Desmond Lachman: Έχουμε σοβαρή και γενικευμένη εσφαλμένη τιμολόγηση στις παγκόσμιες αγορές ομολόγων και πιστώσεων

During the 1980s, the late Senator William Proxmire handed out Golden Fleece Awards to those public sector officials who introduced the most wasteful type of public spending projects. One has to wonder whether in today’s very frothy global bond market, a similar type of award should not be instituted for the most outlandish global bond placements being made.

As has generally been the case with bad public spending decisions, we will find that, as was the case in 2008, when the global bond market bubble bursts it will be the world’s taxpayers who will be left holding the bag for the world financial institutions’ very poor loan decisions.

If Golden Fleece Awards for bad global bond deals were to be made, the following would be my non-exhaustive list, which is ranked in order from less important to more important for world financial market stability:

• If ever one has doubts about the Wall Street adage that when the liquidity winds are strong even turkey’s fly, all one need do is look at the recent bond placements made by Mongolia and Tajikistan. Despite these two countries’ very shaky economic fundamentals and the likelihood that most bond traders would have difficulty in placing them on a map, they not only were able to place bonds of US$800 million and US$500 million, respectively, they even had these bonds several time oversubscribed.
• More baffling yet has to be Iraq, a war-torn country well-known for its political instability. These considerations did not stop the country from recently successfully placing a US$1 billion bond on very favorable terms.
• If ever there was a case of bond markets not learning from past experience, it has to be that of Argentina. Despite the fact that Argentina has defaulted five times over the past one hundred years, it had no difficulty in recently placing a 100-hundred year bond in the amount of US$2¾ billion on very favorable terms.
• A more serious risk yet for global financial stability has to be the surge in lending to the emerging market corporate sector by more than US$1 trillion a year over the past few years on very favorable terms. Investors seem to be unfazed by the fact the emerging market corporate sector has issued much of its debt in US dollar denominated terms. That would seem to be setting them up for real trouble if their countries’ currencies were to depreciate against the dollar.
• An even more serious risk to the global financial system has to be the serious mispricing of government bonds in the Eurozone. Investors are blithely lending the Italian governmentmoney at lower interest rates than they would charge the US government. Never mind that Italy has a very high public debt, a rickety banking system, an economy that is unable to grow, and a dysfunctional political system. Never mind too that Italy is the world’s third largest government bond market with more than US$2½ trillion in outstanding debt.
• Topping all of this folly has to be the case of China, the world’s second largest economy which is experiencing a credit market bubble that makes that in Japan in the 1980s and that in the United States in the run up to the 2008 bust pale. Like the Japanese bubble before it, this one too will at some stage burst and usher in a prolonged period of very slow Chinese economic growth that will cast a long shadow over the global economy.

I could have added to my list the compression of spreads in the US high-yield market, the re-emergence of the collateralized loan obligation market, and the increased tendency for US and European banks to make covenant-lite loans. However, these examples seemed unnecessary to make the case that we have serious and generalized mispricing in the global bond and credit markets that will come back to bite us as it did in 2008. Global economic policymakers would be ignoring this mispricing at their peril.

 
Desmond Lachman joined AEI after serving as a managing director and chief emerging market economic strategist at Salomon Smith Barney. He previously served as deputy director in the International Monetary Fund’s (IMF) Policy Development and Review Department and was active in staff formulation of IMF policies. Mr. Lachman has written extensively on the global economic crisis, the U.S. housing market bust, the U.S. dollar, and the strains in the euro area. At AEI, Mr. Lachman is focused on the global macroeconomy, global currency issues, and the multilateral lending agencies.

Πηγή: aei.org