Fitch Ratings has placed France’s ‘AA+’ Long-term foreign and local currency Issuer Default Ratings (IDR) on Rating Watch Negative (RWN). The issue ratings on France’s unsecured foreign and local currency bonds have also been placed on RWN. At the same time, Fitch has affirmed the Short-term foreign currency IDR at ‘F1+’ and the Country Ceiling at ‘AAA’.
Under EU credit rating agency (CRA) regulation, the publication of sovereign reviews is subject to restrictions and must take place according to a published schedule, except where it is necessary for CRAs to deviate from this in order to comply with their legal obligations. Fitch interprets this provision as allowing us to publish a rating review in situations where there is a material change in the creditworthiness of the issuer that we believe makes it inappropriate for us to wait until the next scheduled review date to update the rating or Outlook/Watch status. The next scheduled review date for Fitch’s sovereign rating on France was 12 December 2014, but Fitch believes that developments in France warrant such a deviation from the calendar and our rationale for this is laid out below.
Fitch will seek to resolve the RWN at its next scheduled rating review of France, with the outcome to be published on 12 December 2014.
KEY RATING DRIVERS The RWN reflects the following factors and their relative weights:>> Read More
In our view, the French government’s budgetary position is deteriorating in light of France’s constrained nominal and real economic growth prospects.
We believe that, due to policy implementation risk related to the budgetary consolidation and structural reforms, a recovery of the French economy could prove elusive and that France’s public finances might deteriorate beyond 2014, although this is not our base-case scenario.
As a result, we are revising our outlook on France to negative from stable and affirming our ‘AA/A-1+’ long- and short-term sovereign credit ratings.
The ratings on France remain supported by our view of the French economy’s high income per capita and productivity, its diversification, and its stable financial sector.
The rush of dollars into Indian debt continues with foreign investors having pumped in $20 billion so far in 2014, reports Aparna Iyer in Mumbai. This is twice the sum of the investments made by them in debt and equity in 2013. What will be heartening for the Reserve Bank of India (RBI) is that long-term investors such as sovereign wealth funds and pension funds have also been shopping for rupee bonds.
Data from the depositories show that such funds have exhausted 70% of the available $5 billion investment limit as of October 8; two months ago, only 45% of this limit had been used. On the back of such flows, the rupee has remained stable through the year, having gained 1.4% since January. On Thursday the rupee closed at 61.05 to the dollar.
With the quotas for gilts exhausted, foreign portfolio investors are lapping up high-yielding corporate bonds; around 47% of the the limit of $51 billion has been used up compared with just 40% two months ago. The improving macroeconomic data along with a stable government has seen India continue to attract dollars. Moreover, hedging costs have been coming off; the onshore three-month forward premium implied yield has fallen 20 basis points in the last one month.
Ukraine is likely to default on its debts next year when it breaches the conditions of a controversial $3bn bond held by Russia, allowing Moscow to demand immediate repayment and possibly triggering a wider default on all the country’s international debts, Moody’s has warned.
The rating agency notes that Ukraine’s deep 7.5 per cent economic contraction and wilting currency is likely to push its debt-to-GDP ratio up to 66 per cent this year – above the maximum 60 per cent ratio stipulated in the clauses of the Russian Eurobond that the last Kiev government sold to Moscow before the revolution.
When Ukraine’s debt-to-GDP ratio official breaches that level – possibly as early as January 29, when it is slated to release provisional fourth-quarter economic data – Moscow can ask for an immediate payment acceleration.
The final fourth-quarter GDP estimate is supposed to be published on March 10.>> Read More
Remember Greece: the country that in 2010 launched Europe’s sovereign solvency crisis and the ECB’s own helpless attempts at intervention, which later was “saved”, only to default shortly thereafter (but without triggering CDS as that would end the Eurozone’s amusing monetary experiment and collapse the Deutsche Bank $100 trillion house of derivative cards), which later was again “saved” when every single global central bank made sure Greek bonds became the only yield-generating securities in the world? Well, the country which at last count was doing ok, is about to not be ok. Because according to none other than S&P, at some point over the next 15 months, Greek debt is about to be in default when the country is no longer able to cover its financing needs. In other words, back to square one.
As Bloomberg reports, citing Real News, S&P analyst Marie-France Raynaud said Greece can’t cover its own financing needs.
How is that possible? Isn’t Europe so fixed, it no longer has anything to worry about except deflation, pardon, inflation?
Guesst not. According to Bloomberg, S&P estimates Greek financing needs for the next 15 months to be at EU43 billion.>> Read More
A “poisonous combination” of record debt and slowing growth suggest the global economy could be heading for another crisis, a hard-hitting report will warn on Monday.
The 16th annual Geneva Report, commissioned by the International Centre for Monetary and Banking Studies and written by a panel of senior economists including three former senior central bankers, predicts interest rates across the world will have to stay low for a “very, very long” time to enable households, companies and governments to service their debts and avoid another crash.
The warning, before the International Monetary Fund’s annual meeting in Washington next week, comes amid growing concern that a weakening global recovery is coinciding with the possibility that the US Federal Reserve will begin to raise interest rates within a year.
So here is lie #1, debunked: “One of the Geneva Report’s main contributions is to document the continued rise of debt at a time when most talk is about how the global economy is deleveraging, reducing the burden of debts.”>> Read More
At end-December 2012, India’s total external debt stock stood at US$ 376.3 billion, reflecting an increase of US$ 30.8 billion (8.9 per cent) over the level of US$ 345.5 billion at end-March 2012.
The rise in external debt during the period was due to both long-term as well as short-term components. Increase in long-term debt was mainly on account of NRI deposits and commercial borrowings, while short-term debt stood higher on account of trade related credits.
The long-term debt stood at US$ 284.4 billion at end-December 2012, recording an increase of US$ 17.1 billion (6.4 per cent) over the end-March 2012 level, while short-term debt increased by US$ 13.7 billion (17.5 per cent) to US$ 91.9 billion.
Short-term debt accounted for 24.4 per cent of India’s total external debt, while the remaining (75.6 per cent) was long-term debt. Within long-term, components such as commercial borrowings accounted for 30.0 per cent of the total external debt, followed by NRI deposits (18.0 per cent) and multilateral debt (13.7 per cent).>> Read More
‘Interest on debt grows without rain’ – Yiddish proverb
This proverb explains most of what goes on in policy circles these days. We are now watching Extend-and-Pretend, Episode VI: Promises for improvement amid ever growing debt levels.
In brief, we’re still working with the same dog-eared script we were introduced to all of five years ago, when markets had stabilised in the wake of the financial crisis: maintain sufficiently low interest rates to service the debt burden.
In other words, pretend to have a credible plan, but never address the structural problems and simply buy more time. But while we were able to get away with this theme for an awfully long time, the dynamic is now changing as the risk of low inflation (and even deflation) is a brick wall for the extend-and-pretend meme. Yes, interest does grow without rain, and the cost of maintaining and servicing debt grows especially fast in a deflationary regime.>> Read More