![]() *Represent countries where total debt securities were not reported by national authorities. Foreign interest in China’s bonds slowed in 2022 amid geopolitical tensions in Ukraine and lower yields. Local commercial banks hold the greatest share of its outstanding bonds, while foreign ownership remains fairly low. In 2022, the Federal government paid $534 billion in interest on this debt.Ĭhina is second, at 16% of the global total. Government bonds made up the majority of its debt market, with over $26 trillion in securities outstanding. BIS notes that international debt securities are issued outside the local market of the country where the borrower resides and cover eurobonds as well as foreign bonds, but exclude negotiable loans. ℹ️ Total debt numbers here include both domestic and international debt securities in each particular country or region. For instance, large players in the crypto space may be willing to assist the government to keep the concept of “nation-state bitcoin adoption” alive. While this isn’t directly related to El Salvador’s default risk, it does open potential avenues for relief. In hindsight, these warnings were wise, as Bitcoin’s value has fallen by 56% year-to-date. ![]() The International Monetary Fund (IMF) criticized this decision in early 2022, urging the country to revoke legal tender status. This means that Bitcoin is recognized by law as a means to settle debts and other obligations. In September 2021, El Salvador became the first country in the world to adopt bitcoin as legal tender. Another Hot Topic for El Salvador: Bitcoin Recent research suggests that if El Salvador were to default, it would experience significant, yet temporary, negative effects. The next date to watch will be January 2023, as this is when the country’s $800 million sovereign bond reaches maturity. This is considered high by historical standards, but today it’s actually quite normal. When totaled, El Salvador’s outstanding debts are equal to 82.6% of GDP. once more, America’s federal interest costs amounted to 1.6% of GDP in 2020. Why is El Salvador Ranked Higher?ĭespite having lower values in the two metrics discussed above, El Salvador ranks higher than Ukraine because of its larger interest expense and total government debt.Īccording to the data above, El Salvador has annual interest payments equal to 4.9% of its GDP, which is relatively high. This suggests that the market has very little faith in Ukraine’s ability to avoid default. If a CDS has a spread of 300 bps (3%), this means that to insure $100 in debt, the investor must pay $3 per year.Īpplying this to Ukraine’s 5-year CDS spread of 10,856 bps (108.56%), an investor would need to pay $108.56 each year to insure $100 in debt. In exchange for receiving coverage, the buyer of a CDS pays a fee known as the spread, which is expressed in basis points (bps). The seller of the CDS represents a third party between the lender (investors) and borrower (in this case, governments). ![]() What is a CDS Spread?Ĭredit default swaps (CDS) are a type of derivative (financial contract) that provides a lender with insurance in the event of a default. 10-year government bond is currently 2.9%. As a point of comparison, the yield on a U.S. This means that a bond with face value of $100 could be purchased for $30.īecause yields move in the opposite direction of price, the average yield on these bonds has climbed to a very high 60.4%. That scenario has prompted a sell-off of Ukrainian government bonds, pushing their value down to nearly 30 cents on the dollar. If this happened, it’s possible that Ukraine’s existing debt obligations will never be repaid. ![]() To understand why, consider a scenario where Russia was to assume control of the country. Ukraine has high default risk due to its ongoing conflict with Russia. Countryġ basis point (bps) = 0.01% Why are Ukraine’s Bond Yields so High? To better understand this ranking, let’s focus on Ukraine and El Salvador as examples.
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