Tag: Bond Yields

Capital Controls in Argentina & Further Down the Negative Debt Rabbit Hole

Economist – Argentina’s beleaguered government imposes capital controls 9/2/19

When Mauricio Macri was elected president of Argentina in 2015, one of his first acts was to abolish capital controls that restricted buying and selling of the peso. The move symbolized Argentina’s pivot back to open markets and liberal economic reforms under his rule. On September 1st, after weeks of market turmoil, Mr Macri was forced to issue a decree re-imposing controls in an attempt to shore up the currency. From now on ordinary Argentines’ purchases of dollars will be capped at $10,000 a month. Companies will face restrictions on their ability to purchase dollars in the foreign-exchange market and to pay dividends to investors abroad.

FT – Argentina: how IMF’s biggest ever bailout crumbled under Macri – Michael Stott and Benedict Mander 9/1/19

Following days of market chaos in the wake of the vote (the August 11 primary vote that went to Peronist rival Alberto Fernandez (no relation to former president Cristina Fernandez de Kirchner)), Mr Macri’s government bowed to the inevitable last week and asked creditors for more time to pay back Argentina’s $101bn of foreign debt, including the IMF money, as Buenos Aires struggled to avoid the country’s ninth sovereign default — and the third this century. Currency controls were imposed on businesses on Sunday after it lost an estimated $3bn in reserves in just two days last week.

Bloomberg – The Unstoppable Surge in Negative Yields Reaches $17 Trillion – John Ainger 8/30/19

Thirty percent of all investment-grade securities now bear sub-zero yields, meaning that investors who acquire the debt and hold it to maturity are guaranteed to make a loss. Yet buyers are still piling in, seeking to benefit from further increases in bond prices and favorable cross-currency hedging rates—or at least to avoid greater losses elsewhere.

Where to find yield in this world and in Venezuela tienen hambre

Bloomberg – BoAML: US % of Global Investment-Grade Yield – John Authers 8/19/19

Bloomberg – BoAML: US & Non-US Investment-Grade Fixed-Income Yield – John Authers 8/19/19

FT – Fears grow of Venezuela malnutrition time-bomb – Michael Stott and Gideon Long 8/20/19

“Six to eight million people are living in a state of undernourishment,” said Susana Raffalli, a veteran Venezuelan humanitarian adviser who has worked across the world with the Red Cross and Unicef, the UN agency for children. 

In a recent report on global food security, the FAO estimates that between 2016 and 2018, about 21.2% of the Venezuelan population was undernourished. When Mr Maduro came to power in 2013 the figure was 6.4%, it says.

In a June report, Unicef estimated that 3.2m children in Venezuela were “in need of assistance”.

Mr Maduro (President Nicolas Maduro) blames a US-orchestrated economic war for the problems with food supplies. The US has imposed an increasing array of sanctions on Venezuela in an effort to force the president from office.

The White House and Venezuelan opposition say the principal culprit is an economy ruined by years of mismanagement whose collapse began years before the first significant US sanctions in 2017. In a statement, the US state department described Venezuela as “one of the worst man-made humanitarian disasters in the modern world”.

Mr Maduro has repeatedly denied there is widespread hunger in his country. He told the BBC earlier this year: “Venezuela has the highest levels of nutrients, has extremely high levels of access to food, and that stereotype, that stigma [of hunger] that they have tried to put on us, has only one objective: to present a humanitarian crisis that does not exist.”

But hunger is one of the main reasons for the mass exodus from the country in recent years, according to diplomats and aid workers. More than 4m Venezuelans have fled abroad, and for those who remain, the food situation is increasingly perilous.

Venezuela will face long-term consequences from chronic undernourishment, especially of children, humanitarian organizations warn. NGO data seen by the FT show the weight and height of Venezuelan children have fallen significantly below the average for comparable populations.

Hunting for Yield

FT – Negative yields force investors to plunge into riskier debt – Robin Wigglesworth 8/15/19

Two decades ago, well over half of the global bond market boasted yields of at least 5%, according to ICE Data Indices. The post-crisis splurge of central bank bond buying and rate cuts lowered this to under 16% a decade ago, but investors could still find plenty of higher yielding debt. Today, a mere 3% of the global bond market yields more than 5% — the lowest share on record.

Indeed, truly high-yielding debt is now almost an endangered species. Bonds with yields of more than 10% amount to just 0.4% of the global fixed income universe, according to ICE.

Negative interest rates in Japan and the eurozone, and mounting expectations that the US Federal Reserve will follow last month’s rate cut with several more this year, have expanded the pool of bonds with sub-zero yields to more than $16tn — or around 27% of the global bond market.

This is primarily a European phenomenon. While US bonds account for just under half the $55tn global investment-grade bond market, they pay out 88% of all yield, according to Bank of America. 

There are, broadly speaking, two main ways for investors to counteract the global yield drought: buying longer maturity or riskier debt. But hunger for long-term bonds from investors such as pension funds and insurers means that the yield pick-up one would normally expect to receive through buying bonds maturing decades into the future, has also fallen sharply.

That leaves many investors pushed towards the only other option: venturing into the riskier corners of the bond market, such as fragile countries, heavily indebted companies and exotic, financially engineered instruments.