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Spain To Join Portugal In Issuing Dollar-Denominated Bond
Yet more countries are anticipating the Fed finally killing the dollar sooner or later, as Spain now joins Portugal in issuing dollar-denominated bonds. If Europe's most insolvent countries (granted, Greece has yet to issue $-denominated debt, although we are confident that will happen shortly as well) are getting on board of the asset side of the Fed's balance sheet, it can only mean one thing: the InTrade odds for the winner of the currency race to the bottom are squarely in favor of the US currency. Earlier, the Spanish director of Treasury and financial policy Soledad Nunez, told reporters that Spain may issue a dollar bond via syndication. In a page right out of Greenspan's dictionary Soledad said: ""Usually we syndicate in dollars, and we have not made one yet this year, and we may do so, maybe yes, maybe no. That is the answer." She added in Alan-speak: "Doing a dollar syndication is always in our strategy, it is always depending on market conditions." Translation: we bet that, at the end of the day, Ben Bernanke will be far more successful in killing his own currency, than those bumbling buffoons over in Luxembourg.
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Anyone else see this as a contrary indicator? DXY is holding up pretty well in the face of 'known' news flow.
Newbie here.
How does dollar-denomiated bonds hurt the dollar?
It's a bet the Euro will appreciate relative to the dollar. Spain and Portugal will be able to later pay back the borrowed dollars with fewer Euros than those same dollars buy in Euros today.
It does not, but the bet is that over time the value of the dollar will decline faster and hopefully deeper than the Euro. That way paying it off will be easier.
It is a monster bet.
isnt the EURO going down sooner than the dollar..
with the european countries on the verge of default....i expect the EURO to collapse sooner than the DOLLAR...the dollar is still the reserve currency of the world...AM I RIGHT???
It also means these countries are screwed if the dollar appreciates Vs the Euro.
please realize that developed countries hedge it back to local currency usually. denominating it in a foreign currency just opens your bonds to a larger/wider market, decreasing spreads. this is NOT a currency spec view in any way shape or form.
In all likelihood, you're exactly right. Of course, it helps that they've demolished the shorts in the last 3 weeks. Issuance time!!
Who said the Dollar was toast? If anything's toast its the EUR.
Why not the other way round? Collecting dollars to get rid of a portion of the euro debt?
What are the percentages of Spain debt in Euros and in USD? Maybe better to relieve a meaningful share in the euro part to avoid more internal political drama.
that may well be but why are they choosing USD that will need to be paid off in the future, rather than say HKD? The cost of future repayment is always a major consideration in choosing denomination of new debt.
Ah, the battle and bets of losers. Sort of like a popularity contest in prison.
You mean the prisoner most likely to be K-Y friendly?
too kind for folks in the sack with sachs
Anddd..the last time sovereign nation mismanagers were good investment managers?
I'd be more inclined to take the opposite side of this bet against the moron posse.
Earlier in the month: http://www.businessweek.com/news/2010-03-05/poland-to-target-asia-investors-with-1-billion-bond-update2-.html
How is issuing dollar debt killing the dollar?
Buying dollars outright with euros is expensive now and becoming more so. Buying dollars with bonds is likely to be cheaper both new ... and later. I look at this as the creeping dollarization of Europe.
The euro is kaput. The Greek & Cie. credit dilemma has been completely mismanaged by Germany leaving no functioning European central monetary policy and a lot of angry posturing.
What else is to be done? I think Portugal and Spain are being smart. If they cannot export to the US - they sell wine, cheese and the ubiquitous worthless automobiles - they can borrow American dollars and collect them from the Eurodollar market. Considering there are more bucks circulating overseas than stateside, and doing so at a low rate of return, the gambit is a good one for all concerned.
Announcement of the death of the dollar is premature. It's a knee jerk reaction that isn't supported by events. What is becoming more and more likely is a disorderly run away from the euro and a flight to dollars. Why not get into the queue now?
Now that *almost every* non-US$ country wants to issue government bonds in dollars:
What are the odds the Fed told these countries, "Here, I'll guarantee those dollars that I'll print for you on-demand anytime you want. Go ahead and issue bonds in dollars."
If these bonds are being issued with the *explicit* backing of the Fed, then we're merely seeing the rest of the world print dollars too. They can't print more Euros, (their central banks aren't set up like the Fed), so perhaps they are merely getting permission to print dollars on behalf of the Fed?
This is not a big stretch: The Fed issues the world reserve currency, wants to bail everybody out to keep the ponzi going, and has admitted it can print-and-give to foreign central banks. By permitting foreign governments to issue bonds in US$, that's merely the equivolent of the Fed "co-signing" a US$ loan to that country (without bothering with the annoyance of approval through the governing bodies involved).
Yes, bond "issuance" creates a demand for dollars, but remember, those dollars are demanded overseas. That means it incentivises countries to ship *whatever* it has to the US in exchange for dollars, to buy bonds in dollars, which they can park in bonds overseas. Since the rest of world is tired of buying US bonds (the Fed is buying all US Treasury bonds as a result), this will give the Fed a chance to grow the money laundering overseas (by creating a US $ bond market overseas).
This increases the world demand for dollars, but more importantly, increases the world cashflow and increases the world ponzi (which is wanted by every government and central bank).
A foreign US$ bond market also creates another level of indirection, making it easier to launder money, and it's another market for Goldman to fleece. Further, you thought currency swaps was fun? What until you see what happens with the worldwide US$ bond market arbitrage (dollars-to-dollars hedges without the annoyances of those silly political institutions that might pass laws and screw your currency conversions!) A dollar-to-dollar carry trade would be so much easier to control than the Yen-Dollar carry trade.
Of course, one of the best way to hyperinflate yourself is to denominate your debt in a foreign currency unit that you can't control. This might be a trap placed by the Fed, or this might be a mechanism to inflate-the-Euro-debt-away. I'm betting on the latter: The egos involved are so big, they probably think this can be a "currency governor" mechanism to control national inflation through bond ratings (exactly what EU countries want, but can't control, with the current Euro system).
This isn't looking good, not a bit. They are doing this because the price of the dollar bond is 20 points and the euro bond (Eurobor) is 15 points, so they have this spread. I think all this does is to delay the inevitable for the US dollar. When more and more countries in the European union start to issue dollar bonds (not even saying anything about the rest of the world), it will start to devalue the US dollar bond and eventually we will be in hyperinflation, the question is where will it start overseas or in the US.
How does this portend the death of the dollar?
This simply indicates a bet on relative weakness of the USD during the period of repayment, the bet will be hedged and the downside will be limited to the hedging contracts.
Think of it this way, Spain and Portugal might be looking at the Franco-German axis warily and expecting the center of Europe to perform punitive action against Spain and Portugal during the period of repayment for these bonds. Either austerity measures demands that are unpalpable to the political classes inside Spain and Portugal, or forcing the creation of some sort of intra-national scrib pseudo-currency, or expulsion from the Euro-zone.
In light of that, denominating sovereign debt in foreign currency is a risk hedge against the Euro and ECB. Spain and Portugal are simultaneously betting on the rise in the price of the Euro once Germany expels Spain and Portugal from the currency union, and they are foreshadowing their own contingency plans to recover after expulsion.
The future conversion rate of USD to the new Spaniard currency will be easier on the government than the punitive Euro to Spaniard currency conversion rate.
Zapatero is the scum of the Earth.
Never forget 3/11. Never forget the scum of the Earth using it as pretext for an agitprop political coup.
Did anyone pay attention to RhoRhoRhoBoat's post? These deals are probably swapped back into euros at the time of issuance. Geez...
If anyone thinks or knows otherwise, then we have something to talk about.
European debt issuances have been failing and there's plenty more issuances in the pipeline (thanks reggie for your insight). Issuing in USD may well assist in auction completion.
Id be willing to bet that the spanish govt is more concerned about rolling the debts over now than having to repay them later.
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