Sunday, December 02, 2012

Why can't Reuters get this right?

Understanding full well that few outsiders can ever hope to find themselves possessed of the advanced intellectual acumen that the average Jaén olive farmer so blithely takes for granted, the olivarero behind Ibex Salad will regardless attempt to illuminate certain members of the English-language press corps concerning the actual content of the Spanish Treasury's statistics on the ownership of the country's sovereign debt. In this case, Reuters is the fortunate target of our largesse.

The chart on the left shows the euro value of foreign holdings of Spanish government bonds, of 3 years duration or more, since January 2011. It displays two lines - the blue, ending in September, indicating term holdings and the red, term plus temporary holdings of repo collateral, through October. They are, aside from the date of the final data point, evidently quite different from one another.

Behind these alternate trajectories lies the simple fact that when a bank, for example, enters as a borrower in the repo market the collateral it posts for loans granted - typically government debt certificates - finds itself registered in the name of the lender for the duration of the repo contract. These transfers of ownership are, rightly, not considered to be equal, for national accounts purposes, to outright bond market investment purchases. Unfortunately, most of the world's information providers appear to be unable, or unwilling when faced with luxury of a news story that writes itself, to appreciate this distinction.

In other words, what the red line in the chart actually shows is that the ECB's two LTRO programs, at the ends of December 2011 and February 2012, accomplished what they set out to do - to replace the private repo markets that were insisting on debillitatingly large collateral haircuts to fund Spanish banks' liquidity needs. The end result was what appeared to the uninititiated to be 80 billion euros in capital flight from November 2011 through August of this year.

The blue line, for its part, tells another tale - apparently apparent only to certified adepts of the Oily Order of Olivareros (viz Majestical Eminence of said organization on left). Foreign investment-type bond holdings decreased by 22 billion euros over the life of the two LTRO programs - from the November 2011 through April 2012. These sales were made primarily into decreasing yields and, naturally, rising bond prices driven by Spanish banks hungry for the domestic product. Capital gains were booked and, when the ECB party ended, voilà, foreign ownership immediately began again to increase. This statistic currently shows a rise of 6 billion euros over the course of 2012, and 17 billion since April lows, through the last point available - September.

We would humbly suggest that this last fact would have produced a more appropriate header than Reuters' 'Foreign investors began dumping Spanish bonds in October'. But, then again, we are not attempting to obfuscate, as the Reuters writer certainly is, the juicy detail behind the last paragraph of the piece. Foreign investment in Spain surged by 30 billion euros between August and September - an event memorably understated with a sentence...
'Bank of Spain data on Friday showed that foreign investors had put more money into Spain than they had taken out in September, the first time this had happened for 15 months,...'
...which arrives at the gloriously nonsensical conclusion that:
'...this is likely to weaken after October's bond data.'
For the information of readers and Reuters alike, the bond ownership data used to calculate foreign holdings in the national accounts are ex-repo. Term holdings, by their official name.

Get with the program, Reuters. You're being shown up by a fucking olive farmer. This scribe would be ashamed to show his face in the street.



Jose said...

Do not desperate Charles... it is not only Reuters... El Economista & Cinco Días -residents- a couple of weeks ago committed the same mistake, while the FTAlphaville (suposedly a decent blog) did so in the not that far past. I've also posted anonymous comments to all this group of useless journalists, but seems they can't understand it. It is really disheartening...

Charles Butler said...

Tesoro should be releasing the data simultaneously with the repo portion reported for what it is - ex term.

Dame pan, llámame tonto.

Candide said...

That's quite a funny bird in that picture. Is it a Treebots?