waiting until the industrialized world's real beggars, the pension funds, are all in. According to Pension Pulse, UK pension funds are currently 19 points short of their year 2000 record allocation of 74 percent of assets. Looks high enough for at least a minor setback, though.

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Spain House Sales Statistics

We’ll chalk up the mere existence of a recent remarkably inane bit of ‘research’ on the Spanish banking/real estate conundrum emanating from Nomura (via Alphaville) to a last ditch attempt to pressure the issue price of the now imminent Bankia IPO and limit ourselves to remarking that the piece likely, seeing the level to which the enemy’s arguments have been reduced, bodes moderately well for the market debut of Rodrigo Rato’s amalgamation of Caja Madrid, Bancaja and various others. What is of interest however, especially seeing as the INE’s home sales statistics were released on Friday, is the tremendous recent disconnect between these figures and those produced by the Housing Secretariat of the Ministry of Public Works – the ones used by Nomura in its analysis.

Regular readers will have noted that, last June, we related that the MVIV index (as it was known then) fairly consistently reported more house sales than the Instituto Nacional de Estadística. Since then, we hadn’t really followed the issue, so one can imagine our surprise when today we saw that the former reports 26,246 new homes as having been sold in the first quarter, whilst the INE places this number at 60,991.Tracking backwards along the chart at the top, it can be seen that this pronounced state change took hold in the third quarter of 2010.

Part of this discrepancy can be attributed to the differing methodologies of the two organizations. Fomento uses figures reported by the country’s notaries, and the INE from the property registrars. The latter, despite the lag in reporting times, is the only proper measure because it reports all transactions that were actually completed. We had attributed the excess reported by the former to notarial agreements not meeting the legal standards of the registrars, being returned, redrafted and then double counted. The notaries are not equipped for, or interested in, this kind of record keeping. The registrars, through their national database, are. But to have turned in vastly smaller numbers of transactions... that will take some explaining.

Our immediate, dumb guess is that, because it became an open secret over the summer of 2010 that the original keepers of the MVIV figures – the Ministerio de Vivienda - were to be eliminated and folded into Public Works, or Fomento, as a cost saving measure (an event that took place in late October), their already shoddy statistical department found itself even less equipped to do the job it had been assigned – part of which was surely coaxing the numbers out of a disinterested College of Notaries. In any regard, somebody’s got some explaining to do.

The charts of the INE numbers show that both new and used sales are setting series minima – the demise of tax incentives to buy and the falling of Easter week. Again, it will be a while before one gets a fix on what is now normal.

We won’t grace its conclusion with a critique, but readers who have clicked through to the Alphaville piece might like to know that:

1). The 300 billion euro total real estate sector debt is correct. For the purposes of the piece, loans to the commercial real estate sector have to be backed out of the total;

2). Entirely apart from whether figures from Fomento (likely erroneous) or the INE are used, new home sales alone do not properly report the depletion rate of new housing stock. ‘New’, in the legal sense, only refers to whether it is the first time that a property has been registered to an owner who is not the promoter. Some not insignificant percent of second-hand sales will in fact be brand new, never occupied homes that had seen an intermediate title change through repossession or an equity-for-debt exchange.

Also interesting is that a variety of Google searches failed to show the Nomura thing as getting any traction at all in the noise-o-sphere. Apparently, even the Millionth Monkey wouldn’t touch it.

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Parallel Universes

Pity the lot of the poor economist required to opine, if not actually pontificate, on the basis of numerical data. Readers might witness the graphic on the left. Tracking the near mirror image courses of productivity* and unemployment in Germany and Spain since 2002, the picture reveals exactly how wide, despite nearly identical administrative procedures, is the definitional gap between these two countries.

In the case of Germany, the unemployment insurance system explicitly subsidizes continued employment in an economic downturn - workers are retained but a portion of their wages are transparently supplied by the government. In that of Spain, the support is similar - but that it is implicit and opaque - as workers resort to the social security system to make up for a shortage, but not complete absence, of work or a lowering of wages. This is to say that many, along with their employers who retain them on a part-time or as-needed cash basis, cheat the system.

The end result is the lines visible particularly from the end of 2008. Spanish unemployment and productivity absolutely soar as the drop in official employment overshoots that of real economic output. In Germany, the opposite happens. The relatively flat UR in no way reflects the straits in which the economy found itself at the time, and the brunt of the effect is to be found in the productivity figures.

Interesting, though, is the fact that German productivity peaked in the same year that the Spanish equivalent made a bottom - 2005. In the latter case, we would attribute it to the truly vast amounts of unregistered, foreign labour used by a then turbo-charged construction industry. As for Germany, we have no idea.

*No particularly good reason for using this measure of productivity - except that the Eurostat database churned it out. One accepts what one gets when dealing with that clunker.

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Amusement park opens for summer season

What better way to counter the now imminent arrival of yet another oppressively bleak summer season than to have the information zoo repeat - no less than 580 times*, according to Google - 'We Are on the Verge of a Great, Great Depression".

For ourselves - and our political movement, the Partido Monotonista - debt-derived recessions are essentially really boring, range-bound events. The edited Bloomberg chart of the recent history of the Spanish 10-year bond does nothing to disabuse us of our fantasy (although the original spike threatened to). The peak intra-day yield following Merkel's 'burden sharing'-induced runup last November reached 5.67 percent. The predictable reversal brought it back down to 4.95 over the following week. Those two figures have now defined the range of the bono for 6 months straight.

*The items are a reference to a CNBC interview with the Sultan of the Simple Metaphor, Peter Yastrow. Here's an example of him hauling out that intellectual black hole, Newtonian physics, as a model for economic growth.

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