Bonds: Exotic Punts

The Economist June 15th 2013

Finance and Economics:  The Fed and Emerging Markets

The End of the Affair

Johannesburg

“…South Africa has the financial markets of a rich country: it is easier to buy and sell bonds and stocks there than in most middle-income countries.  So the rand is a convenient currency in which speculators can take a position on emerging markets more generally.  As the fast-money crowd sense the beginning of the end of loose monetary policy in America, bonds and currencies in emerging markets are the assets they want to sell.  The rand is merely the worst-hit in a long list of vulnerable currencies.

In the past month 19 or the 24 emerging market currencies tracked by Bloomberg have fallen in value against the dollar.  The trigger for this sell-off was a remark in May by the chairman of he Federal reserve, Ben Bernanke, that the Fed’s purchases of bonds using central-bank money might soon tail-off…

Even so, the prospect of a tapering of the Fed’s bond purchases probably marks the start of a long grind upwards in American bond yields to more normal levels… Interest rates will bobble around in search of the right price.  The absence until recently of such volatility has made rich-world investors comfortable with exotic punts in emerging-market bonds.  As the waters become choppier, they will be far less willing to take such gambles.”

I am not sure about the derivation of the word “punt” in this article as it is from The Economist.  It could be from punting on a stream or river, such as the Thames, but it also could be from punting a football in American football or rugby or in soccer.

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