BBBeauty Is Certainly In The Eye Of The BBBeholder

Tyler Durden's picture

A mere nine years ago, California's governator uttered his now infamous words that his opponent's income tax loophole was wide enough to drive his Hummer through. Now in 2012, Bloomberg's Chart of the Day has found another glaringly wide 'loophole' in common financial wisdom. As Sebastian Boyd and Ye Xie note, Ireland and Kazakhstan both belong to the same BBB-rated S&P cohort and yet have debt/GDP loads of 106% and 11% respectively. While debt/GDP is not the sole arbiter of credit quality (ask the Americans) it seems the market is more than willing to effectively differentiate based on this as is clear from CDS levels; but the growing pile up of sovereign nations in this edge-of-the-cliff rating bucket suggests two things to us: 1) "The entire rating system is flawed" as Bloomberg notes; and 2) The self-destroying (or reflexive) nature of a non-investment grade rating shift is now seemingly totally politically motivated (as opposed to quantitatively defined) - perhaps nowhere better signaled than an unwillingness to downgrade Spain yet willingness to downgrade its regions. For your risk comprehending pleasure, we present - the BBBs!


A smorgasbord of BBB-rated sovereign nations - ranked by debt/GDP ratio...

For both collateral-constrained and mandate-driven reasons, a non-investment grade rating ha sfar greater import (it seems) than its actual credit spread... though the market is better at differentiating credit quality, ratings remain 'important' - but with the market itself in some ofthe peirpheral European bonds becoming increasingly illqiuid and easily manipulated by the sheer size of domestic interests, the 'winning' answer it would seem - once again - is not to play (as market levels have lost their signaling capability via intervention and ratings have become increasingly politicised).



Source: Bloomberg

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unrulian's picture

Blow, Booze and Bitchez

Stackers's picture

Great Bouncing Boobies Batman !!!

berlinjames02's picture

Off-topic: Apologies for the off-topic post, but I can't post at work and wanted to ask the peanut gallery if anyone knows about a certain topic.

Here's the question: Would it be possible for China to hide its sale of US debt by offering the Treasuries as payment for investment in other nations (ie Africa)?

A year or two ago I read an article in the Economist that described such transactions- assuming I understood the transaction correctly. I've been meaning to post this for a bit because, if true, the Chinese could potentially be off-loading their US debt even faster than people realize (or faster than the TIC data shows).

Ok, I'll be quiet and look for responses.

Diogenes's picture

I don't see why not. It might be more discreet than selling them and paying cash. As soon as I saw the stories about China buying farm land in Africa, mines and other natural resources around the world, and gold, it occurred to me they were spending their US bonds in this way in order to get rid of a depreciating asset without crashing its value. This was only a few months after the stories here on ZH about how they had slowly stopped buying US bonds over the course of 2 or 3 years.

awakening's picture

'farm land in Africa'

Australia also.

Muppet of the Universe's picture

fine no music for u fags

Marley's picture

Nothing another 15 billion bond won't take care of.  Where's the Terminator when you need him?

Insideher Trading's picture

his opponent's income tax loophole was wide enough to drive his Hummer through.

Wow. So tax loopholes and Kim Kardashian's vagina have something in common?

alex_g's picture

like throwing a hotdog down a hallway

swabeyjw's picture

The rating is a cross function of ability to service and size of debt. You pay...we joined at the hip. Russia just needs to borrow more to be AAA.

Dr. Engali's picture

One man's almost junk bond is the Bernank's treasure.

alex_g's picture

I know I'm going to get junked to the bejesus for this, but there just might be a bit of history and political risk behind the ratings...


Junk away

Urban Redneck's picture

or Racism (as long as we are tying correlation to causality), but the political risk is actually higher in Europe now.

riley martini's picture

The ratings system is flawed . Wrong rating corporations are a fraud S&P and Moodys are fraud corporations . Thier purpose is to help those that pay in cash or political favor like Buffet committ fraud to steal money fron institutions and individuals foolish enough to believe the system isn't corrupt . A pro-fascist group like Bloomberg would only write such a silly statement that the rating system is flawed to further their owners theft by fraud.

AUD's picture

While debt/GDP is not the sole arbiter of credit quality

So it's credit quality that matters here hey ZH, but credit quantity in your previous article?

den_by's picture

 well, at least,  Kazakhstan, Russia and Azerbajan have oil and gas as collateral 

Nobody For President's picture

Our ball bearing man DoChen is gonna be pissed to see Peru on that list...

skydrake's picture

Do you prefer to live in Azerbaijan or Kazakhstan instead of Ireland or Italy?

There are other parameters to consider

(as the credit quantity, the GDP ecc.)

GoldbugVariation's picture

When I was a student in the 80s and early 90s, people generally thought it was scandalous that "third world" countries like Brazil were staggering under debt loads from the IMF and World Bank, effectively owed to "rich countries" like USA, Germany, France, UK.  Students organised protests asking for debt forgiveness, and debt-for-rainforest swaps.

Looking at this chart, how things have changed.  Brazil's debt to GDP now looks sustainable, GDP is growing, and no doubt that debt was spent on infrastructure to kick-start the economy, nicely in accordance with the theoretical models of the World Bank economists.

I'm not sure it's the same for Ireland, Spain and Italy.  Maybe in a few years time, students in Brazil, India and China will be going on protests clamoring for debt forgiveness for the PIGS?