Showing posts with label government. Show all posts
Showing posts with label government. Show all posts

Aug 4, 2012

Worldwide Country Bonds Overview

Country Bond Rates are decreasing. As global debt is still increasing, trust is declining. 'Counterparty Safe Cash'  is what's becoming more and more important. Prepare for getting used to negative interest rates!
BTW: If you can't hold your breath, go to the end of this blog and click one of the tabs to get an updated worldwide overview of actual country bond interest rates.

What's up?
Countries with a high inflation (e.g. Brazil, India, China) or countries (e.g. Portugal, Ireland, Spain) that can't control and therefore have to finance their increasing debt at high interest rates, still show optical interesting interest rates for investors... So it seems, as these relative high interest rates are in fact 'compensation for inflation' or 'hidden default premiums'.

And of course we have countries (e.g Greece), who's interest rates show that they have in fact gone broke.

Unfortunately non of the EU countries dares to pull the plug...  From a risk management perspective: Living in a nuclear financial death zone, apparently is a better option than pulling the trigger in the knowledge that not only your Greek brothers but also YOU will be 'financial dead' for sure.....

Still the Greeks get away with this non compliance strategy, let's call it:
Greek Risk Management

Last but not least we have the strong countries like Denmark and Germany with low interest rates. These countries have to carry and finance their weaker brothers short term. So it all comes down on cash and counterparty risk.

The rhetorical question in this European business case is:
Can Germany finance a Europe that fails to restructure their debts in a sustainable way?

Country Bond Interest Rates in alphabetical order
Let's examine those interest rates as reported by Bloomberg, at the end of July 2012 in alphabetical order:

It's clear that country bonds interest rates vary widely across countries.

White spots in the table imply, there's no (Bloomberg) data available.

Let's bring some order in this bond-muddle, by ranking the countries on basis of their 10Y Bond yield.

Country Bond Interest Rates sorted by '10Y' Bond Rate

From the above chart it is clearly visible that
  • Germany, Denmark and The Netherlands already enter the negative interest rate zone for 1 and 2 year bonds.
  • Greece, with a phenomenal interest rate, is is completely burned up
  • The Eurozone is split up in good and bad performing countries
  • A strong, sustainable and relatively independent country like Switzerland has 'low short term', as well as 'low long term' interest rates.
    This must for sure be a warning to every investor to estimate long term interest for other countries  much higher on the long term. Perhaps the relatively higher long term interest rates of other countries resembles the implicit (extra) inflation expectation on the long run.

Mattress Money
As debt keeps increasing, economic growth in western countries is limited and modest inflation continues, short term interest rates will stay low for the near future (until the end of time inflation beast is released).

With an increasing 'cash demand' from weak performing countries, we have to learn to get used to negative interest rates in relatively more strong performing countries.

In other words, consumers and professional investors have to pay to put their money in the bank. Why not keep your money under the mattress?

For consumers this might perhaps be a risky (theft) solution  to consider. Professional investors however, have to reduce counterparty risk which demands first class collateral assets.

Therefore "mattress money" is no option for professional investors and (increasing) negative interest is the price these investors will have to pay for keeping more and more cash as debt and risk keep rising.

Desperate advice ;-)
Perhaps - just like World War II was financed by War Bonds - we should appeal to private investigators and consumer to fund the government in their desperate war against debt.... government debt ...

 But then.... who would be willing to invest?
Are you interested in following the actual country bonds interest rates, than bookmark this blog or the special Actuary-Info Actual Country Bond Rates Page, and come back once in a while to view the latest bond interest developments by clicking on one of the next tabs (have a few seconds patience, loading 150 (!) bond rates takes some time).

Actual Country Bond Interest Rates (Alphabetical)

Actual Country Bond Interest Rates ('10Y' Sorted)

Update 2013 
Bloomberg stopped publishing a lot of bond rates. That's why several bond rates are missing. Sorry.

Hope you enjoyed this holiday blog...

Related Links/Sources

May 16, 2009

Actuary Thyl Ulenspiegel?

Anyone with a little mother wit knows one plus one equals exactly two, not more, not less.

Smart people, like the historic Thyl Ulenspiegel, made a profession out of counting. Every time bystanders gave Thyl the choice between a rix-dollar (a 'two and a half dollar' coin) or 2 dollars coins, he opted for the 2 dollars.

"Two is more than one", Thyl - clearly not an actuary - used to say. People felt pity for 'poor Thyl Ulenspiegel'. That someone like him could be that stupid!

Modern Counting
Today (2009) little has changed. Modern gurus made us believe that, through M&A's, synergy, cooperation, in or outsourcing, the whole becomes greater than the sum of the parts. One plus one could easily equal three or even more.

However, research has shown that the majority of mergers and acquisitions fail. Hindsight shows that one plus one doesn't add up to three, but only to one point five, or in some cases even to zero. Cause? Synergy benefits and future market are extremely overestimated and cultural differences, despite continued 'slippery warnings', remain underestimated.

Shareholders and management of an acquired company cash their future notional profit surplus, that -at first - appears in the balance sheet as 'goodwill' and than subsequently, over the years, becomes visible as a loss in the P&L.

However there are other modern counters - not actuaries - that can even do better, as will be illustrated next.

Some youth memories never fade..
As a young boy I discovered an unstamped stamp in the attic of our house.

The stamp was worth 50 billion Deutsche Mark, dated 1923.

Completely overwhelmed I tumbled down the stairs to report my parents we'd become billionaires.

A few minutes later, completely disillusioned, I'd learned a new word: Hyperinflation.

The hyperinflation back in the twenties of the the last century is only a trifle of the current (hyper) credit inflation:

U.S. $

A trillion dollars, the Fed 'invests' in buying up debt. By coincidence this equals the amount of money that Europe, the G20, will be pumping in the economy.

For all of 2009, the U.S. administration probably needs to borrow about $2 trillion. That money doesn't really exist, but that's no point of concern! The debt crisis is simply solved with more debt. What was not legitimate for the banks, is now legitimate for the 'bankruptcy proof government'. Frankly, my intuition really starts to falter now ...

Russian Credit Roulette
Modern Ulenspiegels, playing a variant of 'Russian Credit Roulette', have now left the roulette tables. With borrowed money, doubling their bet for five consecutive times in a row, they bet and lost on 'credit red'.

Instead of taking their loss, the government has taken their place at the table and decided to double the bet on red for the sixth time in a row, now playing for a trillion dollars.

All of this under enhanced risk management, governance and supervision of course.

To get a really confident feeling: the probability of consecutive six times black seems both rational and intuitive almost impossible, but is in any case less than the "safe" smaller 2.5% ruin probability (2.5% probability of insolvency) of a pension fund. Some people state there's light at the end of the 'financial crisis' tunnel.

Now let's hope this light is no oncoming train and roulette tables turn out to have a memory after all.

Maybe it's time actuaries get involved in government finance....