Posts Tagged: government debt

 

Moody’s Investors Service has today announced its decision to maintain the negative outlook on France’s government bond rating, which it has affirmed at Aa1.

 The agency’s decision to affirm France’s Aa1 rating reflects Moody’s view that, despite negative credit pressures, the country retains significant credit strengths, including the size and wealth of the economy, as well as its affordable debt burden despite a continuous, gradual erosion of its economic and fiscal strength. The affirmation is also supported by renewed government commitment to accelerating the pace of structural reform, introducing a more consistent approach to economic policy, and proceeding with its budget saving plans.

 That said, Moody’s decision to maintain a negative rating outlook reflects the rating agency’s view that the execution risks associated with implementing the government’s proposed structural reform initiatives are significant, given the strength of vested political interests that might oppose them and the poor track record in implementing such reforms.

 In a related rating action, Moody’s has today announced its decision to maintain negative outlooks on the Aa1 ratings of Société de Financement de l’Economie Française (SFEF) and of Société de Prise de Participation de l’État (SPPE). The two entities’ Aa1 rating are affirmed, in line with the sovereign’s rating. Moody’s also affirmed the Prime-1 rating of SPPE, including its euro-denominated commercial paper programme. The senior debt instruments issued by the two entities are backed by unconditional and irrevocable guarantees from the French government. >> Read More

 
OVERVIEW
  • The Greek government has made a substantial fiscal adjustment and we expect it to maintain primary fiscal balances of about 2% of GDP for the next few years.
  • We believe that funds currently held in the government’s Hellenic Financial Stability Fund will be sufficient for any further bank recapitalizations.
  • As a result, we are raising our long-term sovereign credit ratings on Greece to ‘B’ from ‘B-’. We are affirming the short-term ratings at ‘B’.
  • The outlook is stable, balancing our view of Greece’s progress in fiscal consolidation against its still-weak economic recovery and political resolve to continue with structural and institutional reforms.

>> Read More

 

The Central Bank policies of the last five years have damaged the capital markets to the point that the single most important item is no longer developments in the real world, but how Central banks will respond to said developments.

 Let us take a moment to digest that. Before 2008, for the most part, when something happened in the world, an investor would think about how that issue would affect the markets.

 Today, that same investor will try to analyze how the Central Banks will react to that issue, not the impact of the issue itself. This is why, for various periods between 2008 and today, the markets would rally on terrible economic data and other economic negatives: traders believed that because the data was bad the Fed would be more inclined to engage in more easing.

 After all, why do we invest? We invest because we want to make money. And when it comes to investing, we prefer easy money: gains that have a high probability of success. And thanks to Central Banks cutting interest rates over 500 times and printing over $10 trillion in money since 2008, what’s the easiest way to make money by investing today?

 Front-run Central Banks policies. >> Read More

 

India’s external debt rose $31.2 billion (or 7.6 per cent) to $440.6 billion at end-March 2014 over the level at end-March 2013, on the back of increased flows of long-term deposits from non-resident Indians.

The surge in NRI deposits reflected the impact of fresh FCNR(B) deposits mobilised under the swap scheme during September-November 2013 to tide over the difficult BoP situation in the initial parts of the year, data released by the Reserve Bank of India showed.

At end-March 2014, long-term external debt stood at $351.4 billion, showing an increase of 12.4 per cent from the end-March 2013 level. At this level, long-term external debt accounted for 79.7 per cent of total external debt at end-March 2014 vis-à-vis 76.4 per cent at end-March 2013.

Short-term external debt stood at $89.2 billion at end-March 2014, showing a decline of 7.7 per cent over $96.7 billion at the end-March 2013. This was due to the compression in imports arising from the slowdown in aggregate demand and restrictions on gold imports. Thus, the share of short-term external debt in total external debt declined from 23.6 per cent at end-March 2013 to 20.3 per cent at end-March 2014. >> Read More

Ukraine’s Hryvnia Hits a New Low

13 August 2014 - 13:28 pm
 

Escalating tensions with Russia sent Ukraine’s currency tumbling to a record low against the dollar Tuesday, a move that could threaten the stability of the country’s banking system and raise the prospect of losses for bondholders.

The sharp decline this month ends a period of relative tranquility in the country’s financial markets. A mid-April interest-rate increase by the Ukrainian central bank and a $17 billion bailout from the International Monetary Fund later in the month had soothed investor jitters. The bailout was aimed at staving off economic collapse after protests toppled the previous government.

But the latest move down for the hryvnia points to investors’ growing belief that more financial support will be required. In the past week alone, the currency has lost 6% against the dollar, driven by continued fighting in Ukraine’s eastern region and worries that Russia’s efforts to provide humanitarian assistance could lay the groundwork for an invasion.

A weaker hryvnia increases the burden on Ukraine’s economy, boosting the cost of the energy and other imports the country relies on and making it more expensive for the country’s government and companies to pay back debt denominated in foreign currencies. Should that debt burden mount, it could strain Ukraine’s financial system and push some banks to seek government assistance, investors and analysts say. That, in turn, would further drain the government’s fragile finances and call into question its ability to repay its debts, they add. >> Read More

 

US is Bankrupt: $89.5 Trillion in US Liabilities vs. $82 Trillion in Household Net Worth & The Gap is Growing. We Now Await the Nature of the Cramdown.

There are many ways to look at the United States government debt, obligations, and assets.  Liabilities include Treasury debt held by the public or more broadly total Treasury debt outstanding.  There’s unfunded liabilities like Medicare and Social Security.  And then the assets of all the real estate, all the equities, all the bonds, all the deposits…all at today’s valuations.  But let’s cut straight to the bottom line and add it all up…$89.5 trillion in liabilities and $82 trillion in assets.  There.  It’s not a secret anymore…and although these are all government numbers, for some strange reason the government never adds them all together or explains them…but we will.

The $89.5 trillion in liabilities include:

>> Read More

 

PSE-ASR

Portugal’s rescue of Banco Santo Espirito has left taxpayers on the hook for large potential losses, sparing senior bondholders in the first serious test of the EU’s tougher rules for bank failures.

The controversial €4.9bn (£3.9bn) bailout over the weekend set off a relief rally on the Lisbon bourse, with bank stocks soaring. It also set off a political furore as opposition parties accused premier Pedro Passos Coelho of bending to the banking elites. “We live in a democracy, not a bankocracy. It is unacceptable for the prime minister to take money from the salaries of workers and pensions, and funnel it to a private bank,” said Catarina Martins, leader of the Left Bloc.

European officials pledged last year that taxpayers will never again face losses from a bank failure until all creditors and unsecured depositors have been wiped out first. They seem to have backed away at the first sign of trouble, opting for soft terms rather than the draconian measures imposed on Cyprus.

The EU’s new “bail-in” rules do not come into force until 2016, but it was assumed the broad principle would be followed. Portugal’s decision to protect senior bondholders is incendiary in a country already near austerity fatigue.

>> Read More

 

China’s total debt load has climbed to more than two and a half times the size of its economy, underscoring the difficult challenge facing Beijing as it seeks to spur growth without sowing the seeds of a financial crisis.

The total debt-to-gross domestic product ratio in the world’s second-largest economy reached 251 per cent at the end of June, up from just 147 per cent at the end of 2008, according to a new estimate from Standard Chartered bank.

Such a rapid build-up is far more of a concern than the absolute level of debt, since increases of that magnitude in such a short period have almost always been followed by financial turmoil in other economies.

While calculations of the ratio vary depending on exactly what types of credit are included, several other economists agreed with the new figure. Even those with slightly different calculations said the general trend was clear.

“China’s current level of debt is already very high by emerging markets standards and the few economies with higher debt ratios are all high-income ones,” said Chen Long, China economist at Gavekal Dragonomics, a research advisory. “In other words China has become indebted before it has become rich.” >> Read More

 

german-teamFitch Ratings has affirmed Germany’s Long-term foreign and local currency Issuer Default Ratings (IDR) at ‘AAA’ with Stable Outlooks. The issue ratings on Germany’s unsecured foreign and local currency bonds have also been affirmed at ‘AAA’. Fitch has also affirmed the Short-term foreign currency IDR at ‘F1+’ and Country Ceiling at ‘AAA’.

KEY RATING DRIVERS
The affirmation of Germany’s sovereign ratings reflects the following key rating drivers:
The general government debt to GDP ratio (GGGD) has already started falling in Germany, unlike its ‘AAA’ rated eurozone peers and France (AA+/Stable), UK (AA+/Stable) and the US (AAA/Stable). The debt ratio eased to 78.4% in 2013 from 81% in 2012. The outcome was slightly better than Fitch’s estimate of 79.4% and the improvement was partly driven by the winding-down of the portfolios of Germany’s two state-owned bad banks.

Germany continues to have the components of a declining public debt path. The economy is growing, the budget position is relatively favourable and nominal interest rates are low. The downward trajectory of GGGD improves the shock-absorbing capacity of the sovereign. Furthermore, while the debt ratio remains elevated compared with the ‘AAA’ median of 45% and ‘AA’ median 37%, it is within the range considered by Fitch to be consistent with a ‘AAA’ rating for a sovereign with otherwise strong credit fundamentals. The government’s targets to reduce public debt to below 70% of GDP by 2017 and to less than 60% within ten years are plausible. >> Read More

 

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Technically Yours,
Team ASR,
Baroda, India.