GFMA: News on the global financial markets

Greek debt haircut leads investors to dump sovereign bonds
An agreement to levy a 50% "voluntary" haircut on Greek debt encouraged some investors to sell bonds of Italy, Spain and other European nations, analysts said. "That's why you saw Italian yields jump," said Don Quigley, co-portfolio manager of the Artio Total Return Bond Fund. "If everyone that thought they were hedged with [credit default swaps] thinks they're now worth nothing, they have to sell." MarketWatch(18 Nov.)

Australian banks are expected to issue covered bonds
Australia's major banks are preparing to issue covered bonds to enhance liquidity-risk positions as Basel III rules loom. "The two major benefits for Australian banks issuing covered bonds are access to lower costs of funding and a move to a more stable longer-term source of funding," said William Mak, credit-desk analyst at Nomura. "Covered bonds will also have implications for the net stable funding ratio as banks shift to longer-term stable funding required under Basel III liquidity reforms." Risk.net (subscription required)(21 Nov.)

Tokyo and Osaka exchanges reportedly agree to merge
The Tokyo Stock Exchange and the Osaka Securities Exchange agreed to merge in late 2012 or early 2013, a source said. The tie-up would create the third-largest exchange operator in the world. While the TSE concentrates on share trading, the Osaka bourse runs a platform for trading derivatives, including a futures contract linked to the Nikkei 225 Stock Average. The Wall Street Journal (tiered subscription model)(19 Nov.)

Barclays' Diamond expects European banks to consolidate
Barclays CEO Bob Diamond said a wave of consolidation among European banks is likely as lenders focus on core strengths and shed weaker divisions. "Banks will make sure they're only doing things where they have some kind of competitive edge and scale, and exiting activities where they do not have a competitive edge and are subscale," Diamond said. Reuters(21 Nov.)

Regulatory Roundup

Draghi rejects calls for ECB to do more to end crisis
Mario Draghi, president of the European Central Bank, rejected calls from officials and investors for the central bank to do more to resolve the sovereign-debt crisis. Draghi said the ECB needs to stick with its primary role of maintaining price stability or it will lose credibility. Draghi's comments suggest he is unwilling to bolster government-bond purchases. Bloomberg(18 Nov.), The Wall Street Journal (tiered subscription model)(19 Nov.)

Editorial: Draghi must defend ECB's independence: As the new head of the European Central Bank, Mario Draghi is facing mounting pressures to step in to save the euro zone. Some see German Chancellor Angela Merkel and Draghi as the biggest obstacles to resolving the sovereign-debt crisis. Draghi and Merkel need to stand their ground, according to this Wall Street Journal editorial. "Someone needs to defend the principle of central bank independence and price stability. The ECB has been by far the most effective part of the euro system since its founding. It shouldn't squander that legacy now by taking on the debts of spendthrift governments that are the real cause of this crisis." The Wall Street Journal (tiered subscription model)(21 Nov.)

Commentary: Transaction tax wouldn't resolve Europe's issues
European leaders are considering levying a tax on financial transactions, but columnist Tony Jackson argues that the move wouldn't end the region's problems. He proposes direct intervention instead. Financial Times (tiered subscription model)(20 Nov.)