Singapore royalty slogs it out for the crown.

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neverfail
Posts: 5603
Joined: Sun Dec 18, 2016 3:47 am
Location: Singapore

Re: How government debt works.

Post by neverfail » Mon Jul 13, 2020 3:39 pm

Cass, I would like you to take a look at these (if you can spare the time - speed read if you can. :) ):

https://www.afr.com/markets/debt-market ... 415-p54jy5

A record $13 billion bond sale by the government's debt issuance agency allayed initial fears that markets might not be able to digest the estimated $300 billion of debt required to finance its response to the economic devastation of the COVID-19 lockdown.

But fixed-income analysts remained on alert about rising long term bond rates that were luring back foreign bond investors and had potentially contributed to an unwelcome surge in the Australian dollar.

The Australian Office of Financial Management's mammoth November 2024 bond sale, priced at a generous yield to entice investors, shattered the previous record of $11 billion for a single day syndicated bond sale set in February 2017.

The offer attracted almost $26 billion of orders at the clearing price when the AOFM's hired bankers closed the order books before setting the final deal size at $13 billion.

The strong result should provide some comfort to the government that it can meet what some analysts estimate will be an additional $250 billion to $300 billion of bond issuance over 15 months,

The 4.5-year bonds paid a yield of 0.47 per cent, at the upper end of the AOFM's marketed range and exceeding the market yield for longer-term five-year bonds.[/quote]

Cheap as chips(to quote one of our hackneyed popular sayings. :D
https://www.abc.net.au/news/2020-04-17/ ... 9/12158390

When the Government, via the Australian Office of Finance Management (AOFM), put these bonds up for sale on Wednesday morning, global investors were falling over themselves to get their hands on them.
The bond issue was overscribed.

You might wonder why, considering the miniscule yield payable upon maturity, investors could be so enthusiastic aboutinvesting in Australian government debt? If you are in the game of capital conservation then these are likely about as good as it gets.

To understand why you need only look at the alternatives. Were these same investors to invest in anything else these days, say in equities or property, they would likely incur losses given that we now live in a world sinking into depression. Those government bonds with a guaranteed return must look really attractive.

The measley 0.47% bond yield? Considering that the inflation rate is today negligable then that yield is likely enough to compensate investors for the erosion of purchasing power of their invested principal and still give them a profitable return over and abvve the inflation rate.
.............................................................................................................................

Governments in the West do not normally pay off debt: they simply "roll them over".

What that means is that when one bonds issue reaches maturity they pay off the b0ndholders but balance that up by initiating another bond issue beforehand to balance up the ledger. If your country has an AAA credit rating like this one then that is easy to do. AAA means that you can borrow funds at the most advantageous possible rate.

How can governments do that? Well, expectations of future economic growth and the resultant increases in tax revenue makes the debt "affordable".

As long as the money keeps on flowing and the borrowing/repayment etc. keeps on turning over then all remains well.

What happens if the music stops (i.e. if the market loses confidence in the ability of government to meet its debt obligations consequently and refuse to invest). Then the country is in deep, deep shit.

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cassowary
Posts: 4132
Joined: Thu Dec 15, 2016 11:30 pm

Re: How government debt works.

Post by cassowary » Mon Jul 13, 2020 11:15 pm

neverfail wrote:
Mon Jul 13, 2020 3:39 pm
Cass, I would like you to take a look at these (if you can spare the time - speed read if you can. :) ):

https://www.afr.com/markets/debt-market ... 415-p54jy5

A record $13 billion bond sale by the government's debt issuance agency allayed initial fears that markets might not be able to digest the estimated $300 billion of debt required to finance its response to the economic devastation of the COVID-19 lockdown.

But fixed-income analysts remained on alert about rising long term bond rates that were luring back foreign bond investors and had potentially contributed to an unwelcome surge in the Australian dollar.

The Australian Office of Financial Management's mammoth November 2024 bond sale, priced at a generous yield to entice investors, shattered the previous record of $11 billion for a single day syndicated bond sale set in February 2017.

The offer attracted almost $26 billion of orders at the clearing price when the AOFM's hired bankers closed the order books before setting the final deal size at $13 billion.

The strong result should provide some comfort to the government that it can meet what some analysts estimate will be an additional $250 billion to $300 billion of bond issuance over 15 months,

The 4.5-year bonds paid a yield of 0.47 per cent, at the upper end of the AOFM's marketed range and exceeding the market yield for longer-term five-year bonds.
Cheap as chips(to quote one of our hackneyed popular sayings. :D
https://www.abc.net.au/news/2020-04-17/ ... 9/12158390

When the Government, via the Australian Office of Finance Management (AOFM), put these bonds up for sale on Wednesday morning, global investors were falling over themselves to get their hands on them.
The bond issue was overscribed.

You might wonder why, considering the miniscule yield payable upon maturity, investors could be so enthusiastic aboutinvesting in Australian government debt? If you are in the game of capital conservation then these are likely about as good as it gets.

To understand why you need only look at the alternatives. Were these same investors to invest in anything else these days, say in equities or property, they would likely incur losses given that we now live in a world sinking into depression. Those government bonds with a guaranteed return must look really attractive.

The measley 0.47% bond yield? Considering that the inflation rate is today negligable then that yield is likely enough to compensate investors for the erosion of purchasing power of their invested principal and still give them a profitable return over and abvve the inflation rate.
.............................................................................................................................

Governments in the West do not normally pay off debt: they simply "roll them over".

What that means is that when one bonds issue reaches maturity they pay off the b0ndholders but balance that up by initiating another bond issue beforehand to balance up the ledger. If your country has an AAA credit rating like this one then that is easy to do. AAA means that you can borrow funds at the most advantageous possible rate.

How can governments do that? Well, expectations of future economic growth and the resultant increases in tax revenue makes the debt "affordable".

As long as the money keeps on flowing and the borrowing/repayment etc. keeps on turning over then all remains well.

What happens if the music stops (i.e. if the market loses confidence in the ability of government to meet its debt obligations consequently and refuse to invest). Then the country is in deep, deep shit.
Yes, Neverfail. We both are blessed to live in countries where financial markets have confidence in our governments' ability to repay debt. We both have AAA ratings for government debt. It was cheap for Singapore and Australia to borrow. That was why my government chose to borrow instead of selling assets at current depressed prices.

So you are right. So long as we are able to repay debt, we should not fear it. But I have an aversion for debt both in my personal finances as well as for any country. There is something not virtuous about borrowing. It means you are living beyond your means and pushing payment into the future, which no one can predict. No matter how good your credit rating and no matter how cheaply you can borrow, things can change unexpectedly.

What if the markets suddenly turn against you and you find it difficult to borrow at cheap rates. I rather save for a rainy day instead of borrow in the expectation that the financial market will continue to be benign.

Excerpt from link:
The facts: There are eleven countries in the world that have a AAA credit rating from the three international credit rating agencies, S&P, Moody’s and Fitch. These countries are:

Australia
Canada
Denmark
Finland
Germany
Luxembourg
Netherlands
Norway
Singapore
Sweden
Switzerland
Consider us blessed to be in this very select and prestigious club. The world trusts us to be able to repay our debts. There are only 11 countries in this club and the US is not among them. Needless to say, all these countries are rich.

........................................................................................................................................

The PIGS belong to the club of bums. Sorry Sertorio. I can't resist my impish nature.
The Imp :D

neverfail
Posts: 5603
Joined: Sun Dec 18, 2016 3:47 am
Location: Singapore

Re: How government debt works.

Post by neverfail » Tue Jul 14, 2020 12:50 am

cassowary wrote:
Mon Jul 13, 2020 11:15 pm

Yes, Neverfail. We both are blessed to live in countries where financial markets have confidence in our governments' ability to repay debt. We both have AAA ratings for government debt. It was cheap for Singapore and Australia to borrow. That was why my government chose to borrow instead of selling assets at current depressed prices.

So you are right. So long as we are able to repay debt, we should not fear it. But I have an aversion for debt both in my personal finances as well as for any country. There is something not virtuous about borrowing. It means you are living beyond your means and pushing payment into the future, which no one can predict. No matter how good your credit rating and no matter how cheaply you can borrow, things can change unexpectedly.

What if the markets suddenly turn against you and you find it difficult to borrow at cheap rates. I rather save for a rainy day instead of borrow in the expectation that the financial market will continue to be benign.
This might surprise you cass, but you and I are very much alike in that regard. In my bachelor days I was even something of a tightwad. It took the combined effect of tax provisions on inheritance along with tax concessions on money invested in a family home (along with marriage and the desire to own a home with a backyard for out future kids to safely play in) to turn me around into a mortgagee debtor. In that regard I was probably following in the footsteps of my own father: who started out in life with nothing but worked dilligently and hard, often doing disagreeable work that he did not enjoy, so that my brother and I could get off to a better start in life.

To this very day I still do not believe in indebting myself for the sake of living beyond my means but rather that living standards should accurately reflect income.

Our guiding principles are the same. It's just that in practice it pays to be flexible in applying them.

cassowary wrote:
Mon Jul 13, 2020 11:15 pm
Excerpt from link:
The facts: There are eleven countries in the world that have a AAA credit rating from the three international credit rating agencies, S&P, Moody’s and Fitch. These countries are:

Australia
Canada
Denmark
Finland
Germany
Luxembourg
Netherlands
Norway
Singapore
Sweden
Switzerland
Consider us blessed to be in this very select and prestigious club. The world trusts us to be able to repay our debts. There are only 11 countries in this club and the US is not among them. Needless to say, all these countries are rich.
I pray thanks to God that I was born in to such a country Cass. How about you?

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cassowary
Posts: 4132
Joined: Thu Dec 15, 2016 11:30 pm

Re: How government debt works.

Post by cassowary » Tue Jul 14, 2020 7:52 am

neverfail wrote:
Tue Jul 14, 2020 12:50 am

This might surprise you cass, but you and I are very much alike in that regard. In my bachelor days I was even something of a tightwad. It took the combined effect of tax provisions on inheritance along with tax concessions on money invested in a family home (along with marriage and the desire to own a home with a backyard for out future kids to safely play in) to turn me around into a mortgagee debtor. In that regard I was probably following in the footsteps of my own father: who started out in life with nothing but worked dilligently and hard, often doing disagreeable work that he did not enjoy, so that my brother and I could get off to a better start in life.

To this very day I still do not believe in indebting myself for the sake of living beyond my means but rather that living standards should accurately reflect income.

Our guiding principles are the same. It's just that in practice it pays to be flexible in applying them.
Yes. We are alike Neverfail.


[
quote=cassowary post_id=32550 time=1594707314 user_id=60]
Excerpt from link:
The facts: There are eleven countries in the world that have a AAA credit rating from the three international credit rating agencies, S&P, Moody’s and Fitch. These countries are:

Australia
Canada
Denmark
Finland
Germany
Luxembourg
Netherlands
Norway
Singapore
Sweden
Switzerland
Consider us blessed to be in this very select and prestigious club. The world trusts us to be able to repay our debts. There are only 11 countries in this club and the US is not among them. Needless to say, all these countries are rich.

I pray thanks to God that I was born in to such a country Cass. How about you?
Yes, thank God. We are among the lucky ones.
The Imp :D

neverfail
Posts: 5603
Joined: Sun Dec 18, 2016 3:47 am
Location: Singapore

Re: "The canary down the coal mine:.

Post by neverfail » Wed Jul 15, 2020 1:27 am

An ill economic wind blows from Singapore

[b]Trade-geared nation's GDP plunges 41% quarter on quarter in an alarming sign that all is not well in the global economy
[/b]
https://asiatimes.com/2020/07/an-ill-ec ... singapore/

With its open and traditionally nimble economy, Singapore often plays a weathervane role for global trade trends. As such, the ill winds blowing across the city-state should worry policymakers worldwide.

According to statistics released today (July 14), Singapore saw a startling 12.6% annualized drop in gross domestic product (GDP) between April and June. Viewed quarter-to-quarter, GDP collapsed a whopping 41.2%.

That fall-off could dent confidence from Washington to Beijing, where the chatter from top government officials has been of heady, post-Covid economic revivals to come.

In Washington, President Donald Trump’s team may have dispensed with “V-shaped” recovery talk, but the spin certainly suggests a “U-shaped” rebound is afoot.
The sort of partisan lies emininating from the Trump White House (cheery, 'happy days will soon be here again' [ yackity-yack), might lead the unsuspecting listener/observer to the impression that Mr. Trump misleads the US public by raising false hopes and expectations because he still wants to be re-elected.

The CCP in the Pepoles Republic is just as bad:
China, too, is telegraphing a post-coronavirus return to brisk business.

Singapore’s dismal GDP numbers auger poorly for both those narratives.
At least Singapore's statistics are honest. They command respect far more than the unrelenting noise eminating from the propaganda mills of Washington and Beijing.

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