Let’s call him Paul. He is a broker in a large European bank, and his job is to find investors who are willing to put their money in the Treasury bonds of central European governments. For more than six months, he has had more and more difficulty convincing them. “They say to me: ‘Why would I invest in Serbia or Romania when I can put my money in the United States for 3% or 4%? »
His lament sums up the huge pendulum swing that is currently shaking the financial markets. Since the beginning of the year, the Federal Reserve (Fed, American central bank) has increased its interest rate by 3 points, to more than 3%. Today, a ten-year U.S. Treasury note is yielding 3.6%, down from 0.5% two years ago, at the height of the pandemic. After earning almost nothing for a long time, these assets, considered the safest in the world, now offer a decent return.
At the same time, other monetary institutes did not grow so fast. The rate of the European Central Bank is 0.75%, that of the Bank of England, 2.25%. Logically, all investors flock to dollar assets. “The first countries sanctioned by this movement are the emerging countries [parce que jugés plus risqués] », continues the same broker. The most fragile, like Ghana, are now in discussion with the International Monetary Fund for a rescue plan. More solid, a country like Romania is forced to pay dearly: its ten-year bonds are close to 9% yield.
Liquidity drying up
Since the start of the year, investors have withdrawn 70 billion dollars (71.2 billion euros) from emerging country bonds, including 4.2 billion in the week of September 26-30 alone, according to data collected. by JPMorgan and EPFR Global, reports the FinancialTimes.
This great liquidity crunch even affects countries like the United Kingdom, the 6e world economic power. After the presentation of a budget that lowered taxes without explaining where the financing would come from, investors took fright and began to demand a better yield: the interest rate on ten-year bonds rose from 3, 8% to 4.6% in two days, before the intervention of the Bank of England put an end to the panic.
Who says drying up of liquidity also says higher volatility and unexpected upheavals in the markets. For several months, most financial indicators have turned red. Thursday, September 29, the European Systemic Risk Board (ESRB), which is the body of the European Central Bank responsible for monitoring financial risks, issued, for the first time, a “general warning”. Since its creation in 2010, it had already issued warnings, but specific to certain sectors, never in a generalized way.
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