I don't know.

I don't know, Mammy.

I want you to buy me a government bond.

Governments and international financial institutions could consider providing bond guarantees to those municipalities.

How Scary Is the Bond Market?

National Governments may also be able to enhance local authorities' direct access to capital markets, domestic and international, by granting authority to municipalities to issue infrastructure bonds.

But if they maintain large budget deficits and continue to monetize them, at some point after the current deflationary forces become more subdued bond markets will revolt. At this point, inflationary expectations will increase, long term government bond yields will rise, and the recovery will be crowded out.

Public and publicly guaranteed debt rose moderately, while bond financing fell dramatically by 40 per cent.

This bill makes American Samoa bonds more attractive to investors and will save the Government of American Samoa interest costs on municipal bonds it may issue.16

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

Successive Puerto Rican governments thought that the island s economy was in recession and attempted to spur activity by increasing government spending. Low interest rates meant that deficits could be financed by floating bonds.

European banks remain balkanized, with a patchwork of national regulators seeking to promote their own champions. European governments debt may all be denominated in euro, but German and Italian debt are hardly the same thing, so the government euro bond market lacks the depth and liquidity of the US Treasury Bill market.

But this situation has deteriorated recently, for two reasons. First, the total volume of JGBs has become extremely high relative to households net monetary assets, which stand at roughly 1,100 trillion.

For instance, even creditworthy municipal authorities could benefit from assistance in meeting the requirements of accessing bond markets.

Due to the huge US budget deficit, the supply of American government bonds will increase astronomically in the years ahead. But there is no guarantee that demand for these Treasury notes among foreign investors including foreign governments will be sufficient.

They might choose to do so, but mostly they just roll them over by issuing new bonds. The longer the bonds maturities, the less frequently governments have to come to the market for new loans.

Moreover, not forbidding indirect purchases should be seen primarily as a means of permitting banks that buy government bonds to pledge them as collateral for refinancing operations, while bearing the full investment risk. The distinction between bond purchases from the government and from the banks that bought them from the government is a phony one that gives rise to myriad possibilities for circumvention.

Local bond markets provide alternative sources of financing for companies and Governments, which avoid exchange rate risks inherent to foreign financing.

The Bank of Japan already holds government securities worth 40 of GDP, and it is committed to annual purchases worth 16 of GDP within the framework of Prime Minister Shinzo Abe s economic revitalization agenda. The mammoth size of the BOJ program implies that it has taken full control of the market for government paper.

The application of funds of an insurance company is limited to bank deposits, trading of government and financial bonds and other forms of fund application stipulated by the State Council.

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.

The Argentine Government undertook a first debt swap in June 2001 government bonds with a face value of 29.5 billion were voluntarily exchanged for longer term instruments.

In the eurozone, lower long term rates for government bonds are thus unlikely to improve the corporate sector s financing conditions and boost investment demand. By contrast, in the US, a much larger proportion of investment is financed by issuing bonds, which can have a longer maturity than bank loans.

NEW HAVEN The prices of long term government bonds have been running very high in recent years (that is, their yields have been very low). In the United States, the 30 year Treasury bond yield reached a record low (since the Federal Reserve series began in 1972) of 2.25 on January 30.

One example is Eurobonds, which Merkel has declared taboo. Yet they are the obvious solution to the root cause of the euro crisis, which is that joining the euro exposed member countries government bonds to the risk of default.

In response, central banks should purchase government bonds for cash in as large a quantity as needed to push their prices up as high as possible. Expensive government bonds will shift demand to mortgage or corporate bonds, pushing up their prices.

The markets are fully aware that Greece, being insolvent, will eventually default. That s why the interest rate on Greek three year government debt recently soared past 100 and the yield on ten year bonds is 22 , implying that a 100 principal payable in ten years is worth less than 14 today.

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

But the creation of the euro caused a sharp fall in interest rates in the peripheral countries, leading to debt financed housing bubbles and encouraging their governments to borrow to finance increased government spending. Amazingly, global financial markets ignored the credit risks of this sovereign debt, requiring only very small differences between interest rates on German bonds and those of Greece and other peripheral countries.

Moreover, the Greek government s interest payments are exceptionally low. Given that its debt will still be about 170 of GDP this year, the 4.1 of GDP interest bill implies that the Greek government pays an average interest rate of just 2.4 far less than the nearly 9 rate that the market is now charging on ten year Greek government bonds.

With no current account surplus, China would no longer be a net purchaser of US government bonds and other foreign securities. Moreover, if the Chinese government and Chinese firms want to continue investing in overseas oil resources and in foreign businesses, China will have to sell dollar bonds or other sovereign debt from its portfolio.

The mechanics of debt restructuring are straightforward. Governments can offer a menu of new bonds worth some fraction of the value of their existing obligations.

Governments can offer a menu of new bonds worth some fraction of the value of their existing obligations. Bondholders can be given a choice between par bonds with a face value equal to their existing bonds but a longer maturity and lower interest rate, and discount bonds with a shorter maturity and higher interest rate but a face value that is a fraction of existing bonds face value.

Bond holders are to receive 456 million in bonds due in 2011 (with the same coupon of 9.5 per cent) and 574 million in bonds due in 2018 (with the same coupon of 9.04 per cent).

Bond

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.

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 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.

During the first seven months of 2010, China not only refrained from buying any more US government paper, but even began to sell its holdings. Each month, China sold a net sum of about 7 billion in US government bonds.

The authorities will issue 35.2 billion in new securities, comprising 15 billion in par bonds, 11.9 billion in discount bonds and 8.3 billion in quasi par bonds.

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.

C. Financial mechanisms associated with a bond offering

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.

Meanwhile, the main transmission channels of monetary stimulus to the real economy the bond, credit, currency, and stock markets remain weak, if not broken. Indeed, the bond market channel is unlikely to boost growth.