What are the top five countries
- Thread starter rowenwood
- Start date
Those countries that offer the highest treasury rates (of course to be seen in a relative context to their local inflation rates and balance of payments) of their domestic governments are considered the most unsafe. Why otherwise would the government have to offer such high rates? It is of course a risk premium (although you can take the US as a proxy for a zero percent risk premium country when it comes to T-Bills. Their return is based on liquidity when they were priced and especially for the willingness of an investor to hold such instrument for some time and thereby forgoing cash.
Higher rates elsewhere are (if in real terms) an indicator for trouble. Either is inflation much higher than in the U.S. or there is actually a risk premium priced into such securities. (For example: Of course every domestic central bank can print money if they like to, but the risk is that a country simply defaults on its debt. Examples are Russia, Argentina, Brazil and many others in the most recent or more distant history).
Higher rates elsewhere are (if in real terms) an indicator for trouble. Either is inflation much higher than in the U.S. or there is actually a risk premium priced into such securities. (For example: Of course every domestic central bank can print money if they like to, but the risk is that a country simply defaults on its debt. Examples are Russia, Argentina, Brazil and many others in the most recent or more distant history).
Brazils last default (and only, but I may be wrong) was in the 80s. Since then some folks have been making so much money just enjoying brazilian sky high interest rates its not even funny. In the mid 90s, a time whereh the inflation there was next to zero, the treasure bonds rates were in the high 40s%, it was so easy all you had to do was lay down and enjoy the life of a king.
I admit its a "Devil Take the Hindmost" philosophy in the majority of the cases, but hey, life aint that easy.
Australia, New Zealand, and Canada have higher real (net interest rate after deducting inflation) rates than US real rates, which are negative.
If you go to www.bloomberg.com and page to the Market Data/Rates page, you willl see that 1-year governemnt paper in Australia yields 5.32%, Brazil yields 5.45% (for 2-year paper), Germany yields 2.07%, Japan yields 0.02%, and UK yields 4.08%.
The G-7 countries would generally be considered safe as far as return of principal; the FX risk/return is unknown.
If you go to www.bloomberg.com and page to the Market Data/Rates page, you willl see that 1-year governemnt paper in Australia yields 5.32%, Brazil yields 5.45% (for 2-year paper), Germany yields 2.07%, Japan yields 0.02%, and UK yields 4.08%.
The G-7 countries would generally be considered safe as far as return of principal; the FX risk/return is unknown.
(I wish I could elaborate more and use the right terms, but there is the language barrier I cannot revoke in this case)
Last year, the average rate of a domestic brazilian bond was in the low 20s%, and considering the fact that the brazilian currency went from 3.80 to 2.9 US dollars, the rewarding of those papers hit the 30% mark .
20%?!? How can that be sustainable?
It isn't - at least thats what one would say in a right state of mind. In current Brazils case, the only effective remedy to a totally out-of-control rampant inflation scenario are sky high interest rates.
Its the old brazilian dilemma: inflation vs high interest rates. You cant solve one problem without creating another one. The only way out of this is building a reasonably amount of confidence upon both domestic and overseas investors, a fact which I don't see happening even in 20 years from now.
Now, my personal opinion is that it is not sustainable in the long term, but, unfortunately, its the ONLY medicine we do posses right now. It would be much more worse if Brazil didn't have such enormous potential derived from its natural resources.
On the other hand, if you are luck to have a fat bank account during a period of crisis... congratulations: its brazilians financial carnival at its finest for you. Big crisis equals to big interest rates (there was a time in the 1990s that it was on the mid 40s%). And the sweetest part of it (except from being paid for not having to wake up early in the morning) is that the high interest rate keeps the brazilian currency value under control, 'forbidding' its devaluation.