Headlines:
Credit Ratings = Meaningless To Central Banks.
Central Banks Incentivized To Overpay = Lower Sovereign Credit Costs.
************************************
CASE STUDY:
USA + Italy
*******
USA = S&P Long Term Credit Rating = AAA+
Italy = S&P Long Term Credit Rating = BBB
USA = QE/Debt Monetization = Yes = Federal Reserve
Italy = QE/Debt Monetization = Yes = ECB
USA = QE’ed 10 Year Bond Yield = 2.32 = See Chart Above
Italy = QE’ed 10 Year Bond Yield = 2.25 = See Chart Above
USA = Higher Costs Yet Superior Credit Metrics
Italy = Lower Costs Yet Inferior Credit Metrics
*******
USA = Ex: QE = Higher Coupons + More Indentures = Higher Deficit/Debt
Italy = Ex: QE = Higher Coupons + More Indentures = Higher Deficit/Debt
USA = Ex: QE = Fiscal Deficit = 10% Higher = Lower Credit Rating
Italy = Ex: QE = Fiscal Deficit = 30% Higher = Lower Credit Rating
USA = Lower Credit Rating = Increased Coupon Costs
Italy = Lower Credit Rating = Increased Coupon Costs
*******
USA = QE Circumvents Increased Coupon Costs Via Artificial Demand For Sovereign Debt = Prices Higher/Yields Lower
Italy = QE Circumvents Increased Coupon Costs Via Artificial Demand For Sovereign Debt = Prices Higher/Yields Lower
USA = QE = Masks Deficit Via Debt Monetization + Remittance of Coupons To Sovereign Treasury
Italy = QE = Masks Deficit Via Debt Monetization + Remittance of Coupons To Sovereign Treasury
*******
USA = Fiscal Reform = Levering, QE Enabled, Lower Interest Costs = No
Italy = Fiscal Reform = Levering, QE Enabled, Lower Interest Costs = No
************************************
USA + Italy = Central Bank QE Facilitates Wealth Transfer
From:
Private Fixed Income Investors Via Reduced Coupon Income + Reduced Outstanding Indentures
To:
Sovereign Treasuries Via Reduced Coupon Costs + Reduced Outstanding Indentures
************************************
Article by Global Slant
Save
