How Scary Is the Bond Market?

In the bond market, since June, due to the influence of multiple factors such as fundamentals and investor sentiment, the bond market has taken on a trend of improvement.

Thus, the recent problems faced by Greece are only the tip of a sovereign debt iceberg in many advanced economies (and a smaller number of emerging markets). Bond market vigilantes already have taken aim at Greece, Spain, Portugal, the United Kingdom, Ireland, and Iceland, pushing government bond yields higher.

Under the OMT program, the ECB can replace foreign outflows from sovereign bond markets through direct purchases, putting Spain on par with non eurozone countries like the United Kingdom. And, to the extent that there is even an informal price target associated with the ECB s commitment to purchase bonds, foreign outflows, at least from the sovereign bond market, are automatically replaced, in full, with ECB cash.

Noting the increasing voluntary use of collective action clauses in sovereign bond contracts by both developing and developed countries,

The US sovereign debt market shows no similar evidence of having reached a limit yet. But bond markets do not issue many early warning signals witness the sudden run up of yields in Italy and Spain a year ago.

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Bond. James Bond.

Bond. James Bond.

Bond? James Bond?

11 The Asian Bond Market Initiative was endorsed at the ASEAN 3 Deputies Meeting held in Chiang Mai in December 2002. Its objective is to develop efficient bond markets in Asia.

The solution suggested by the Governor was to borrow about 400 million on the bond market to offset the deficit.

We see ever growing support for the proposal to develop an Asian bond market, which I put forth in 2001.

Meanwhile, the main transmission channels of monetary stimulus to the real economy the bond, credit, currency, and stock markets remain weak, if not broken. Indeed, the bond market channel is unlikely to boost growth.

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James Bond. Oh, yes, Mr Bond.

In short, though central banks creation of macro liquidity may keep bond yields low and reduce volatility, it has also led to crowded trades (herding on market trends, exacerbated by HFTs) and more investment in illiquid bond funds, while tighter regulation means that market makers are missing in action.

The Asian bond market and Asian bonds are thus mechanisms for financing for development that also promote greater regional economic stability.

Any United Nations bond issue would be evaluated by market participants and potential investors by its credit rating, which is a formal evaluation of the creditworthiness of the bond issue by an independent credit rating agency.

The authorities are taking steps to correct their mistakes, especially with the decision to form a banking union and the outright monetary transactions program, which would allow unlimited intervention by the European Central Bank in the sovereign bond market. Financial markets have been reassured that the euro is here to stay.

It is true that extraordinarily low long term bond yields put us outside the range of historical experience. But so would a scenario in which a sudden bond market crash drags down prices of stocks and housing.

For example, the Republic of Korea has undertaken measures to encourage the issuance of bonds by SMEs.10 One objective of the Asian bond market initiative11 is to increase bond financing options for smaller companies in Asia.

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Bond.

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Surprisingly, the bond market still seems almost oblivious to this risk. But holders of US debt worldwide have every reason to be concerned.

Moreover, including a smaller number of Member States in the set aside mechanism would facilitate consideration of any United Nations bond offering by market participants and would probably prove easier and less costly for the bond trustee to administer.

After the government clamped down on that too, the liquidity was channeled toward stock exchanges once those crashed, it sloshed into the bond market. But the bond market is not large enough to absorb it all, so some has now returned to the stock exchanges, leading to a partial recovery in share prices, with the Shanghai index reaching 3,500.

Bond offering

Bond Labels

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Bond Order

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Draw Bond

Add Bond

Delete Bond

Bond Paper

Bond 5,000.

Mr. Bond.