Months of consistently raising interest rates have pushed the Brazilian and Indian government bond markets into an inverted yield curve. In an inverted yield curve, interest rates on short term government issues move higher than longer term rates and is considered a warning sign of trouble. The most stark example of this can be seen in Greece where yields on the 2 year government bond are now hovering around the 30% mark.
There are differences however. Brazilian and Indian financial authorities have been engaged in an extremely aggressive battle against inflation. Unlike the USA and continental Europe, food and fuel make up a large percentage of the core inflation component. But there is a cost to such policy. Satisfying the legions of poor and hungry comes at the price of reducing discretionary consumer spending and domestic business spending.
Source: http://www.ft.com/cms/s/0/04511554-96a0-11e0-baca-00144feab49a.html#axzz1PXQD2WwO
The Bottom Line: Aggressive action by Indian and Brazilian authorities to battle inflation have resulted in an inverse yield curve in their bond markets. This may be a warning sign of capital market implosion or more benignly (and likely), that growth may be slowing.
Friday, June 17, 2011
blog comments powered by Disqus
Blog Archive
-
▼
2011
(58)
-
▼
June
(16)
- The Continuation of Quantitative Easing
- Chinese Government Claims It Isn't Speculating on ...
- India Will Join China as a Net Corn Importer
- McKinsey Health Insurance Report Attracts Controversy
- Chinese Food Prices Rise on Flooding
- Taking a Closer Look at Brazilian Growth
- Chinese Investment in Argentina Continues to Grow
- Warning Signs Flash in Indian and Brazilian Govern...
- CFTC Delays Dodd Frank Derivatives Ruling
- Modern Indian Growth: In Spite of Government - Not...
- Hedge Fund Investments in African Land are Leading...
- Indian Ministry Continues to Defer Wheat Export Ban
- US Financials, Dodd-Frank, and Basel III Leverage ...
- Another Look at the Chinese Shadow Banking System
- Emerging Market Inflation Indexed Bonds
- Australian Government Bans Mining in Queensland
-
▼
June
(16)