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Must-know: Details of Whiting’s Kodiak acquisition
Consideration for the deal includes $3.8 billion in KOG stock, through a stock swap based on the closing price of WLL stock on July 11, and assumption of $2.2 billion KOG debt, as of March 31—the total cost of the transaction is valued at $6 billion.
Treasury yields on the long-end of the curve, were down since the conclusion of the Fed’s last FOMC meeting on June 18—30-year and ten-year Treasury yields had fallen by 12 bps and three basis points (or bps), respectively over the period June 18 to July 30.
Dr. Plosser is part of this year’s policy-making body of the Fed—the Federal Open Market Committee (or FOMC)—out of the ten participants at the July FOMC meeting, Dr. Plosser was the only FOMC participant who voted against the monetary policy action.
Second quarter GDP grew 4% quarter-over-quarter (or QoQ) on a seasonally adjusted annual rate (or SAAR), compared to a contraction of 2.1% in the 1Q14—the higher-than-average rate received a bump in the second quarter partly due to a lower base in the first quarter.
After the July meeting, the FOMC statement noted that although there was improvement in the labor market with the unemployment rate falling further, significant labor market slack remained.
In general, the FOMC statement at the end of the July meeting implied that the Fed was more upbeat on achieving its twin targets of full employment in the labor market and inflation at around the 2% long-term level.
Although the Fed announced the $10 billion taper, it would still be continuing LSAPs at the rate of $25 billion per month, which would mean more liquidity in financial markets, more demand for longer-term Treasuries and agency-backed securities, and an increase in the size of the Fed’s balance sheet.
On Wednesday, July 30, the Fed released the press statement for the meeting—on the statement, the Fed made the anticipated announcement that it would be tapering monthly asset purchases by $10 billion to $25 billion per month.
In their pursuit of restoring the economy by providing energy subsidies and funding social programs, they’ve literally drained out the Central Bank’s reserves—Argentina’s economy has weakened to the extent that the authorities have little control over the burgeoning inflation rate.
According to the current default situation, Argentina’s economy is expected to contract further with the odds of another financial crisis being very high.
After a financial crisis in 2001, Argentina’s government had offered bondholders a deal in which they would get regular payments of interest provided that they accepted a more than 70% reduction in the value of their investment, also known as a haircut.
A significant factor in sovereign default is the presence of significant debt owed to foreign investors—since most sovereign defaults end in partial debt cancellation or debt restructuring, bond-holders are left with no option but to accept a loss on their investments.
A sovereign default is the failure of a government of a sovereign nation to pay back its debt in full—a sovereign default occurs when the government formally declares its inability to pay or only partially pay its debts.
Treasuries (TLT) and bonds are often considered safe-haven assets—as a result of the rising geopolitical tensions in Gaza, Israel, Ukraine, and Russia, investors have been buying bonds continuously.
The last three years have seen a massive rally in high yield bonds as the yields for government bonds (TLT) (IEF) have been at historical lows and investors have pumped their money into high yield bonds as an alternative to investment grade bonds.
High yield bonds like the SPDR Barclays Capital High Yield Bond ETF (JNK) and the iShares iBoxx $ High Yield Corporate Bond ETF (HYG) are riskier assets compared to investment grade bonds (AGG) and straight Treasuries (TLT).
Despite the news of robust earnings hitting the markets, U.S. (SPY) and European equities (EZU) have been retreating in the past few sessions.
Net outflows from leveraged loan (BKLN) mutual funds in the week ending July 25 came in at $413 million, compared to a net outflow of $440 million in the previous week—last week brings the total net inflows in to leveraged loan mutual funds to $352 million YTD.
Refinancing deals, financing for leveraged buyouts and acquisitions, repricing transactions, and payment of dividends or recapitalization, were some of the dominant reasons why issuers took recourse to the leveraged loans market last week.
Both yields and spreads had increased in the early part of the week on geopolitical events in Ukraine and the Middle East—corporates reported better-than-expected earnings over the course of the week which caused yields to fall Monday through Thursday.