kulutempa:

One more thing.  The writer of that FT article is obviously clueless as far as his knowledge of bond yields is concerned.  The coupon rate is the interest rate the bond initial pays on issue and it is given in the name of the bond.  So the Ghanaian 8.50% 10 year sovereign bond, would have a coupon of 8.50% if you bought it when it was first issued in September 2007, before its price began to fluctuate in the bond market.  After a bond has been successfully issued, its price begins to fluctuate in the secondary bond market in response to the market forces of supply and demand and as the prices changes every day, so does the yield which depends on the prices paid for the bonds.  This is what is known as the running yield and it is completely different from the coupon rate.   I am really surprised that  a writer for a reputable financial publication like the FT could have made such a fundamental error by comparing the running yield on the Ghanaian 10 year bond to the coupon rate on the newly issued Nigerian 10 year bond.  It is simply inexcusable even for a first year finance undergraduate.

kulutempa:

Mr Jingles, if there is one thing I don't like it is people making bare assertions without any evidence to back it up.   The return required by debt  (bond)holders is found by applying the CAPM, as it is the basis of an analysis of the cost of debt capital.  Enquiring minds may want to read more about the subject on this link:   http://www.quickmba.com/finance/cf/  and in particular this statement in the paragraph headed Cost of Capital:

The cost of capital is the rate of return that must be realised in order to satisfy investors. The cost of  debt capital is the return demanded by investors in the firm's debt; this return is largely related to the  interest the firm pays on its debt.

Dissenting minds should provide their evidence to the contrary, or forever hold their peace.  Thank you.

ENZO SCIFO:

@Kulutempa
hmmm interesting read though I have my reservations about the source. Lets leave that for now at least until oga Deejay, goes away. te guy seems to be spoiling for a fight fromany and every corner.

Will be here again in about 2hrs-3.
nice meeting you.

ENZO SCIFO:

@Kulutempa
hmmm interesting read though I have my reservations about the source. Lets leave that for now at least until oga Deejay, goes away. te guy seems to be spoiling for a fight fromany and every corner.

Will be here again in about 2hrs-3.
nice meeting you.

@ Deejay don't come and wait for me o!

mrjingles:

Kulutempa I've read the link but you miss my point. I am referring to using the CAPM to value government bonds not corporates, the govt bond your trying to value is itself the rf rate-circumlocution. Besides, the major weakness of CAPM is the belief that it can be used to value ANY asset while in practice it lends itself only to equities because the beta of a bond (corporate or sovereign) would be difficult to determine since the market portfolio for bonds has no representative index.
The reason is that bonds mostly trade over the counter and given the myriad issues of bonds, constructing a market portfolio would be too expensive to be worth it. The inability to observe and measure a true market portfolio is the reason why it is used mostly to value equities due to the ease of using a stock index as a proxy for the market portfolio.

CAPM assumes you can value ANY asset with the model (including real estate, commodities etc) but this is clearly impractical for same reason you cant use to value bonds- observing and measuring the market portfolio is impractical. Lets separate theory from realistic applicability.

Why go through the pain of valuing bonds with capm when better and more reasonable approaches abound. Better use a YTM or relative price approach than using a an appraoch that looks good on paper but cannot be applied in practice.

babaogun:

@DeeJay20:
Do you mean to say Brazil and Russia have not issued EuroBonds?

DeeJay20:

Oh Hallelujah!!! finally a man that replies me that is using his
Wonderful Nigerian Brain,

Brazil & Russia have issued Euro-bonds in the "Very Recent Past" but
i guess they would not be issuing any time soon in the near future if they
value their Economic skin!!! they got their
hands seriously injured playing with those Financiall Instruments, !!!

Russia got burnt/injured in 1998 (Google it)

Brazil got Burnt/injured through out the 1980's,

COUNTRIES PRESENTLY GETTING BURNT/INJURED IN THE EURO-BOND MARKETS

GREECE

IRELAND

LATIVA

ICELAND

COUNTRIES ON THE "TO BE BURNED/INJURED LIST"

[b]SPAIN

PORTUGAL, [/b

Katsumoto:

I am not following your argument any more; are you suggesting that it is wrong for governments to raise funds through bonds?

and please drop the condescending tone; it doesn't make your argument any more intelligent.

babaogun:

@DeeJay20:
So what do you think is getting their fingers burnt?

Me thinks they were borrowing too much and not necessarily the use of EuroBonds.
Italy is 7th largest economy in the world in GDP terms and they have borrowed more than 115% of GDP. Italy still raised 12bn Euro in December 2010.

Nigeria is one of the least leveraged countries (<20% of GDP) in the world unlike all the countries you listed who are borrowing at close to or even more than their GDP.
We are aware of the terms and conditions and this borrowing does not interfere with our sovereignty. We only have problems if we can't meet up with payments.

babaogun:

@DeeJay20:
Please explain to me how the BRIC nations got their fingers burnt!!!
Thank you in advance.

DeeJay20:

Why are you so bothered with Intelligence and can not see the Big Picture,

The Truth is simple, those that know it and are determine to hide it from you
desire to make it complex.

and in reference to "condescending tone" GROW UP!!!

There is a war going on for your countries Reources & wealth,
and if you dont know, now you know!!! Finance and Debt ie Bonds is
a tool of that war!!!

DeeJay20:



Dude, you need to read my post very carefully
do some research and get back to me as we are not on the same wave-length

I warned every-body at the beginning of my post to be careful when
you step to counter my position.

I understand the inner and outer workings of "the International Bond-Market"

Having worked for JPM. GS, no-one soo far has asked the Golden-Question,

Read my post carefull and then when you have sufficient understanding get back to me,

My post on,

« #136 on: Today at 01:07:40 PM »

snthesis:

love d healthy discussion   ---i tink i just activated a brain cell

my humble uncouth rejoinder - the "NEXT" article  has been proven wrong, the bonds were clearly oversubscribed not shunned.

queensmith:

but isnt the Ft article is basically saying the exact same thing?? f[b]orgive me even my own brain is razzled[/b]!! lmao

Katsumoto:

Let me have a go at what you are having difficulty explaining. With QE2, there were fears that extra cash from the US would find its way to the stock markets of emerging countries in Asia and Latin America. What has emerged however, is that Asian countries are showing signs of higher inflation, rising interest rates, and slowing growth but this is because Asian countries have had near double-digit growth in the past couple of years while the rest of the world was struggling. Contrast that with demand for high-yielding assets in Latin America. See emergingmarketmonitor.com and FT.com for more information.

Now having said that, that position is different for bonds because unlike the stock market, a country requests the extra cash that goes into its economy through the bond issue and as such, it is the responsibility of that country to ensure that it can deal with the inflation that may arise from the extra liquidity which is not the case for additional liquidity through direct foreign investments in the stock market. WHen a country fears that additional liquidity from foreign sources can cause inflation issues, it can introduce some kind of tax to limit such liquidity similar to what Brazil did after QE2.

Katsumoto:

Ok, carry on with the condescending tone but at least answer the question, 'are you stating that raising funds through bonds is fiscal irresponsibility on the parts of the governments that do so?' If that is your arguement, then please state why you hold such a view. The 'someone powerful somewhere' theory is intellectual laziness.

You listed a few countries that have/had issues with bond issues and repayment. Start by telling us how they were short-changed.

Where was the Money Invested The Public does not know? Our govt unlike the Asian countries refuse to tell us.