Market Update

On a regular basis, we keep our clients updated through email by publishing Market Update, Portfolio Update and Quarterly Update. Here you can read the latest Market Update:

Week 1 – 5 March 2010

US T-Bond 10 year yield: 3.663% (last Friday 3.687%)
MSCI: 1,155.60 (week +2.0%, YTD -1.10%)
WTI Crude $: 81.16 (week +2.1%, YTD -1.74%)
GOLD $/Oz: 1,132.93 (week +1.4%, YTD +3.26%)
Dollar Index: 80.81 (week +0.5%, YTD +4.28%)
 
A week of debt hangover

This week Greece was again the main topic on financial markets. Yesterday, Athens sold 5bn euro in 10-year bonds and surprisingly received orders for three times that amount. But Greece also had to pay a significant premium as the interest rate was 6.25%, double the German rate! Greece will soon have to raise more money. It needs 10bn euro to refinance debt and meet interest payments in April. Today, the Greek prime minister, George Papandreou, is visiting Angela Merkel, the German chancellor and after the meeting in Berlin he will travel to Paris to meet Nicolas Sarkozy, the French president. The purpose is to get financial support. If Papandreou does not get the support from fellow EU countries he will most likely turn to the IMF. Next week, Papandreou is meeting Barack Obama in Washington and don’t be surprised if he also has a chat with the IMF. Powerful people are working hard to avoid a Greek default. The fear is that a default will cause severe problems for the euro.

Another country with serious debt problems is Iceland and this week the Icelandic finance minister negotiated a new repayment plan with Britain and the Netherlands. The dispute is on compensation paid out to more than 400,000 British and Dutch savers who lost money in Icesave, part of the bank Landsbanki that went bankrupt during the financial crisis. British and Dutch depositors were reimbursed from their own countries’ bank deposit insurance schemes and the two governments are now trying to reclaim the money from Iceland. The Icelandic parliament approved a repayment plan in December but Iceland’s president refused to sign the agreement and called for a referendum. The referendum is held on Saturday and the Icelandic people is expected to reject the repayment plan.

At JGAM, we expect debt problems to reach headlines for many more weeks and months. Greece and Iceland are only the tip of the iceberg. Many more countries are in trouble, especially within the eurozone and also the US has a fiscal issue to solve. For the time being it seems as if there are savings enough to meet the demands for loans, but when savings begin to dry up (when growth picks up) debt burdens will most likely drive up interest rates and bond yields.