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While the dollar was struggling overall in 2017, non-dollar countries took full advantage of last year´s dollar weakness. According to the Bank of International Settlements (BIS), the total amount of credit to foreign (nonbank) borrowers increased dramatically as a result of the weaker dollar. By the way, feel free to interpret “nonbank borrowers” as emerging market economies. In the second half of 2017, a staggering 22% was issued in dollar-denominated debt. Issuing dollar-denominated debt is all well, as long as the dollar depreciates or, at least, does not appreciate.

Argentina is perhaps the best illustration of how issuing dollar-denominated debt can go terribly wrong. In June last year, the Argentinian government sold $2.75 billion dollars of 100-year dollar-denominated sovereign bonds. Against a coupon rate of 7.25%, the auction of the bonds was oversubscribed by more than 3.5 times. It appears as if everything was champagne and caviar, until last week things took a turn for the worse.

The Argentinian Peso and the Dollar

The decline of the Argentinian peso against the US dollar. Source: Financial Times

Dollar Cycle Seems to Have Reached a Turning Point

Whenever the dollar appreciates, great problems and crises erupt in developing economies. Whenever the dollar depreciates, economic growth in developing economies goes up. A stronger dollar means bad news for many regions in the world, of which the Argentinian peso is the first victim. Source: Bladex

Elon Musk Is Also Losing His Patience

“Bond Vigilantes” Are Back with a Vengeance

Market interest rates are now rising faster than the Fed benchmark rate: further Fed rate hikes are therefore as good as inevitable this year. Source: St Louis Fed

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