1994 all over again

For bond traders 1994 and the years following were exciting times indeed. With the Greenspan Fed starting to raise rates, we saw a sharp spike in US bond yields. This set in motion a set of events that led to Latin American and Asian currency crises, and eventually the blow up of LTCM and the Russian default. A nice set of links to get going:

Zero Hedge carries info from a UBS research note.

Prof. J R Varma had written earlier not once but twice on the topic.

Given that we have had a back-up of 60 bps in treasury yields & commodities have continued to slide, we could yet see some version of the 1994 playbook. Back then China and India were still (largely) closed economies. Both were insulated from the crisis. This time around a part of the reason for emerging market weakness is the larger than expected slowdown of the Chinese economy. Witness for example the OECD estimate that China grew by 1.6% q/q seasonally adjusted. That works out to about 6.5% annualized growth. India’s growth has fallen to a quarterly 0.5% (2% annualized) by this measure (both set of statistics for the March quarter).

Leave a Reply

Your email address will not be published. Required fields are marked *

Connect with Facebook

This site uses Akismet to reduce spam. Learn how your comment data is processed.