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Strategies & Market Trends : The Epic American Credit and Bond Bubble Laboratory -- Ignore unavailable to you. Want to Upgrade?

To: russwinter who wrote (26110)	2/9/2005 9:34:36 AM
From: SOROS	Read Replies (1) \| Respond to of 110194

I thought that 85-86 was the extent of the current dollar bounce, and then the decline should continue and take us below 80 on the next drop. Every chart I've seen has the lines drawn about there. What happens if it breaks above this 85.5-86? With so much real inflation in the system and the valueless dollar in terms of purchasing power, I don't see how it has held up this long the past month or two. I remain, SOROS

To: russwinter who wrote (26110)	2/9/2005 9:44:17 AM
From: Crimson Ghost	Respond to of 110194

Fitch warns of US rates jump threat By Päivi Munter in London Published: February 8 2005 19:55 \| Last updated: February 8 2005 19:55 A sharp fall in the US dollar is the biggest threat to emerging market debt prices, says Fitch, the credit ratings agency. In a report published this week, Fitch said a sudden decline in the dollar could spark an unexpectedly sharp rise in US interest rates, which would prompt investors to demand higher returns on risky debt. This, the agency said, could fuel turbulence in emerging market bond prices, which last year rallied strongly. Emerging markets have not had to contend with a sharp rise in US rates since 1994, when yield spreads over US Treasury bonds widened dramatically. "We do not believe that an environment as favourable as that in 2004 will last," analysts at Fitch said. "A high-risk appetite may be causing investors to underplay emerging market risk, particularly among weaker credits." Fitch said US interest rates were in any case likely to rise faster than current futures prices suggested, estimating the cost of borrowing at 4 per cent by the end of this year, up 1.5 percentage points from the current level of 2.5 per cent. The agency said the 10-year US Treasury bond yield was expected to rise to 5.50 per cent this year from 4.03 per cent yesterday. Most international bonds issued by emerging market governments are denominated in dollars, leaving the market highly dependent on US debt prices. Yesterday JPMorgan's EMBI Global Performing debt index showed emerging market bonds yielding 3.73 percentage points over Treasuries, just 0.13 percentage points wider than the record low in December last year. The gains in emerging market bond prices last year defied bumper supply, as governments took advantage of low borrowing costs. New emerging market issuance totalled 62.1bn in 2004, up from $46.6bn in the previous year. Fitch said borrowing in 2005 would remain close to last year's level. And Argentina and the Dominican Republic are expected to place $30.4bn of new debt as part of their debt exchanges. Meanwhile, Poland's plans to buy back its Paris Club debt will boost European supply. Fitch said factors such as this year's financing needs, the proportion of short-term debt, the capacity of the domestic bond market and the size of the central bank's foreign exchange reserves determined the extent of a country's vulnerability to a rise in US interest rates. The agency estimated that Latin American countries - including Ecuador, Uruguay, Brazil and Colombia - were likely to suffer most from a steep rise in US interest rates. Asian governments, such as Taiwan, China, South Korea and Malaysia, are relatively well cushioned from increases in US rates. While emerging market governments earned a number of credit ratings upgrades last year, Fitch said the rate of improvement was slowing. The agency has a positive outlook on 12 emerging market governments, compared with six on negative outlook or negative rating watch.