Asian governments having difficulties issuing bonds
This is the type of story that very in North America is aware of, yet can portend to huge changes:
A lot of people who bash the US sovereign debt don't realize how attractive it is compared to emerging market soverign debt. This isn't just my opinion; it's the market's opinion.
Rising bond yields is equivalent to tightening of money so it remains to be seen how economies in those countries will be impacted. I'm also curious to see if the bond yield in America splits off from the emerging market ones. That is, will bond yields in America stay low while they rise in emerging markets?
For all the talk this year about the Chinese refusing to buy U.S. bonds, the real story is about the People’s Republic of China’s failure to find buyers for the equivalent of $1.7 billion of its debt because too many investors showed no interest at auctions that would be considered disastrous if their outcomes were repeated on Wall Street.
Other Asian countries face similar difficulties. India’s underwriters had to purchase 3.1 billion rupees ($64 million) of 25-year securities they were unable to sell at a July 10 auction. Vietnam and the Philippines abandoned offerings because investors demanded higher yields than the governments were willing to pay. China’s 11.9 billion yuan in unsold short-term debt represented 14.3 percent of the 83 billion yuan it offered in three sales this month.
A lot of people who bash the US sovereign debt don't realize how attractive it is compared to emerging market soverign debt. This isn't just my opinion; it's the market's opinion.
Rising bond yields is equivalent to tightening of money so it remains to be seen how economies in those countries will be impacted. I'm also curious to see if the bond yield in America splits off from the emerging market ones. That is, will bond yields in America stay low while they rise in emerging markets?
Yes, the U.S. government is fortunate that the U.S. is the financial capitol of the world. In a piece I wrote some time ago for a Webzine, I noted that the collapse in U.S Treasury rates was a kind of bailout of the U.S. government by the bond market.
ReplyDeleteI think there'll be a lot more complaints about 'banksters' in the decades ahead, becaus there are lots of Wall Streeters who will be eager to remind U.S government officials of that fact. (In private, of course.) Wall Street's going to be treated like a racket-running supply sarge because it "delivers the goods:" i.e., it can wrangle cheap capital for U.S Treasuries.
The people complaining about Wall Street's inside racket (so to speak) won't have much influence on the U.S. government until Wall Street delivers the goods no more: i.e., if there's a full-blown credit crunch that pushes U.S. Treasury rates - in real terms - to near-Icelandic levels.
Interesting.
ReplyDeleteI'm not very good at macroeconomics. If China couldn't find buyer of its gov bond to fund its Keynesian spending, how do they fund it now??
The quoted situation is not that significant in terms of the size. The amount we are talking about is very tiny. What is significant is the fact that the market is bearish on some of their bond issues.
ReplyDeleteAs for financing, this isn't really a big deal. They can always raise the coupon rates on the bonds and they will find buyers. Besides, China runs a current account surplus and they probably don't even need to issue bonds.
A similar problem is a greater concern in countries like India, Vietnam, Eastern Europen countreis, and so forth, who on top of running massive government deficits, generally run a current account deficit.
In the grand scheme of things, everything will come down to whether you believe in the savings glut theory or not. If you do believe in that theory (i.e. excess savings present in the world), governmetn debt issuance, at least for credit-worthy countries, won't be a problem.