There has been some discussion of the possibility of buyer revulsion eventually reaching the Treasury market as a burgeoning calendar bumps up against demand. But a Financial Times article points out that the issuers most at risk from a big US and advanced economy government bond sales program is emerging economies, with Hungary and Ukraine already in precarious shape and others in considerable peril.
From the Financial Times:
Record volumes of government bonds from the industrialised nations – intended to reverse what could be the worst recession since the Great Depression – threaten to curb access to credit markets by emerging economies.
Analysts warn that emerging market borrowers could be crowded out of the credit markets by $3,000bn of government bonds expected to be issued by the big developed economies in 2009 – three times more than in 2008. The US alone is expected to issue about $2,000bn next year….
Mr [Nick] Chamie [head of emerging markets research at RBC Capital Markets] said: “Governments or companies that are highly rated will still be able to attract buyers, but ….they will have to pay higher interest rates…”
Brazil, Russia, India and China face external debt payments of $205bn, $605bn, $257bn and $2,437bn respectively, but can rely on large foreign exchange reserves to help meet bills.
Argentina has $64bn of external debt due in 2009; Turkey has $36bn falling due, ING says.
So AIG falls somewhere between the 2 nations of Argentina and India.
“Brazil, Russia, India and China face external debt payments of $205bn, $605bn, $257bn and $2,437bn respectively, but can rely on large foreign exchange reserves to help meet bills.”
Chinese external debt is $2,437bn? SAFE just announced last week that mainland Chinese TOTAL external debt was $441.9b at the end of September, 2008, of which $280b was short-term debt. I don’t know where FT get its figure.
I second K’s comment. The number for China is off. The number for Russia ($605b) is also far higher than Russia’s total external debt as reported on the bank of Russia’s web site. The amount of Argentina’s external debt coming due also seems high — at least if the defaulted debt and interest arrears is left out of the calculation. the 05 restructuring if nothing else really pushed out the payment of principal on the GoA’s external debt, and i find it hard to believe Argentina’s private sector has that much coming due …
On Dec 22, bloomberg noted foreign central banks bought 30% of the 2 yr note auction compared to 35% in the previous auction.
Foreign central banks bought 25% percent of the notes at the Dec 23 auction, compared with 37% at the November sale.
These back to back auctions indicate demand is falling off a cliff the further out on the curve you go. The auction results indicate foreign central banks may be taking much less interest in our longer-dated securities ~ as in they may be slamming the door shut on any further substantial investment in them. This is only a preliminary to be watched closely. As the financial crisis passes through its acute phase, there will be less incentive for buying treasuries for their safe haven status, allowing central banks to diversify their investmests in emerging mkts and the like
Brad, K, thanks. Wow, another sign the FT is slipping.
those chaps just stopped short of calling an usd rally based on the expected huge demand for a few trillion of 0 yield paper.
The Dec 23 auction was a 5 year auction.
Most figures look high indeed. Maybe someone at FT confounded total debt due with external debt due.
But then who knows? The real figures should be very interesting. Anybody any ideas what ING has really published?
Its not just emerging markets that might get crowded out and it seems unlikely that the US is top of the list. Recent UK gilt auctions have been unimpressive and German there have been Four ten year bund auctions failures during the year. To a certain extent this reflects differences in the market and philosophies, with government debt being somewhat crowded out by corporate debt (particularly banks and mutuals like the UK’s Nationwide) which offers better yields and in some cases has government backing.
Merkel’s statements about not borrowing for a fiscal stimulus, might actually be that they may have difficulty borrowing. When you consider that in all probability Japanese and German debt is probably higher up the ladder than US and ought to crowd out US debt then the future of US treasuries looks uncertain. It is the big US institutional investors who can see no alternative but the safe haven of US treasuries that will keep driving demand. This is worrisome in that where European investors are beginning to diversify and pick for value US investors clearly are working from an out of date rule book and see very little value anywhere in the US economy.
The big shock next year will be that the UK is crowded out, which will lead to printing and a further decline for sterling.
Oh, geez, I’m tired of hearing crap like this. So, developed markets are borrowing SO MUCH that they’re crowding out the emerging markets from getting reasonable interest rates? WOW, that must mean a bonanza for savers like me!
*checks Vanguard account*
*money market yield: 2.76%*
Well, Russian number does sound right to me, if one speaks of total debt of government and private sector (most of large private borrowers are state-controlled anyway). Only a fraction of this debt is due soon, but Russian government will have to borrow eventually (probably not in 2009) to cover the budget deficit.
The huge discrepancy in the number for China:
Could it be that FT is reporting a gross number, and SAFE is reporting a net number?
That would roughly be correct…