European Bloodbath
A bloodbath that started in Europe quickly spilled over into the the US markets today. European bank shares were especially hard hit with Deutsche Bank leading the way.
Deutsche Bank Co-Co bond yields hit 12%. Two-year German government bonds now yield -0.50%.
In the US, yield on the 10-year note sank to 1.74%. US markets are still open, with the S&P 500 down 50 points and the DOW down nearly 400.
Deutsche Bank CoCo Bonds Collapse
A Contingent Convertible Bonds (CoCo) is a debt instrument that is convertible into equity if a pre-specified trigger event occurs. Sometimes these bonds are labeled Enhanced Capital Note (ECN).
CreditSights says Deutsche Bank’s Woes Threaten CoCo Coupons.
Deutsche Bank AG may struggle to pay coupons on its riskiest bonds next year if operating results disappoint or litigation costs are higher than expected, according to analysts at CreditSights Inc.
Bonds and stock of Germany’s largest bank have plunged this year, with the shares shedding 39 percent of their value and its contingent convertible bonds — known as CoCos, or additional Tier 1 securities — turning in a similar performance. The cost of protecting the company’s subordinated debt from default for five years using credit-default swaps has more than doubled since the end of 2015, rising to 438 basis points, a four-year high, from 187.
“While we are confident about 2016 coupons, we are less so about coupon payments in 2017,” CreditSights analyst Simon Adamson wrote in a note to clients today. Deutsche Bank will do “everything in its power to pay them” because it will need to issue such bonds in the future, he said.
Deutsche Bank CoCo Yield
Deutsche Bank Shares Plunge 9%
Shares of Deutsche Bank dropped over 9% today to an new record low price.
German Two-Year Bond Hits Record Low Negative Yield
Negative 0.5% looks damn good compared to across-the-board carnage.
European Share Prices
The winning place to be today was gold and precious metal miners.
Gold Daily Chart
Gold is up nearly $40 on the day. Let’s look at a long-term chart for proper perspective.
Gold Monthly Chart
For all the hatred and bashing gold receives for not yielding anything, gold seems to have done rather well since the washout bottom in 2000.
Mike “Mish” Shedlock
Moar NIRP bell!
when all you have is a hammer …
Looks like the dow down 400 was the trigger for the fed and the PPT to swing into action today. I wonder how much it cost them to engineer a 225 point recovery in the last 1-1/2 hrs? Seems like the dow down 400 has been the trigger several times recently. Heads up day traders who want to front run the PPT.
Meanwhile, in the real economy
The Gap just reported January comparable sales.
expected -3.6%
actual -8.0%
Ouch
That’s going to leave a mark……
But can they save the major German Bank? Not even Humpty Dumpty could put them back together again.
Any bets on when Yellen takes back that 1/4 pt. hike in the discount rate?
Your gold chart is not accurate. 2013 prices were in the 1700’s not 1400’s
Your gold chart is not accurate. 2013 prices were in the 1700’s not 1400’s