Post Emailed To Dinar Recaps
TrinityeXchange: What's with all these bonds??
Peter Eerdmans is an economic prophet, “As interest in emerging market debt grows, bond markets are developing in size, depth and liquidity.
Some countries such as Lebanon, Iraq, Tunisia, Panama and Guatemala only issue dollar government bonds but Mr Eerdmans expect this to change in the next decade to include issues in local currencies.” (read more: Interest in local currency bonds rise)
TrinityeXchange: Hello again my friends! There is so much talk in the news surrounding bond issuance that I thought I would take an opportunity to elaborate and give my short take on what it is I believe the GOI is doing.
But first a quick educational session so that we are all up to speed. A government will be the issuer of a bond when it is looking to borrow money. The GOI sells the instrument and redeems it at a later date in time at a predetermined or fixed rate.
At the end of the term (maturity) the investor cashes in the bond for the fixed amount. This is why monies received from bonds are called “fixed income” to the investor.
For our purposes we will discuss EMLCB or Emerging Market Local Currency Bonds. What we see transpiring in Iraq is for all intents and purposes unprecedented because it is for the first time issuing EMLCB or another common phrase “emerging local market bonds.”
Previously Iraq only issued bonds denominated in foreign currency (usd).
(Article added for your reading convenience):
Iraqi Central Bank raises term delivery in the currency of the US dollar bonds
Central Bank of Iraq will ask the delivery term in the currency of the US dollar bonds (bearer) on behalf of the Ministry of Finance on 02/08/2015 and ends on 08/31/2015 Basaddarah of four categories (2500, 10000, 50000.100000) US dollars and a total of $ 2 billion dollars (two billion US dollars).
been sold through the Central Bank of Iraq at a price (1095) dinars per US dollars (one thousand and five and ninety) dinars and payable by the Ministry of Finance on 12.31.2016 and paid in US dollars at maturity.
offers all banks buyers to the bank requests and restrict the amounts we have to open their accounts we have, whether the bonds of the bank on behalf of the public (people their natural or legal) who have a current account at the bank and submit a purchase order to the bank directly to the bank in turn buy those bonds to its customers through the form buy advance to the Central Bank of Iraq, and could use those bonds as collateral for loans, facilities or any transactions require collateral
Now we see them issuing bonds denominated in the iqd.
(Article added for your reading convenience):
Central is preparing to launch bonds in local currency and asserts: We have a surplus of foreign currency
Author: ASJ, BS Editor: BS 2015/08/26 18:37 Number of Views: 2777
An informed source at the Central Bank of Iraq, on Wednesday, for the last willing to put up bonds for sale in the local currency, while pointing to a surplus of foreign currency in the country.
The source said in an interview with the (long-Presse), that "Iraq needs funds in local currency and not in hard currency, so the central bank is preparing to launch bonds in local currency for sale in order to strengthen the local currency."
The source, who asked not to be named, said "bonds that will be put forward will be available to all citizens and the various classes in order to take advantage of it will be local and national," noting that "the mechanism of sale will be announced in the near future."
The source continued that "there is a surplus in foreign currency in the country and, therefore, he went to the Central Bank to sell bonds in the national local currency away from the dollar selling."
The Central Bank of Iraq announced earlier, to take the necessary measures to support liquidity in the banking system, and decided to facilitate the procedures for the sale of foreign currency "to sustain the exchange rate."
The Central Bank of Iraq, said in (the 18th of January 2015), that the financial reserves of Iraq is equivalent to one and half times the weakness of the currency bloc, returned as "best rates" in the countries of the world, and as he emphasized that Iraqi financial institutions are "unable" to cover the fiscal deficit,
he stressed the need to reconsider the structure of the budget and spending and to diversify sources of income and achieve the investment more broadly to address the decline in oil prices.
TrinityeXchange: Within the last couple of weeks we see both types of bonds being made available to add liquidity to the economy. The question many probably have is why LCBs?
Issuing a bond in foreign denominations is a no-brainer as the investor is assured of the stability of the currency in which the bond is denominated….for Iraq it is the usd.
Purchasing bonds in local/domestic currency serves a 2 dimensional purpose, 1) the hopes of receiving a fixed income upon bond maturity (same as foreign denominated bonds) and 2) the hopes of receiving capital gains if the domestic currency appreciates in value J
Point #2 is the ONLY reason a foreign investor will purchase an EMLCB when they have the option of purchasing a less riskier foreign currency denominated one.
Lastly, so that people don't think I am pulling my takes out of a hat, these bullet point items were taken from Investec's report "Emerging Markets Debt: the next 10 years":
I tried keeping it as short as possible while covering pertinent points. Thanks for reading, your mileage may vary -- Be blessed my friends! -- TrinityeXchange