Where finance and media intersect with reality


Spot Markets Live Transcript: 24/10/22

Screenshot 2022-10-24 at 11.38.30
Comments addressing audience statements are in bold. Today’s session is with Dario Garcia Giner.

Izabella Kaminska 11:58


Hello and welcome to this special edition of Spot Markets Live.

It’s special because it’s the half term which means I’m currently trying to type while being stalked by a rabid four-year-old who refuses to turn off her iPad.


Anyway if I suddenly start slipping comments in about “Fixies” this is why.

Today I am joined by Dario.

But also very importantly, you guys in the rabble…

Hello Dario..

Dario Garcia Giner 12:01


Izabella Kaminska 12:01

The real aim of today’s session is to get to the bottom of what’s going on in Bund markets.

So if you’re a bund expert and in the room, please make yourself known.

You know, the way doctors on planes are asked to step forward in a mid-air health crisis.

Dario Garcia Giner 12:01

Umm… this is totally out of my comfort zone

but I can still offer german themed quipped anyways

Izabella Kaminska 12:02

good good

But before we get to that


Sunak Holdings looks like it might pull off an absolute shocker of a deal to gain control of UK PLC. The move will likely be studied in business schools for years.

A last-minute rescue from Boris Industries looks entirely quashed.

Boris Industries just couldn’t get the traction with financiers it needed.

Left short of a few trillion to finish the deal. Mordaunt Group might be able to take advantage, but nothing is clear just yet.

Advisors on the Sunak deal are understood to be Goldman Sachs and Michael Gove-Stanely. Boris Industries could only call on Carrie TSB. It is unclear who Mordaunt is working with.

Just to recap on the background…

Dario Garcia Giner 12:06

Just in case nobody knows (like me)

Izabella Kaminska 12:06

Shareholders rejected an initial approach by Sunak Holdings earlier this year on the condition a new shareholder-approved executive be appointed to restructure UK PLC to generate shareholder value. The Britannia Unchained leadership took the helm as a result.

Things were looking good until UK PLC’s largest debt holder The BoE announced it would no longer be buying any more of UK PLC’s debt.

The company then had to deny rumours that it was planning an emergency equity issue that would dilute remaining shareholders.

Some say the deal was further sabotaged through a ferocious Twitter campaign by EU Bets, a loosely organised European collective, which started spreading FUD about the company’s core liquidity. The Reddit campaign talked down the company’s stock even further.

When both the company’s share price and the debt began to crater, activist shareholders started threatening they too would sell stock unless the Sunak bid was reconsidered.

The pathway to Sunak Holdings taking control now looks clear.

The acquirer is an international conglomerate with non-dom status.

But that’s pretty much where we are now.

We cannot confirm speculation that Sunak Holdings is considering a rebranding of the whole business.

Dario Garcia Giner 12:08

It makes Game Stop sound like a reasonable investment

Izabella Kaminska 12:09

Funny you should say that.

It was a shame there was no popular counter momentum generated. UK PLC has a definite nostalgia play.

Here in any case is a little thing from Blonde Money’s Helen Thomas on where we are now:

The return of Boris is a red herring. The party might want an election winner but they know a lack of competence sent them down the polls in the first place. Boris presided over four by-election defeats. A YouGov poll from October 18th shows one third of members back him, but that leaves two thirds who don’t.

Of those MPs publicly backing his return, many are relatively inexperienced with the majority having five years in their seat or less. They also tend to be in very marginal or very safe seats.

  • Most moderate MPs can’t take the risk. Boris still has to face the Privileges Committee where a source tells ITV news that the evidence is so damning he could be ‘gone by Christmas’.
  • Boris has yet to even declare his hand. He will be basking in being back in the spotlight and by gathering votes he can become Kingmaker with whomever he chooses to endorse.
  • We are effectively in the first round of a four round contest
    • Round 1: Public declarations of support.
    • Round 2: Actual signatures to get onto the ballot; 100 are required by 2pm Monday.
    • Round 3: Vote by MPs 3.30pm with result 6pm
    • Round 4: Indicative Vote at 9pm if required before going to the membership.
  • At any stage a candidate could pull out. The weekend will be an intense set of backroom deals to win signatures given that will be the first confirmed indication of support for each candidate.
  • By 6pm Monday it will be clear that the next PM will be either Rishi or Penny, at which point one will drop out to enable the next government to get on with the task of delivering its all-important Budget 7 days later.

Anyway moving to Germany.

Not literally.

Dario Garcia Giner 12:10

You’re self-interested after all

The nicest part of Germany is a place called Mallorca.

Izabella Kaminska 12:10

Yeah, I can only handle so much Schnitzel.

Actually, that’s not even German. It’s Austrian.

But there have been some interesting developments in the world of German bunds.

Not so much in their overall pricing just yet.

I don’t have live data unfortunately

Dario Garcia Giner 12:13

Good point Bruce, we’ll pass it on

Izabella Kaminska 12:13

But look at this hump

Anyway, the 2-year yield is ascending recently but the bigger issue is not just lacklustre demand

It’s this sneaky announcement from the Finanzagentur over the weekend. On a SATURDAY no less.

Hands up who knows about the Finanzagentur?

Dario Garcia Giner 12:17

I don’t!

Izabella Kaminska 12:17

Right. So this is all very pedantic annoying market plumbing stuff.

But the clue is in the phrase “cover extraordinary financing needs”

Any experts in the room, feel free to correct me. But the reason why swap rates have started to move is possibly because a little know facility at the Finanzagentur is being tapped up by the Germany Treasury for additional spending resources.

The reason this is significant is that the facility is supposed to be used predominantly to ease market anomalies related to bunds trading at special rates. Usually, because they become hard to borrow or have other weird technical factors influencing them.

@noelle thanks for the tip

Dario Garcia Giner 12:20

what does that mean?

Izzy’s just dealing with an in-house agitator

That’s disguised as a four-year-old

Izabella Kaminska 12:21

Yeah, she’s trying to break into my office. I made the mistake of trying to teach her how to play roulette last night.

And now she just wants to play roulette on my phone

Anyway, she’s off now. Probably to start playing Black Jack.

And as Darren notes they’ve also had a failed 7-year auction.

Anyway, the context is this. All central banks have the capacity to intervene in markets via open market operations if there are unexpected anomalies impacting bonds.

But they all vary in the tools that they have.

The ECB is particularly complex because of being made up of a number of central banks.

I explained the background in the wrap today.

In the UK OMOs are carried out by the still just-about independent central bank, meaning any liquidity absorbed remains in the control of the central bank. If the BoE was to run out of assets to repo (which given it has plenty of them is unlikely), its next recourse would be to the DMO’s special and standing gilt facility. The DMO has the power to generate de facto lookalike gilts that are needed in the market to ease market conditions. But (as far as I understand) the financing generated through this mechanism is absorbed immediately by the central bank. It does not go to the Treasury at any point.

In Germany, the Finanzagentur has no such power. Instead (as far as I understand it — and I would be keen to hear from any experts who can expand on my knowledge here) it holds back a certain tranche of any issuance it brings to market in a sort of limbo reserve in case it needs to be used in OMO operations one day. I’m actually not sure if it’s the Bundesbank or the Finanzagentur that conducts the OMOs itself, but the act of putting the securities into the market financialises the reserve on behalf of the German Treasury. It is, therefore, the easiest way to generate extra additional revenues for the public purse.

So in Germany, there is this weird practice of being able to tap up to 20% of any bond for the purposes of market repo interventions.

In theory, this is to deal with specialness (when a bond is very hard to locate in the main market for technical reasons) but it can also be used as a means of supplementary financing for the government.

The interesting thing is that the facility was very rarely used until recently.

But it doubled from an average of 5% to about 8/9% over Covid

This new round takes it to about 13%. So in theory there is still another 7% or so left before the 20% limit is hit.

Here’s the recent history (h/t @alea) though it would be good to have a longer dataset.

The OMFIF story is also worth noting, as Bruce highlights below.

Germany’s Finanzagentur and KfW will both be participants in the Sovereign Debt Institute’s event on 25 October, alongside debt management offices from France, Italy, the Netherlands, Next Generation EU and the European Investment Bank. Combined, these borrowers will have raised around €1.3tn in funding by the end of 2022. With market volatility and liquidity issues set to form the backdrop for funding programmes for the foreseeable future, finding the right windows to issue – and the banks to warehouse or the end investors to buy – will require technical skill and communications prowess.

Dario Garcia Giner 12:33

So does this suggest they’re getting desperate or something?

Izabella Kaminska 12:33

I think it does, and one needs only to look at the current account non-surplus to see why.

Here’s a good chart via Politico

The German current account is still in surplus, but the federal budget is now in deficit.

So the issue Germany is facing is not just higher energy costs but also demand destruction from China. And the fact that (unlike Britain) nobody really speaks German. Sorry, but it’s true!

Dario Garcia Giner 12:37

Well, only people willing to inefficiently spend a bunch of time learning a language where urbanite primary speakers speak perfect English

@Carlo. France is an entire country of people who refuse to speak English – even when they can.
Izabella Kaminska 12:38

Time to check in on the latest Target2 imbalances.

That’s against the following:

Dario Garcia Giner 12:40

On German’s English – https://www.youtube.com/watch?v=yR0lWICH3rY

Izabella Kaminska 12:41

The interesting thing about the imbalances is that it is not Germany leading the recent increases, it’s Luxembourg but also IRELAND!

Who would have thought?

@roger for now. But that’s kind of the risk in the market. Nobody has priced in the risk of German bunds becoming unsafe assets.

Dario Garcia Giner 12:42

And @Bruce I’d hesitate to say the spare labour capacity that would be willing to go for the low end of the service economy in Germany doesn’t speak much English – just like this sector of the German regionalised lower middle classes mostly speak dialect and not High German.

Izabella Kaminska 12:42

@Helmholtz – could be. But it’s only been the case since about 2018 it seems.

Sorry about the slowness today. Children. Avalanches. General recovery from being on the road for a week.

But let’s move on to other stuff.

The other big news over the weekend were mysterious events in China.

Dario Garcia Giner 12:44

Remember the fighter jet pilot story?

Izabella Kaminska 12:44

Ha – I was referring to Hu Jintao being escorted out of the CCP conference.

But go on.

Dario Garcia Giner 12:45

Well it was about British fighter pilots being recruited by China’s air force

to train PLAA fighter pilots

British media did some huge hubbub about it last week

well, the exercise is over

And it turns out British secret services had recruited many of these fighter pilots to spy on the Chinese.

It shows that spying is a two-way street. We make big deals about Chinese spying on us and seem to forget that we’re both nation-states.

I’ve noticed it’s a big western blindspot. We seem to treat our nations as godlike

Izabella Kaminska 12:45

Interesting. Is anything else in the China blind spot from this weekend’s event?

Dario Garcia Giner 12:45

Another piece of China news is that many former scientists and engineers associated with China’s military are joining the Politburo – 6 in total. 

Considering the massive and oft-complained size of the American military-industrial complex, China’s MIC is worth less than 1% of its GDP. 

Russian troubles in their little endeavours in Ukraine clearly offer a market gap in which Chinese military production can step in – and China seems ready to pounce. 

Izabella Kaminska 12:46

Meanwhile, in markets.

News on Tesla’s performance in China.

It looks like an upcoming price war.

SHANGHAI (Reuters) -Tesla has cut starter prices for its Model 3 and Model Y cars by as much as 9% in China, reversing a trend of increases across the industry amid signs of softening demand in the world’s largest auto market.

The price cuts, posted in listings on the electric vehicle (EV) giant’s China website on Monday, are the first by Tesla in China in 2022, and come after Tesla began offering limited incentives to buyers who opted for its insurance last month.

Shares of the Austin, Texas-based firm were down 3.3% at $207.36 in trading before the bell.

The price cuts also follows Tesla Chief Executive Elon Musk’s comment last week that “a recession of sorts” was under way in China and Europe, and Tesla said it would miss its vehicle delivery target this year.

Dario Garcia Giner 12:47

Chinese EV market sales also climbed in September up 15% from august.

More generally:

China’s exports in September grew by 5.7% from a year earlier, beating expectations, and their trade surplus grew to 84.74 bn, up from forecasts of about $81 bn.

But they missed imports! they rose only 0.3% (just like in Aug) against expectations of a 1% rise in Sept.

Izabella Kaminska 12:48

Also this just out now:


Speaking of Elon Musk.

Dario Garcia Giner 12:49

@Darren and when they’re not ignoring their spying, they’re celebrating it.

Izabella Kaminska 12:49

In November last year, Tesla CEO Elon Musk became the first person in history to obtain a $300 billion fortune.

A lot has happened since then. He’s on the verge of buying Twitter after months of back-and-forth and reportedly plans to lay off 75% of its staffif the deal goes through. He had secret twins with one of his employees and was rumored to be having an affair with Nicole Shanahan, the soon-to-be ex-wife of Google cofounder Sergey Brin. (Musk denied the affair.)

Elon’s lost about $100bn since being declared as the world’s richest man.

Actually in less than a year.

The thing inquiring minds want to know now is whether Elon is about to be bailed out of his Twitter commitment via the US government no less.

Dario Garcia Giner 12:50

@Bruce Yeah but Jesus could be rejected from Berghain, no news there

Izabella Kaminska 12:50

This was the story doing the rounds at the weekend

Biden administration officials are discussing whether the US should subject some of Elon Musk’s ventures to national security reviews, including the deal for Twitter Inc. and SpaceX’s Starlink satellite network, according to people familiar with the matter.

Twitter shares fell 5.1% as the market opened in New York on Friday.

US officials have grown uncomfortable over Musk’s recent threat to stop supplying the Starlink satellite service to Ukraine — he said it had cost him $80 million so far — and what they see as his increasingly Russia-friendly stance following a series of tweets that outlined peace proposals favorable to President Vladimir Putin. They are also concerned by his plans to buy Twitter with a group of foreign investors.

I always feel those billionaire lists can’t be very accurate though.

There seem to be way more mega-private yachts in the world than billionaires on the rich lists.

Dario Garcia Giner 12:52

The wealthiest people I know are always at great pains to hide their wealth, not promote it.

Izabella Kaminska 12:52

And presumably, the true secret wealth doesn’t get in there? Or does it?

Dario Garcia Giner 12:52

(spoiler; it doesn’t)

Izabella Kaminska 12:53

In the last 7 minutes we still have, it’s also worth noting that there are growing concerns about liquidity in the US Treasury market.

I think this is actually an older story that people have just started to notice again.

But it provides for a good opportunity to check in on my favourite stress indicator… the New Your Fed dollar swap line use.

Looks like we have a new entry on the board there from the Bank of Japan.

And, the Swiss number has nearly doubled again.

On Poland, some interesting stuff also going on.

Mostly political.

But in the bond market, we are seeing the private sector cancelling bond offerings.

Well not entirely the private sector as Bank BGK is a state-run ban.

And it’s the one that cancelled the offering

On Friday, state-run development bank BGK cancelled a bond auction in a move Morawiecki said was “normal” given the turbulence in financial markets.

But there’s been a lot of financial repression going on in Poland. Including enforced mortgage holidays for all the banks.

There’s obviously some very important political context here.

As the news report notes, BGK has been issuing bonds that are used to finance the government’s response to the COVID-19 pandemic and defence spending.

But this is in part a burden it has to bear because EU covid relief funds have been frozen on concerns of undemocratic intervention in the Polish judiciary by the incumbent PiS ruling party.

Poland has in response, opened up a claim for WW2 reparations against Germany.

Dario Garcia Giner 13:02

That would definitely be an uncosted liability for the German budget.

Izabella Kaminska 13:02



But seriously it’s all very concerning.

@Robert on the swiss franc I will take a look and get back to you. But it could be related to some sort of swap line effect? Does a Credit Suisse dollar need? If it pays to tap the NY Fed, there must be something going on.

We’re out of time now, but I thought I would finish on a curiosity – related to Poland’s reparation claims — that I stumbled across at the weekend.

Ages ago I did a story about Germany’s long ago defaulted Dawes and Young bond debt.

These were bearer bonds, that were backed in gold.

There was a case in 2010 by a Tampa-based outfit called World Holdings, that was seeking to revive the claims.

Bloomberg and I reported at the beginning of the case, but we never followed up on what happened. So I decided given that german finances are now under scrutiny, to see what happened.

The case was thrown out, but the background makes for a delightful read.

Here’s a summary of the judgment.

Dario Garcia Giner 13:06


Izabella Kaminska 13:07

When Adolph Hitler gained power before World War II, Germany defaulted on many of its foreign debts. Germany defaulted on the Dawes and Young bonds and began aggressively purchasing the bonds at deep discounts. Instead of cancelling the repurchased certificates, Germany held the certificates in Berlin banks. Germany also issued a moratorium on the payment of the Agra bonds.

Something to bear in mind! (especially if this reparation stuff doesn’t go away.) I will probably revisit the story in greater detail soon.

On that note, it’s bye from me.

And thank you for bearing with my slowness today. Only one show this week as it’s half term, unless something truly amazing happens.

Dario Garcia Giner 13:07


Izabella Kaminska 13:08

Thank you, everyone!

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