The state of the U.S. bond market
Kai Ryssdal: As it happens, we’ve got a bond specialist right here to help us understand, bonds, first of all — ’cause they can be a little bit tricky — but also why we have to care about ’em.
Asha Joshi is with Payden and Rygel in Los Angeles, just up the road. Thanks for coming down.
Asha Joshi: Thank you, thanks for having me.
Ryssdal: So you heard what Jorge had to say. Give me the big picture now on credit in this country. I mean, the interest rate on the 10-year T-note is 2.25 percent, it’s really low — can’t be so bad, right?
Joshi: Well, that’s one way of looking at it.
Ryssdal: OK, what’s another way?
Joshi: Well it can’t be so bad for some people, who consider it to be very high quality. And also for a country that also happens to have a reserve currency in the world. So 85 percent of world trade is in U.S. dollars, even though the U.S. GDP is less than 20 percent of world GDP.
Ryssdal: Let me ask you the downgrade question, though: did the downgrade matter?
Joshi: Um, the downgrade was expected, and in and of itself, generally speaking, when a credit rating agency downgrades a company or a country, it’s expected by investors. So from that standpoint: no. But the fundamental reasons for the downgrade have been a concern for a while.
Ryssdal: What are the bond markets worried about? I mean, let’s step back: we’re gone from small company to small city, take me way back and tell me what the big bond markets are worried about.
Joshi: The bond markets, every bond investor is worried about two things in terms of the borrower: do they have the ability to pay, and do they have the willingness to pay? So they want to look to make sure there’s some growth and there’s not too much debt on balance sheets. And so the bond markets are concerned about the levels of debt in the developed world, primarily in sovereignce.
Ryssdal: We talked before we went on the radio about Europe. Tell me about Europe.
Joshi: Yes. Europe is regularly been in the news.
Ryssdal: ‘Regularly,’ I love that. You took a minute to say that.
Joshi: Europe is, maybe it’s their 2008, if you will. That’s the concern.
Ryssdal: Very quickly, does the United States look better in the bond markets than Europe does? Is that why we’re still having 2.25 percent on the 10-year?
Joshi: Yes. Yes, the United States doesn’t largely because it is a reserve currency and people need to put money somewhere. And 60 percent, 65 percent of central bank reserves are also held in U.S. dollars.
Ryssdal: Asha Joshi from Payden and Rygel in Los Angeles on the world of bonds. Thank you so much.
Joshi: Thank you.
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