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Showing posts with label Bond. Show all posts
Showing posts with label Bond. Show all posts

Monday, July 2, 2018

Goldman Lunch at Taste Paradise Sets Table for 1MDB Money Probe

https://www.bloomberg.com/news/videos/2018-06-28/goldman-bankers-in-focus-in-1mdb-money-probe-video


https://youtu.be/tW9Q7v8pioY

Low Taek Jho and an official from 1MDB had hired Goldman Sachs Group to underwrite the US$1.75 billion bond offering.

SINGAPORE: In a private dining room at Singapore's Taste Paradise restaurant, over a meal of abalone and suckling pig, two Goldman Sachs Group Inc bankers were explaining a US$1.75 billion bond offering to six executives of a Swiss bank.

It was early 2012, and joining Goldman bankers Roger Ng and Tim Leissner that day were a young Malaysian financier named Low Taek Jho and an official from state investment fund 1Malaysia Development Bhd, known as 1MDB, which had hired the New York bank to underwrite the bond sale.

Now, people familiar with the matter say, investigators from Singapore to the United States are looking more closely at the roles of Mr Ng and Mr Leissner, who have both left Goldman. And they're asking what happened in that private dining room named after the first emperor of a unified China, Qin Shi Huang.

In particular, they're examining how US$577 million in proceeds from a bond sale that May ended up a day later in an account at BSI SA in Switzerland - the same bank whose executives were at the Taste Paradise.

Click here for the full report: Goldman Sachs lunch at Singapore's Taste Paradise set the scene for 1MDB's money probe

The lunch, previously unreported, brought together the key parties in what has become the biggest financial scandal in Malaysia's history, involving the alleged misappropriation of US$4.5 billion of 1MDB funds. It was the culmination of numerous conversations as BSI bankers and compliance officials sought clarity on the deal.


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Wednesday, March 30, 2016

Hedge funds invasion of US treasuries puts bond at risk, more turbulence in US debt market

Hedge funds are crowding into U.S. Treasuries, and that has bond traders bracing for more turbulence.


While the Federal Reserve doesn’t break out hedge-fund ownership, a group seen as a proxy increased its holdings to a record $1.27 trillion in the past year, according to a quarterly report released by the central bank this month. That came as foreign central banks and finance ministries, the biggest buy-and-hold owners in recent years, culled their investments for the first time on an annual basis since 2000.


The surge of hedge funds into U.S. government debt is a worrying sign to Societe Generale SA and Commerzbank AG.

They say the firms, which often use borrowed money and jump in and out of trades at a moment’s notice, will boost the chances of sudden shocks in the world’s de facto haven market. That may compound swings in Treasuries, which by some measures have reached record levels as concerns about China, the global economy and diverging central-bank policies whipsaw bond traders. The Treasury Department is already looking into whether the market isn’t running as smoothly as it should.

Volatility Risk

Foreign central banks’ “market share is being replaced by private investors who take a much more active approach,” Rob VandenAssem, the head of investment-grade fixed-income for developed markets at PineBridge Investments, which oversees $85 billion, said in an e-mail. “Hedge funds in particular pose a risk to volatility.”

The potential that hedge funds will amplify Treasury swings adds to questions about the resilience of the $13.3 trillion market, especially as the Fed considers whether to raise interest rates this year. And because yields are so low, sudden shifts in momentum could lead to big losses, especially for less nimble investors.

Ten-year Treasuries yielded 1.89 percent today, more than a half-percentage point below their June peak of 2.5 percent.

In the Fed’s quarterly reports, domestic hedge funds are categorized under “households and non-profit organizations.” Most analysts consider it an accurate gauge of Treasuries held by those high-powered firms, and to a lesser degree, ownership by households and other groups like private-equity shops and personal trusts. The latest data released March 10 showed they were the largest buyers of Treasuries last year, adding $398 billion. That’s the biggest increase on an annual basis since 2009.


Hedge funds are also signaling their presence in the U.S. bond market in other ways. Since the end of 2013, investors domiciled in the Caribbean, a popular legal home for hundreds of hedge funds seeking lower taxes, have increased their holdings of Treasuries by 43 percent to $352 billion, Treasury Department data show. As a group, they’re now the third biggest overseas creditors, behind only China and Japan.

At the same time, foreign investors, who still hold 40 percent of America’s bonds, were the only net sellers in 2015 as central banks in China and other emerging markets raised cash to support their currencies. And Treasury Department figures showed they kept selling at the start of the year.

The rise of hedge-fund ownership may already be making fluctuations in Treasuries worse. This year, daily swings in 10-year yields exceeded one standard deviation -- equal to 0.043 percentage point -- about 39 percent of time, according to TD Securities. That eclipses last year’s figure of 34 percent, which was the highest for any year going back to 1975, the data show.

“This will likely add volatility” said Bruno Braizinha, a fixed-income strategist at SocGen in New York.

Treasury Review

Concerns over abrupt swings, whether it’s because of a lack of liquidity or an increase in high-volume traders, have already caught the attention of the U.S. government. Spurred by a 12-minute plunge and rebound in yields on Oct. 15, 2014, the Treasury Department is conducting its first comprehensive review of the market’s structure since 1998.

Some say hedge funds aren’t the problem, but a potential solution.

By stepping in to take the place of traditional Wall Street banks, whose bond-trading businesses have come under pressure from regulations and shifts in technology, hedge funds may actually increase liquidity. And their use of leverage, or borrowed money, means they have the wherewithal to trade vast quantities of securities.

Leverage, Liquidity

At least that’s the view of Ronin Capital LLC, a Chicago-based proprietary trading firm. When U.S. officials asked for comments on liquidity and market structure earlier this year, the firm wrote in a March 19 letter that “leverage and liquidity in the U.S. Treasury market go hand in hand.”

“If the only entities willing to hold positions in U.S. Treasuries are ‘buy and hold,’ meaningful liquidity in the U.S. Treasury market will be nonexistent,” the firm said.

Some sophisticated investors have also started to trade on Treasury platforms previously reserved for bond dealers, according to an October report from financial-services consulting firm Greenwich Associates. Christian Hauff, the co-founder of Quantitative Brokers LLC, says many of those funds now look a lot like Wall Street’s proprietary bond-trading desks from years ago.

“You’re seeing those that used to trade on Wall Street transition to working at hedge funds,” he said.

Even if hedge funds provide more liquidity, it doesn’t necessarily ensure the ride won’t be bumpy. That’s because while traditional dealers often served as buffers for their clients during times of stress, hedge funds have no such incentive.

When volatility picks up, hedge funds can “jump on another ship,” said David Schnautz, a London-based rates strategist at Commerzbank. - Bloomberg

What is a hedge fund? - MoneyWeek Investment Tutorials




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