Tuesday, Mar 23, 2010
Sterling not Finnished - Eurozone country issues bonds in GBP
FT: Finnish sterling bond issue leads eurozone trend
"The Finnish deal, which saw twice the demand for the £500m ($754m) raised, may pave the way for more similar transactions as other eurozone governments seek to diversify and attract new pools of buyers...A large chunk of the demand came from British investors, such as pension funds, Swiss retail investors and central banks. This is a different pool of investors to those who would typically buy Finnish bonds denominated in euros."
Posted by mountain goat @ 12:50 PM (1220 views) Add Comment
22 Comments
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1. stillthinking said...
Umm.. Isn't this Finland piggybacking on yield suppression by the BoE? Don't we have a funding shortfall? Isn't the only benefit derived by Finland coming from UK savers?
So the BoE is now keeping borrowing costs down for over-leveraged UK consumers, an insane level of Government spending.....and Finland. This is good in what way (apart from the dubious benefits of devaluing our own currency)?
2. stillthinking said...
One more thing... one of the things that holds the value of any currency up, is that there is a "real" cost to borrowing money into existence. For the last three years, foreigners who have borrowed in sterling and "immediately converted to Euros" like Finland have made money by simply paying back less in real terms. That profit is not magicked into existence but comes from existing sterling holders ( us ).
Our internal deflation is presumably being countered by flooding the euro-zone with sterling and hoping desperately that just because of the sheer quantity some is going to wing its way back here. This is against my own personal rule that sterling should be a reliable store of value. Poor old Jim Rogers, the financial Cassandra.
Internal deflation with a collapsing currency would have happened and we would have got through it, bust businesses taken over by those with funds and new ideas, now the first and most important business decision anybody in the UK could make is to speculate on GBrown or M King, absolutely nothing to do with product design, manufacturing. Just that. All this money is being turned into hot funds because thats the only way to profit as far as the UK is concerned.
3. mountain goat said...
Stillthinking - my understanding is that it is fairly normal for countries to issue bonds in other currencies such as dollars. The BoE did just that several weeks ago. As with everything related to bonds this is complex.
"immediately converted to Euros" - since Finland's currency is Euros this seems logical. I doubt they hold these Euros, but instead use it for gov expenditure, as you normally would as a government issuing bonds. You think there is a speculation motive? If Sterling falls bonds become easier to pay back?
The article seems to think this is all about demand. Issues in GBP being attractive to investors, at least British investors who presumably are not that vulnerable to currency fluctuations since they live and work in a GBP zone. I also think this is all about demand as globally deficits have grown and selling bonds becomes more difficult. So from the Sovereigns stand point this has little to do with currency speculation, although speculators obviously do speculate in bonds with this in mind.
4. tpbeta said...
Errr it seems to me that if they sell bonds in sterling then convert the proceeds to Euros then they're shorting sterling. If this caught on. Sterling would go down the pan.
5. 51ck-6-51x said...
tpbeta, but they have to pay in Sterling too.
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