Readings: Swap lines, Shipping slowdown, MF discretion
- Brad Setser, CFR: Where is My Swap Line?
Korea is a highly developed emerging economy. In a lot of ways it already has emerged. But it isn’t part of the G-7 (or G-10) and doesn’t have a swap line with the Fed that allows the Bank of Korea to borrow dollars from the Fed by posting won as collateral. That means that it has to rely on its foreign currency reserves - and its government’s capacity to borrow dollars in the market - to support its banks. Unless, of course, Korea could draw on a set of East Asian swap lines, and effectively borrow from Japan and China.
Hungary is scrambling for euros. Ukraine’s government is scrambling for dollars and euros - both to back its currency and to cover the maturing foreign currency borrowing of its banks. Pakistan’s government needs dollars. Korean banks are scrambling for dollars. As are Russian banks. And Kazakh banks. And Emirati banks.
In the last three months, tanker rates have dropped by 10-15%. During the same period, dry bulk shipping rates have dropped by 80-90%.
Great Eastern Shipping, Mercator Lines Ltd, Shipping Corp. of India Ltd (SCI) and Essar Shipping Ports and Logistics Ltd, among others, own 106 dry bulk carriers, or 32.4% of India’s total fleet of 879 ships.
Around 90% of the world’s $14 trillion (Rs683 trillion) trade is handled via trade credit.
Till now, funds were allowed a discretionary window of 150 bps (up to 50 bps lower or 100 bps over their indicative yields) to make adjustments in yields to allow for market anomalies. Now, this has been enhanced over four-fold to 650 bps (up to 150 bps lower and 500 bps over the indicative yields).
Valuations of credit instruments have become skewed on account of adverse liquidity conditions, with papers issued by real estate companies, particularly, turning illiquid.
Indicative yields. Managerial discretion. Caveat emptor, I say.
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