Banking turmoil has driven up spreads on sovereign bond yields over US Treasuries to levels that impair ability to raise funds
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Bank sector stress makes a stagflationary debt crisis more likely and severe, writes Nouriel Roubini.
The US dollar still dominates debt markets, but some niche-sounding data suggests things could be set to shift
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- Sovereign defaults are at a record high, with 14 default events since 2020, Fitch said.
- That’s compared to 19 such events between 2000 and 2019, according to the ratings agency.
- Default events are also taking 107 days on average to resolve, up from 35 days in 2000, Fitch added.
Sovereign defaults have jumped exponentially in the last three years, according to a Fitch Ratings report published Wednesday.
Since 2020, 14 such events occurred across nine countries, compared to the prior two-decade span between 2000 and 2019 that saw 19 defaults across 13 different countries.
The surge in defaults comes as sovereign borrowing ramped up, with the median general government debt-to-GDP ratio climbing to 48% pre-Covid from 31% in 2008, helped by easier access to the eurobond market and financing from China.
“Against this backdrop, frontier markets with limited buffers were poorly placed to cope with the severe shocks from the pandemic and the impact of Russia’s invasion of Ukraine on food and energy prices, global inflation and the subsequent abrupt tightening in monetary policy,” Fitch said.
Currently, Belarus, Lebanon, Ghana, Sri Lanka and Zambia are in default. Other countries that underwent such events since 2020 include Argentina, Ecuador and Suriname, as well as Ukraine.
Meanwhile, Russia faced its own default last year, after Western sanctions limited its ability to pay back investors.
Default events are also taking longer to resolve, particularly due to a lack of coordination between Chinese stakeholders, in addition to China’s demand for multilateral debt within restructuring efforts.
While it took around 35 days to resolve a delinquency event in 2000, the average duration now takes around 107 days since 2020. Slower restructurings lead to higher financing costs, Fitch added.
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By Pam Martens and Russ Martens: March 28, 2023 ~ Senator Sherrod Brown (D-OH), the Chair of the Senate Banking Committee, will convene a hearing this morning at 10 a.m. to take testimony from federal bank regulators on why the second and third largest bank failures in U.S. history occurred within two days of each other this month. (A number of other regional banks have seen their share prices plunge this month.) The two banks that failed and were taken over by the Federal Deposit Insurance Corporation (FDIC) were Silicon Valley Bank (SVB) and Signature Bank. Both had experienced bank runs in March and both had extreme exposure to uninsured deposits. One of the witnesses at today’s hearing, Martin Gruenberg, Chair of the Federal Deposit Insurance Corporation (FDIC), explains as follows in his written testimony for today’s hearing: “A common thread between the failure of SVB and the failure of Signature … Continue reading →
The new study looks at the ways governments and markets have responded when banks looked shaky, and anxiety ran high.
Adding to crises like the pandemic, recent stress in the banking system is a new threat to world growth, experts at the organization said.
A pair of polls published Friday revealed that the rising cost of living is causing financial strain for most Americans—especially people with lower incomes—and that pessimism about the state and future of the country’s economy is pervasive and spreading.
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Wall Street Journal/NORC Center for Public Affairs Research poll found that 80% of 1,019 respondents said the nation’s economy is in “poor” or “not so good” condition. Asked about the future of the economy, 47% of those polled said they believe it will be worse in a year, while just 15% said they think it improve. Thirty-eight percent of respondents said the economy will be in about the same shape a year from now.
The pessimistic economic outlook can be summed up in one survey question: Asked if they felt confident that life for their children’s generation “will be better than it has been for us,” only 21% of respondents answered affirmatively.
The Hill noted that 42% of people who took a similar survey in 2001 said they didn’t think their children would enjoy better lives than theirs. Today, that figure has soared to 78%.
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Other survey findings include:
- 92% said that rising costs of living is creating some degree of financial strain in their lives, or will cause problems if prices keep rising;
- 52% said it would be difficult to find a job with another employer with approximately the same income and fringe benefits they have now;
- 56% said a four-year undergraduate degree isn’t worth the cost because people often graduate without specific job skills and with a large amount of debt; and
- 44% said their personal finances are in worse shape than they imagined for themselves at this stage of life.
Despite the respondents’ economic pessimism, 68% of people polled said they were “pretty happy” or “very happy” in life.
The Associated Press and NORC—the University of Chicago’s research arm—published a separate poll Friday that found “about half of U.S. adults in households earning less than $60,000 annually and about 4 in 10 of those in households earning $60,000 to $100,000 say they’re very stressed by their personal finances.”
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According to the
AP:
About three-quarters of adults across income groups say their household expenses are higher now than they were a year ago, but those in households earning less than $100,000 a year are more likely than those in higher-income households to say they also have higher debt. Those facing a combination of rising debt and expenses overwhelmingly say their financial situation is a major source of stress.
One 76-year-old woman interviewed by the
AP said that “there’s no comfort zone in their finances—no vacation” for people like her, who are ” just getting by.”
“Medications are expensive. Groceries. No one’s living large or having fun,” she added. “They should be having fun.”
A 28-year-old single mother who works at an Alabama Walmart told the
AP: “I used to do three grocery trips a month. Now it’s one-and-a-half at the most.”
“We’re just gonna have to cut back on a lot of things,” she added.
Goldman Sachs is raising its default forecast for U.S. high-yield, or “junk-rated,” corporate bonds this year to 4% from 2.8% as more companies fall behind on their debts.