International Investments Worth the Risk
Recent messages about international
investments looked at how safety and opportunity in stock markets around the world
has turned upside down. The Emerging international investments market now offers
better value than major markets.
International Investments at Bloomberg
Recent articles at Bloomberg suggest
that the same may be true in bond markets.
A June Bloomberg article entitled "Ecuador Plans to Swap One-Year Bonds to
Help Lower Debt Costs":
"Ecuador, the South American
nation that defaulted in 1999, plans to swap bonds maturing in a year or less
for new securities due in 2012 and may seek to renegotiate all its debt to cut
borrowing costs, Finance Ministry officials said."
The article pointed out that though
Standard & Poor had reduced Ecuador's credit rating to CCC that the benchmark
12 percent Ecuador bond due in 2012 yielded 12.7 percent down from 12.8 percent.
This was a sign that the market was favoring Ecuador bonds.
International Investments Reasoning
There were several reasons why the
market felt that new Ecuador bonds made sense.
First Ecuador, with $15.5 billion
of debt, is only the latest country to extend its debt maturities. The UK and
France have already sold 50-year bonds to capture low interest rate trends. America
is thinking of bringing back 30-year bonds.
Second, the Ecuador government has
enough money to cover its debt well into the future and has sufficient reserves.
Third, Ecuador is a large oil producer
and has $1 billion of international reserves.
Fourth, The Bloomberg article stated
that Jim Barrineau, a senior vice president for emerging markets at Alliance Capital
Management Co. in New York who helps manage $145 billion in fixed income securities
said he was confident that Ecuador can pay its debt this year, the price of oil
is high and tax receipts remain strong.
Fifth, there is no currency risk
for dollar investors as the US dollar is Ecuador's currency and Ecuador only has
Ecuador's colonial roots are not confined to the history books, they are visible
in everyday life even after almost two hundred years of independence from Spain. Learn more about Ecuador's
International Investments & Merrill Lynch
Sixth, a later Bloomberg message
(July 11) stated: "Russian, Mexican, Ecuadorian Bonds Are Cheapest. "
The article pointed out that according
to a Merrill Lynch & Co. mathematical analysis the government bonds of Russia,
Ecuador and Mexico offer the highest yields for investors,
The article said: "The model
suggests that Ecuador, Mexico and Russia remain the cheapest sovereigns. South
Africa is now the most expensive credit and is holding that position well ahead
of Bulgaria and Ukraine.''
Investors may want to consider a
spread of these high yielding bonds.
Russia's foreign currency and gold
reserves are now over $150 billion. Russia is the world's No. 2 oil supplier.
benefits from record crude prices. Reserves rose by $2.2 billion in the week to
$151.8 billion, the central bank said on July 7.
The premium paid over US Treasury
note rates last month was in the range of 163 basis points for Mexican bonds,
797 basis points for Ecuadorian bonds and 152 basis points for Russian bonds.
A basis point is 0.01 percentage point. In other words Ecuador bonds were paying
7.97 % more than US Treasury notes.
Bonds in Ecuador, Mexico and Russia?
This may seem high risk, but times change as does value and a spread of these
bonds may add safety as well as a higher return in your portfolio now.
For more information on
Ecuador Russian or Mexican bonds contact Thomas Fischer at jbpb.com.
Until next message, good investing!