* Spanish bond shortage distorts repo market
* Italian rates rise but market still functioning
* Interbank cash rates fall on rate cut expectations
By Kirsten Donovan
LONDON, June 18 (Reuters) - A lack of available Spanish government bonds, due to so many being used to obtain funding at the European Central Bank, is distorting pricing in repo markets and causing investors headaches as they seek to cover hefty short positions.
As international investors sold Spanish government bonds this year, domestic banks bought them and parked them at the ECB in return for funds - particularly during the two recent three-year funding operations.
As a result, investors who need the bonds because of their own short positions must pay a premium for the paper.
When this happens in repo markets - where banks commonly use government bonds as collateral to raise funding - bonds are said to be trading "special".
Effectively, the investor who needs the bonds pays a premium to their counterparty in the trade - the opposite of a typical repo trade where the party borrowing cash pays the premium.
"There's some good evidence of a collateral shortage out there," said ICAP rate strategist Chris Clark. "Quite a lot may be being used at the ECB and the market short (positions) out there will be increasing the demand for specific bonds."
It is the opposite of what might be expected when a country's debt comes under pressure. Then counterparties are usually more reluctant to be left holding the bonds.
"The collateral just isn't there. That's one of the problems and the few bonds that are still available are highly sought after by people who want to cover their short positions," said Commerzbank rate strategist Benjamin Schroeder.
Ten-year Spanish government bond yields have risen more than 130 basis points since the start of May, while two-year yields are up over 2 percentage points.
That prompted international clearing house LCH.Clearnet SA to increase the cost of using Spanish bonds to raise funds via its repo service last month. Analysts said their trading desks had since seen volumes over the platform drop.
"It's a further segregation of European money markets, where banks are retreating from central clearing houses and going back to domestic clearing or bilateral agreements," Schroeder said.
As the euro zone debt crisis intensified this month, mainly due to worries about Spain's banking sector, Italian general collateral (GC) repo rates, paid to borrow funds against a basket of government bonds, have been pushed higher.
There is little trade in the Spanish general collateral market but banks are still able to borrow using Italian bonds as collateral, despite Italy being seen as vulnerable to contagion from worries about Spain.
Three-month Italian GC rates rose to 0.42 percent at the end of last week, compared to the Eonia overnight rate at around 30 basis points, according to ICAP. The Italian rate had traded below Eonia from the time of the ECB's second three-year funding operation at the end of February until the end of May.
"There's been a rise in Italian general collateral rates, both outright and relative to the Eonia OIS curve," ICAP's Clark said. "Despite a reduction in the amount of term activity that goes on, the Italian market is still very much functional."
RATE SPECULATION
Three-month Euribor interbank lending rates eased again, hitting their lowest since the second quarter of 2010 as speculation grew the ECB may cut interest rates.
ECB president Mario Draghi heightened expectations the bank could cut interest rates or take further policy action soon after saying on Friday that the euro zone economy faced serious risks and no inflation threat.
September and December Euribor futures contracts rallied to contract highs, pushing implied rates lower.
Markets are pricing in a 50 percent chance of a 12.5 basis point cut in the ECB's 0.25 percent deposit rate this year, and a 25 percent of the rate being cut to zero, according to RBS.
Tough luck, Generation X: Only half of wealthy Baby Boomers to leave money for their kids...and ONE THIRD would rather give it to charity - Daily Mail
- Baby Boomers defined as people between the ages of 47 and 66
- Generation X refers to people born between early 1960s and early 1980s
- 55 per cent of Baby Boomers believe it's important to leave money to offspring
- Most Baby Boomers believe each generation should earn its own wealth
- Three-quarters of people younger than 46 favor leaving money to kids
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When members of the Baby Boomers generation die in the next 50 years, they will leave trillions of dollars in wealth behind, but their children should not hold their breath for a large inheritance.
According to the U.S. Trust Insights on Wealth and Worth annual study released on Monday, only 55 per cent of Baby Boomers - those between the ages of 47 to 66 - think it is important to leave money for their offspring.
U.S. Trust commissioned an independent, national survey of 642 high net worth adults, who were not clients, with at least $3million in investable assets.
Givers: A study found that 31 per cent of wealthy Baby Boomers would prefer to leave their money to charity
One of three Baby Boomers surveyed – about 31 per cent - don’t think it is important to leave a financial inheritance and said they would rather leave money to charity than to their children.
By contrast, three-quarters of wealthy people under age 46 said it's a priority to leave inheritance for their children.
The top reason for not wanting to leave money for their kids is the belief shared by some Baby Boomers that each subsequent generation should work to earn its own wealth.
Following closely behind is the thought that it is more important to invest in children’s success while they are growing up.
‘Our survey points to a shift in generational behavior and outlook, most likely shaped by personal experience and societal responses to economic realities,’ said Keith Banks, president of U.S. Trust.
Banks added that well-off parents are concerned that the next generation is not prepared to inherit wealth, which is not surprising considering the fact that most of the Baby Boomers surveyed don't talk to their kids about money: just 37 per cent said they've fully disclosed their net worth to their children.
Kept in the dark: Just 37 per cent of Baby Boomers said they've fully disclosed their net worth to their kids
Those over age 67 said they weren't having this discussion because they were raised to avoid money talk, while younger respondents said they didn't want to inhibit their kids' work ethic.
Unlike the majority of people from her generation, 63-year-old Kathleen Taylor, of Chimacum, Washington, taught her two grown children since they were young to be responsible for their own money.
That is why she plans to leave most of her money to her children and some money to charitable causes, ABC News reported.
One way Taylor and her husband taught their children about responsible spending was providing the value of college tuition, room and board to each of them and putting them in charge of paying the bills.
‘People thought we were crazy,’ she told ABC.
The Taylors plan to start a college fund once their children start having their own kids. And they intend to add to it on their grandchildren’s birthdays as long as Taylor and her husband are alive.
Mrs Taylor said she hopes her own children will do the same for their great-grandchildren.
The U.S. Trust study also has found that 42 per cent of Baby Boomers and 54 per cent of those under age 46 are paying medical costs for their parents or other relatives.
Masters in Finance: Edhec and Guanghua in pre-experience rankings - Financial Times
The demand for highly qualified finance professionals is increasing. As companies seek to navigate the worst of the economic storm, sound knowledge of financial tools and strong analytical skills are essential requirements.
This year sees the second Financial Time Masters in Finance rankings, compiled using the data from business schools and from a survey of their alumni who graduated three years ago.
The rankings include 35 pre-experience programmes for those with little or no experience, and four post-experience programmes for professionals who wish to develop their skills further.
In the pre-experience ranking, 31 schools are located in Europe with the majority of these in the UK (11) or France (seven). Three schools from the US and one from China complete the rankings.
The post-experience ranking is made up of one school based in the UK, and three for the US.
As in 2011, HEC Paris and London Business School top the rankings for pre-experience programmes and post-experience programmes respectively. HEC Paris was ranked first for value-for-money and placement success. It features among the top five places in three other criteria. London Business School tops the ranking for value-for-money, international mobility and international course.
A number of entrants feature in both rankings, notably, Edhec Business School in France and the Guanghua School of Management at Peking University enter the pre-experience ranking for the first time in sixth and eighth position respectively.
George Washington University and the Chapman Graduate School of Business at Florida International University make their entry in the post-experience ranking in second and fourth place respectively.
IE Business School in Spain is ranked second in the pre-experience ranking, the same place as in 2011. It is ranked first for career progress. On the other hand, only 9 per cent of its students are women, the lowest percentage in the ranking.
IE shares the second place with Essec Business School from France, which gained one place from the 2011 ranking.
Brandeis University is the highest ranked school from the US, at number 17 in the pre-experience ranking. It comes second for international mobility and sixth for aims achieved. However, with 62 per cent, it has the lowest rate of employment three months after graduation.
Peking University is the only school from China that features. It is ranked third for value-for-money and placement success and has a 100 per cent employment rate three months after graduation. However, it has the lowest international diversity rate for faculty and students.
Based on purchasing power parity rates used to convert all salaries into US dollars, students from Peking University also commanded the highest average annual salary at $96,800 three years after graduation, narrowly relegating the students from HEC Paris to the second highest.
The student survey showed that more than 95 per cent of its graduates work in finance in China.
Some 1,200 students who attended programmes at the 35 schools in the pre-experience ranking completed the FT survey.
The results provide useful insights on the profile of the average student: he is male and either French or Chinese.
When starting the course, he is 24 years old and has been working in finance for a year, most likely in accounting or investment banking, mergers and acquisitions as a graduate trainee with a salary of about €20,000.
Three years after graduation, he is likely to work in London in investment banking, mergers and acquisitions as a junior professional with a salary of £50,000.
Looking beyond averages, the data shows significant differences for students’ mobility. For example, 60 per cent of students in French schools were from France, but only 9 per cent of students in UK schools were British.
And only 9 per cent of overseas students who studied in France remained there in employment compared with 27 per cent of those who studied in the UK.
More than half who studied overseas returned to their home country after graduating and more than 80 per cent of them still work there three years later.
Just over half of students who studied overseas chose the UK and more than 40 per cent of graduates who work overseas are in the UK. This is hardly surprising, considering about 900 foreign-owned groups operate in the UK financial industry, according to a report by IMAS in January 2012.
Nonetheless, only 3 per cent of the students who completed the survey are from the UK. This compares with 13 per cent from both China and France. Cultural differences between these countries may explain this gap.
Students in the UK typically study humanities, whereas in China and France university education emphasises mathematics – the latter being better suited to financial techniques.
Man Group finance director Kevin Hayes steps down - BBC News
Kevin Hayes has stepped down as finance director of struggling hedge fund firm Man Group on the day the company is demoted from the FTSE 100.
Jonathan Sorrell, Man's head of strategy and corporate finance, will replace him at Europe's largest listed hedge fund.
Man, whose shares have slumped, is being replaced in the FTSE 100 list of the UK's leading companies by Babcock.
Mr Hayes is leaving to pursue "other interests", Man said in a statement.
He joined Man in 2007.
Man Group shares have tumbled since the last FTSE review in March, and are down almost two-thirds since last year.
The firm's funds have struggled as cautious clients withdraw money because of the market turmoil caused by the eurozone debt crisis.
Mr Sorrell, son of WPP advertising chief Sir Martin Sorrell, spent more than a decade at Goldman Sachs before joining Man last August.
In a statement, Man chief executive Peter Clarke said Mr Sorrell's experience "will be extremely valuable as we continue to develop and evolve in challenging world markets".
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