How Scary Is the Bond Market?

South Africa was the only country in sub Saharan Africa to issue on international bond or equity markets in 1997.

In 1997, Argentina, Brazil, Ecuador, Panama and Venezuela retired 10.4 billion of collateralized Brady bonds through swaps against uncollateralized long term bonds, effected at a discount based on secondary market prices.

Pushing up asset prices and pushing down the euro s exchange rate will require the ECB to buy bonds on the secondary market not the crisis countries bonds per se, but those of all eurozone members. In other words, it will require quantitative easing.

11 The Asian Bond Market Initiative was endorsed at the ASEAN 3 Deputies Meeting held in Chiang Mai in December 2002. Its objective is to develop efficient bond markets in Asia.

The CDO market, however, was concentrated six or seven issuers controlled most of the market, and this market ended up representing 50 of the entire revenues to be gained through ratings. All of a sudden, issuers had much more influence on the rating agencies, which, like any good seller, were ready to bend a little not to alienate important customers.

The US sovereign debt market shows no similar evidence of having reached a limit yet. But bond markets do not issue many early warning signals witness the sudden run up of yields in Italy and Spain a year ago.

DUBLIN Bond markets are notoriously fickle, often driven by sentiment rather than rigorous macroeconomic analysis, and, as the 2008 global financial crisis demonstrated, they are far from infallible. They can also be particularly unreliable when assessing an economy s long term prospects.

Likewise, the development of bond markets has been gaining attention in a growing number of developing countries in all regions, though in many places bond markets are relatively new.

The Asian bond market and Asian bonds are thus mechanisms for financing for development that also promote greater regional economic stability.

The bonds carry market interest, but the State guarantee is equivalent to a subsidy.

In addition, the ECB could purchase EIB bonds on secondary markets, which would help to keep funding costs low or even reduce them. More important, purchases of EIB bonds would enable the ECB to undertake quantitative easing without triggering the degree of controversy implied by intervening in 18 separate sovereign bond markets, where concerns that ECB purchases would affect the relative pricing of sovereigns are very real.

The stock market s recent performance often is attributed to the unconventional monetary policies that many central banks have been pursuing. These policies, by design, lowered the return on sovereign bonds, forcing investors to seek yield in markets for higher risk assets like equities, lower rated bonds, and foreign securities.

Any United Nations bond issue would be evaluated by market participants and potential investors by its credit rating, which is a formal evaluation of the creditworthiness of the bond issue by an independent credit rating agency.

On international financial markets, the war in Georgia has rendered Russian debt and bonds toxic. Interest rates on Russia s bonds have risen by 2 3 percentage points, and many Russian creditors no longer have access to international capital markets.

In the bond market, since June, due to the influence of multiple factors such as fundamentals and investor sentiment, the bond market has taken on a trend of improvement.

However, since the dynamics of domestic currency bond markets are linked to external bond markets, they are not immune to external volatility, and recent experience calls into question the effectiveness of local capital markets as a buffer against external volatility, particularly for a country considered as a high credit risk.

Reforming governance implies significant progress toward economic unification centralizing European debt through Eurobonds, mobilizing sufficient rescue funds, allowing the European Central Bank to intervene in the primary bond markets, and establishing both a fiscal and a banking union.

For example, the Republic of Korea has undertaken measures to encourage the issuance of bonds by SMEs.10 One objective of the Asian bond market initiative11 is to increase bond financing options for smaller companies in Asia.

General regulations referred to in article 52 bis 4 of the Securities Market Act

Surprisingly, the bond market still seems almost oblivious to this risk. But holders of US debt worldwide have every reason to be concerned.

Moreover, a consortium might not have access to the financial market for the purpose of raising funds, where only corporations are authorized by the law to issue negotiable instruments and securities such as stocks, bonds and debentures.

E. Credit rating of United Nations bond

Sovereign obligations, such as bonds, are commonplace in the capital markets, and demonstrate strong investor demand and confidence.

When the US housing market started to turn south, the biggest underwriters (such as Countrywide) did not go bankrupt right away, because they had sold the vast majority of their loans to the CDO market. Eventually, however, the uncertainty created by these CDOs nearly brought down the entire US banking system.

With regard to the second problem, the interest rate on rescue packages should be reduced to the rate at which the EU itself can borrow on the market. This would have the advantage of developing an active Eurobond market.

Once the first two elements of the plan are in place, there should be little need for the third bond purchases by the ECB in the secondary market in order to narrow interest rate spreads and provide further confidence. Indeed, if the ECB intends to claim preferred creditor status for any bonds that it buys, it is probably best that it buy very few.

Policies to support municipalities with a good financial standing and favourable credit rating that have tried to meet some of their investment needs by tapping local bond markets could yield good results.

The EFSF, created to assist countries facing illiquidity, is designed exactly like a CDO. The EFSF buys the bonds of the countries which find it difficult to finance themselves in the marketplace (for example, Ireland) and issues bonds that are AAA rated.

Local currency government debt markets have performed fairly well during the crisis, while local currency corporate debt markets have played a more modest role as a vehicle for longer term finance. This suggests that domestic reforms aimed at reducing issuance costs, improving disclosure requirements, enhancing creditors rights frameworks, and tackling other inhibiting factors could bring high returns.

In mid July 2011, Greece s sovereign debt stood at 350 billion (160 of GDP). The Greek government currently must pay 25 for its ten year bonds, which are trading at a 50 discount in the secondary market.

The solution suggested by the Governor was to borrow about 400 million on the bond market to offset the deficit.

We see ever growing support for the proposal to develop an Asian bond market, which I put forth in 2001.

Debt markets would also benefit from such an initiative. Blurring the line between the private and the state owned sectors would, over time, reduce the latter s privileged access to and overuse of bank financing, leading to the expansion of corporate bond markets.

38 For example, through strengthening institutions that provide long term finance, such as development banks and, where appropriate, bond markets.

The asset prices of emerging markets benefit from the loose expectation rally brought by the slow interest rate hikes of the Fed. It is better to actively grasp the investment opportunity of stock market and bond market under this environment.

A second cause lies in the fact that fixed income assets such as government, corporate, and emerging market bonds are not traded in more liquid exchanges, as stocks are. Instead, they are traded mostly over the counter in illiquid markets.

In addition to providing more stability, bond markets are expected to stimulate domestic savings and investment.

A major concern of the German Constitutional Court is the similarity between the ESM s Secondary Market Support Facility (SMSF) and the ECB s OMT program, both of which imply the purchase of government bonds in secondary markets. The two schemes are being carried out under nearly identical conditions requiring the ESM s approval of a country s reform program and neither has been triggered so far.

3 Trade securities or maneuver securities market with insider information

Weak Labor, Strong Securities Markets

Yes, financial markets in troubled countries for example, Russia s currency, equity, and bond markets have been negatively affected. But the more generalized contagion to global financial markets that geopolitical tensions typically engender has failed to materialize.

Moreover, market volatility of portfolio investments was not a serious problem in Africa (especially in equity markets in Egypt and South Africa), particularly when compared to other markets.

Both measures had an immediate and profound impact on financial markets. Seen from Wall Street, the euro was moving closer to becoming a normal currency.

It facilitates price discrimination and the exploitation of secondary markets.