Investing in Mexico for 100 years

Mexico sold a new bond with a maturity in 100 years to international investors. And the demand for such a bond was good, indicated by the sharp rise in price in the secondary market.

I bet that only few individual investors would be interested in such a bond as to most of us it seems a risk not calculable.

Not so for institutional investors like insurance companies and pensions funds. They need investments with a "good" yield and a duration similar to their liabilities. They don't care about inflation and long term risks as they only have to seek a solution for their "asset-liability-mismtach", meaning that they need assets to fulfill their obligations mature in 10 or 20 years time.

This may or may not be in the interest of the customer, but it is definitely in the interest of their companies. But we should not be so negative on these "trustees". Investing of a small amount in a longer bond is from a pure bond mathematical standpoint a safer bet than to invest a bigger stake of funds in a bond, maturing in 10 or 15 years. The reason for that lies in the convexity of long term bonds and the advantage of a barbell position over a bullet position.

Die Sorgen der Versicherer

Heute steht in der Börsen-Zeitung ein sehr interessanter Artikel über die kommenden Probleme der Lebensversicherungsbranche, sofern die Zinsen so niedrig bleiben wie derzeit (ähnliches konnte man natürlich auch schon im sentix-Jahresausblick für 2010 lesen). In dem Beitrag wird eine sehr interessante Grafik gedruckt, die man einfach näher analysieren muss:



Die blaue Linie stellt die 10jährigen Bundesanleihe-Zinssätze und die rote Linie den jeweils gültigen Garantiezins der Lebensversicherungsbranche dar. Auffallend ist, dass die blaue Linie just immer in der Nähe des Garantiezinses ihren Abwärtstrend beendet hat. Das ist unmittelbar einleuchtend, da der Erwerb einer Anleihe zu Zinssätzen unterhalb des zu garantierenden Niveaus einen sicheren Verlust in Bezug auf die Garantie bedeutet.

Ein rationales Verhalten. Die Frage ist nur, ob es auch rational sein könnte, auch unterhalb dieses Satzes zu kaufen. Dies wäre dann der Fall, wenn man sicher davon ausgehen müsste, dass die Zinsen langfristig weiter fallen und / oder der Garantiezins gesenkt würde. Im ersten Fall wäre es eine Maßnahme zur Verlustbegrenzung, im zweiten Fall eine erfolgreiche Antizipation.

In Anbetracht der Tatsache, dass derzeit allgemein das Zinsniveau als zu niedrig erachtet wird, ist jedoch eher zu erwarten, dass die Kauflust für 10jährige Bundesanleihen bei 2,25% erlahmen wird. Was dann?

Dann werden Ausweichanlagen gesucht. Und hier sollte der Blick zu den 30jährigen Anleihen wandern. Der Zinsabstand dieser Anleihen zu 2J, 5J oder 10jährigen Bunds ist historisch betrachtet vergleichsweise hoch. Betrachtet man diesen Spread langfristig, so stellt man fest, dass er oft zur Einengung tendierte, wenn die Kauflust in Höhe des Garantiezinses erlahmte. Ein Versicherer muss halt nur länger anlegen, kann aber immer noch eine Anlage oberhalb des Garantiezinses erwerben. Immer noch rational? Zumindest wird rechnerisch ein Problem der Branche gelöst.

30jährige Anleihen dürften deshalb aktuell ein "sichereres" Investment darstellen, als andere Segmente der Bund-Kurve.

Resolving the emergency of investors

The ECB decision yesterday, to offer unlimited (!) access to funds in July, August and September through its refinancing operations, is a big plus for risky assets and could lead to another round of liquidity driven buying.

At the beginning of 2010, investors were worried about a possible liquidity drag end of June, when the latest big refinancing operation from June 2009 will expire. Now, not only the payback of the outstanding amount of € 371 Mrd. is assured, but also the huge sum of about € 350 Mrd., waiting in a parking position at the ECB (deposits, see graph below, blue line) is ready to be invested in the markets again, for at least the next months.

ECB Deposits (blue) and ESX50 (orange)

Where will the money flow? One obvious beneficiary will be the stock market. The graph shows, that when the money is flowing from deposits back to work, the stock market advances.

But even the bond markets may benefit as the monetary policy of the ECB devalues the parking position in an extremely fashion. This has to do with the shape of the current yield curve. If you put your money on an ECB account, you receive only 0,25% p.a., if you invest in a fixed-term deposit you may receive up to 1% for 12 month (but that includes taking an exposure against the banking sector).

But take a look on German government bonds. For a 4 year bond you receive 0,98% p.a. and for 5yr an equally low yield of only 1,5% p.a. What could an investor expect for the rest of the year 2010 if he decides to invest in Bobls? You have to calculate! If the yield curve remains unchanged, you may earn an abolute yield of 2% in 6,5 months for your investment in Bobls, more than the coupon for a full year, and double the value you earn in the monetary market for a full year!

Why that? Because the 4yr bonds have a yield of only 0,98% and an investment today in 5yr Bobls will be at the end of the year an investment with a remaining duration of 4,5 yr, a bond with a yield of about 1,2%! The rolldown yield of the investment is about 1,2% in absolut terms (not p.a.) compared with a coupon yield of only 0,8%. Even if the curve will face a parallel shift up of 50bp, the 5yr Bobls will lose "only" 0,2%.

So investors should not be surprised that the bond markets still look attractive from this point of view. Now think about an investment in Portuguese or even Greece bonds.

3yr bonds of Portugal offer a per anum yield of 3,42%, much higher than the 1,5% for Bobls. But the "buy & hold" return until year end will be only 2,4%, if nothing happens. Bobls offer still a meaningful alternative! Surprise, surprise.

Another story is Greece. 2yr Greece governments bonds offer yield of 7,56% and a buy&hold return of 5,2%, if nothing happens until end of year, what looks much more attractive if you believe in the EU bureaucrats.

Conclusion of all said above: the massive liquidity offered by the ECB will find its way into the markets because the pessimist (5yr Bobl), the conservative player ("good" stocks") and the aggressive buyer (2yr Greece bonds) all have investment opportunities. There is a chance, notwithstanding the current uncertainties, that we may see a replay of the "summer of 2009" when the massive liquidity injections of the ECB lead to a nice rally in risky assets.

Für deutsche Leser: eine interessante Lektüre zum Auftakt der Fussball-WM auf der Seite unseres geschätzten Kollegen Robert Rethfeld von Wellenreiter-Invest.