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| Bianco Research |
10 Year Bonds Around the World
by Barry Ritholtz
(h/t Scott Fullwiler via Twitter)
Sample the comments for some humor. Example: "Valuation doesn't matter until it does." You know, any day now. I wonder how many of these people are putting their money where their mouth is and going short after so many got burned so badly. Explains why people are willing to take the losing side of a trade. They don't understand valuation.
Switzerland with CHF pegged to a "non-sovereign" EUR is at the top of the list!
ReplyDeleteAny comments on that?
Btw, has Switzerland lost its keystrokes? Does the Swiss government not spend by crediting bank accounts?
Ramanan: "Switzerland with CHF pegged to a "non-sovereign" EUR is at the top of the list!"
ReplyDeleteGood point but Switzerland is pegging because the CHF is too strong, so it is not quite the same as other pegs.
But you are right, it has to protect its export market against what it sees as a threat to the exchange rate. The floating rate is not working for them, in the opposite way from weaker nations.
Similarly, German bonds are in demand whereas the bonds of other EZ nations are going begging,and German banks are drawing an inordinate amount of deposit money relative to the rest of the EZ. So even though there is no exchange rate in the EZ countries using the euro, the effects are still present.
The Swissie yld is pretty impressive. Not sure if US ylds can fall that low but we do seem to be heading in that direction. Where do you think we stop, 1.0%?
ReplyDeleteCan anyone comment on what we often here about Japan… "Japan is a unique situation because most of it's public debt is owed to it's own citizens…" etc.
ReplyDeleteI'm not looking for an explanaion the involves Japan being a currency issuer. I'm aware of all that.
What I'm wondering is: does "who" the national debt is owed to matter at all?
The fact that a sizable amount of the public debt is domestic means that the KAS is lower than it would be if the public debt were held externally. Important for a net exporting nation like Japan. Being a currency issuer and not leaking jobs through imports, the economy is strong and the government has policy space domestically.
ReplyDeleteWhat is KAS?
ReplyDeleteFigured it out… Capital Account Surplus = KAS.
ReplyDeleteWhat 'kind' of policy space does a country like Japan have.. that a net importing country does not have?
ReplyDeleteLeft this comment at Ritholz:
ReplyDelete[Specifically glossed over some things, because Barry's train of thought on post gold-std currency is still boarding at the station.]
Since all these countries are - one way or another - on fiat currency systems, why call it a flight to safety?
Countries issue Treasury bonds not to get fiat - that, of course, would be nonsense.
Rather, issuers of fiat currency issue Treasury securities simply as a convenient, left over way to set interest rates, indirectly, by draining banking reserves from Central Bank accounts. TSs are just a habit left over from gold-std days.
see these references:
"The Treasury tax and loan account system was designed as a mechanism for minimizing the dislocations on bank reserves and the money market arising out of the sizable and irregular transfers between the Government and the public."
Treasury tax and loan accounts and Federal Reserve open market operations
http://www.newyorkfed.org/research/quarterly_review/1978v3/v3n2article7.pdf
TTL Note Accounts and the Money Supply Process
http://research.stlouisfed.org/publications/review/79/10/Accounts_Oct1979.pdf
Isn't the increasing demand for actually holding TSs more a sign that people are afraid to take otherwise reasonable risks, or outright uncertainty? When that occurs in fiat currency regimes it can only mean one thing, the issuers of fiat currency are issuing too little, and private interests are doing the only rational thing they can - hoard what little they have.
What are we worried about? A deficit in fiat? Since fiat currency is backed only by the initiative, will & credit of the issuing population, a fiat "deficit" only signals public initiative.
Balanced fiat = stagnant public initiative.
Surplus fiat = shrinking public initiative, aka austerity, aka becoming less than we can be.
JK: "What 'kind' of policy space does a country like Japan have.. that a net importing country does not have?"
ReplyDeleteMore stable fx rate means less currency devaluation, where external devaluation is comparable to domestic inflation. While this helps the importing country by decreasing prices of exports in international markets, it raises prices of imports, of which energy is significant for most oil-dependent countries.
This means that policy makers have to address rising prices domestically, which are politically unpopular, and rising prices of vital resources also have the potential of contracting the economy, forcing larger fiscal deficits and perhaps driving down the fx rate again. The electorate doesn't like volatility, which also leads to business uncertainty. So countries like to run stable currencies for economic and political reasons.
blast from 6 months past - don't you just love it - 2 of the biggest ignorant jerks in the financial universe one on top of another.
ReplyDeletehttp://articles.marketwatch.com/2012-01-10/commentary/30711327_1_jim-cramer-cnbc-muni-bonds/2
12 Wall Street voices to tune out in 2012
David Weidner's Writing on the Wall
Commentary: Don’t get fooled again by these wrong-way seers
6. Peter Schiff
In some ways Schiff is just like McCollough. CNBC? Check. Inflexible? Check. But where McCollough is a collection of misdemeanors, Schiff is a litany of capital crimes. Runaway inflation? Didn’t happen. The Dow Jones Industrial Average (US:DJIA) worth an ounce of gold? Still waiting. Total U.S. economic collapse? Thank goodness no.
And just check out his solutions: stop importing from China, eliminate the minimum wage, corporate and income taxes. Good thing no one takes Schiff seriously, including voters in Connecticut. (He finished third in a Republican primary for a U.S. Senate seat there.)
7. Bill Gross
We like Bill Gross, the head of Pacific Investment Management Co., but he bet wrong in 2011. Gross predicted Treasury yields would spike for a variety of reasons. They went the opposite way and his bond funds had their worst year since 1995. Gross would normally get a pass, but for someone known as the “bond king” and so prevalent in the media, the well-paid Gross makes the list.
anyone here know david? he's great.