Monday, January 14, 2008

Inverted Roosa Bonds

"Mexico, Colombia and Turkey [MC&T] sold a combined $3.5 billion of dollar bonds in international markets, locking in borrowing costs on concern that a U.S. economic slump may crimp demand for higher-yielding securities in coming months. ... Mexico sold $1.5 billion of bonds maturing in 2040 to yield 6.055 percent or 1.7 percentage points above U.S. Treasuries of comparable maturity. Colombia sold $650 million of dollar bonds due in 2017 to yield 6 percent and $350 million of dollar bonds due in 2037 to yield 6.6 percent. Turkey issued $1 billion of bonds due 2018 to yield 6.3 percent, according to a filing with the U.S. [SEC]. ... The spread, or extra yield, investors demand to own emerging-market bonds instead of U.S. Treasuries has dropped 16 basis points from a two-year high of 2.66 percentage points reached on Nov. 27, according to J.P. Morgan Chase", Valerie Rota at, 9 January 2008.

What's really happening? MC&T are short-selling dollars! In a perverse historical inversion, MC&T are issuing their own version of Roosa Bonds, see my 8 November 2007 post. There are two ways to look at the narrowing "spread" between US Treasuries and other bonds. Think about it. Thank you W.C. Varones for bringing this to my attention, at, 9 January 2008.

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