Sunday, February 4, 2018

One of the Great Comment Threads: Money Markets Edition

At FT Alphaville's "B.R.E.A.M. (Bonds Rule Everything Around Me)" linked immediately below:

...Miss Piggy 3 days ago
I really wish I could understand this article.
Alex Scaggs FT 2 days ago
@Miss Piggy Anything in particular I could make more clear? Have you read our previous coverage of US tax reform & its implications for multinational companies' balance sheets?

Or maybe: Any chance you've seen the US financial-news meme about "$1 TRILLION OF CORPORATE CASH HELD ABROAD"? This post is about that. US tax reform has totally removed companies' incentive to keep that ~$1tn of investments offshore, but it's not clear what companies will actually do about it. 
(to be fair the US tax code is notoriously byzantine and awful, and I have spent way too many hours of my life looking at it. so... it might've fried my brain. if so, sorry, back to crypto quips.)
delta 2 days ago
@Miss Piggy ..  .. basically the offshore money was already deployed (mostly) in america in corp/govt bonds ..  
CThwaites 2 days ago
@Miss Piggy was already deployed (mostly) in america in corp/govt bonds ..
and that there are going to be more long-term bonds coming to the market (not a good thing)
Miss Piggy 2 days ago
@Alex Scaggs ok, thanks for responding. I know about capital repatriation, prior US tax code was onerous so better to keep offshore; Trump changes tax law and now funds will go back home to USA. Fine. It's the other linkages such as this section....

"Reverse Yankee bonds typically have a cross-currency basis swap stapled to them. A buyback of reverse Yankee debt would most definitely trigger the buyback of associated cross-currency swaps, which, all else equal, would make the two to five year segment of the €/$ cross-currency basis curve less negative"

So Reverse Yankee bonds was defined in prior paragraph. I do know about Interest Rate Swaps (IRS), certainly plain vanilla same currency LIBOR vs fixed; I also know about cross currency variant of IRS. I seem to remember basis swaps were swapping one index for another so LIBOR for SONIA. So is the cross-currency basis swap swapping USD LIBOR for EUR LIBOR? And is the difference in the EUR and USD yield curves expressed in a third curve, the "cross-currency basis swap curve"? And does the liquidation of reverse Yankee bonds impact the "cross-currency basis swap curve" in the 2 to 5 year segment?

You have to admit this is quite complicated. Money market linkages can be quite arcane. I do not have a Bloomberg terminal. Are cross currency basis swap curve price published in FT?
CThwaites 1 day ago
@Miss Piggy @Alex Scaggs
I see you're way ahead on the technicals. I apologize for "mansplaining"

And from Garry Trudeau's 1973 Cambodian refugees arrive in D.C. series at Doonesbury:

 Woman: I am an old woman, sirs. I know nothing of politics. I know only that the airplane came and destroyed my village. Senator: But can you be sure it was an American plane, Ms. Loo? This, of course, is of vital importance! You see, Ms. Loo, there are many different kinds of planes - there are big ones, little ones, jet planes and... Woman: It was a Navy McDonnell F4B-1 Phantom II. Senator: Oh, yes, that's ours.

To her credit Alexandra comes back with a sincere response:

Alex Scaggs FT1 day ago

@Miss Piggy @Alex Scaggs I totally get it, I find them very complex as well -- that section from Pozsar was a bit of an aside for readers who follow money markets, to be honest. But you've got a point, I'll aim to spend a bit more time unpacking this stuff when I write about it....MORE