A friend of mine testified in the US House of Representatives that CoCo (Contingent Convertible) bonds are the savior of the banking industry. Apparently he didn’t know about Deutsche Bank’s precarious position!
Additional Tier 1 contingent convertible bonds, CoCos, are among the riskiest debt because they can be wiped out to create capital for a bank in a financial crisis. While they are sold as perpetual bonds, they are typically callable after five years. Secondary market pricing of the debt is based on the expectation they will be redeemed at the first call date.
One CoCo bond stands out in the CoCo Loco-sphere: Duetsche Bank’s 6.25% bond. Which is signalling a potential wipe out.
This is not surprising given Deutsche’s performance since the global financial crisis when it peaked at $125 per share in May 2017 and is now trading at an abyssmal $8.31 per share.
Deutsche Bank’s 6.25% CoCo bond is going loco!
The US economy is experiencing a sudden surge of economic reports that exceed expectations. So much so that the Citi Economic Surprise index has skyrocketed.
The Eurozone, on the other hand, resembles Saganaki. That is, “Your cheese is on fire!”
The US economy added another 304,000 jobs in January. A record 100th consecutive month of job gains!
On the other hand, YoY average hourly earnings slumped.
I wonder if ECB head Mario Draghi will say Opa!!
And no, that was not a seasonal effect. Existing home sales declined 6.4% MoM in December, the largest decline since November 2015.
And on a YoY basis, existing home sales plunge 10.25%.
US existing homes are very expensive compared to household income and the surge in mortgage rates during 2018 made housing ever less affordable.
The median price for existing home sales shows a seasonal pattern with June typically being the highest for the calendar year and January being the lowest.
Let’s see how Euro Zone and Japan slipping into darkness impacts the US econony and housing market.
The International Monetary Fund (IMF) has downgraded economic growth for the Eurozone to 1.6 for 2019. weoupdatejan2019. But Japan is even worse at a forecast of 1.1% for 2019.
Russia is also forecast to be sub-2% as 1.6%.
The Eurozone and Japan are drunk as a skunk on global Central Bank zero interest rate policies.