234
you are viewing a single comment's thread
view the rest of the comments
view the rest of the comments
this post was submitted on 11 Jul 2024
234 points (97.2% liked)
News
23267 readers
3284 users here now
Welcome to the News community!
Rules:
1. Be civil
Attack the argument, not the person. No racism/sexism/bigotry. Good faith argumentation only. This includes accusing another user of being a bot or paid actor. Trolling is uncivil and is grounds for removal and/or a community ban. Do not respond to rule-breaking content; report it and move on.
2. All posts should contain a source (url) that is as reliable and unbiased as possible and must only contain one link.
Obvious right or left wing sources will be removed at the mods discretion. We have an actively updated blocklist, which you can see here: https://lemmy.world/post/2246130 if you feel like any website is missing, contact the mods. Supporting links can be added in comments or posted seperately but not to the post body.
3. No bots, spam or self-promotion.
Only approved bots, which follow the guidelines for bots set by the instance, are allowed.
4. Post titles should be the same as the article used as source.
Posts which titles don’t match the source won’t be removed, but the autoMod will notify you, and if your title misrepresents the original article, the post will be deleted. If the site changed their headline, the bot might still contact you, just ignore it, we won’t delete your post.
5. Only recent news is allowed.
Posts must be news from the most recent 30 days.
6. All posts must be news articles.
No opinion pieces, Listicles, editorials or celebrity gossip is allowed. All posts will be judged on a case-by-case basis.
7. No duplicate posts.
If a source you used was already posted by someone else, the autoMod will leave a message. Please remove your post if the autoMod is correct. If the post that matches your post is very old, we refer you to rule 5.
8. Misinformation is prohibited.
Misinformation / propaganda is strictly prohibited. Any comment or post containing or linking to misinformation will be removed. If you feel that your post has been removed in error, credible sources must be provided.
9. No link shorteners.
The auto mod will contact you if a link shortener is detected, please delete your post if they are right.
10. Don't copy entire article in your post body
For copyright reasons, you are not allowed to copy an entire article into your post body. This is an instance wide rule, that is strictly enforced in this community.
founded 1 year ago
MODERATORS
I mentioned premium/discount in my comment. When you sell a bond on the secondary market, the price goes up or down to match prevailing interest rates. It should have no effect on new issue prices.
I am simplifying quite a bit here, but the gist is sufficient unless European bonds work differently which was my original question.
The price moves with supply and demand on the secondary market. Normally, yes, that'll tend to vary to balance yield with the prevailing interest rates, however, the threat seems to be to dump bonds onto the secondary market, presumably without a minimum price. The glut would mean buyers could purchase them below that balance price, giving them a better yield. This would have (at least) two knock on effects, firstly it would make it harder for governments yo raise funds through bond issues as they'd effectively be competing with the cheaper 'dumped' bonds and so would need to offer an equivalently high yield, and secondly may allow 'undesirable' governments or groups to amass significant amounts of European debt, which potentially gives them more political leverage than European governments might like.
A sensible response. Thank you. I couldn't wrap my head around how this would affect the market, but yeah if the volume is big enough and the price is low enough it could muck things up.
Best info on their holdings I could pull from fake news coverage. I am going to assume they hold less EU than US. So lets say 130billion.
Note that's with a 3.3T
I am not a bond trader so I am not sure how big of impact Saudi sell off would cause but for them to drive the price, they would be taking big losses on top of what is likely an underwater position.
They may well be looking at how much the EU holds in Saudi assets, seeing those at potential risk of being seized and deciding tge write-down on dumping the bonds would be worth it. Long term, I don't think it would have an effect on prices, but short term it may well do, depending on how concentrated their holdings are.
From what I can see, normal trading volume in bonds is about 500% per year, or about 2% per day assuming 250 trading days per year. If the 130bn you mention is spread across all government bonds across the EU then it accounts for about 4% of the total, or about two days of normal trade. Dump all of that in one go and it'd definitely have a short term effect. If their holdings are more concentrated they could have an even bigger effect on the bonds they hold.
Bonds tend to be issued on a regular basis, so even a short term drop in price could be timed to affect an auction. That has the twin effect of reducing the amount the government in question raises, and also tying them into effectively higher interest rates, potentially for decades to come.
I'm no expert trader either, so I could be barking up the wrong tree, but I assume that they would have a clear expectation of the results before making that threat, and I can't really see any other effects it could be expected to have.
The prevailing interest rates is what is affected when a large holder dumps their bonds, it increases the market interest rates
That is my understanding, short of KSA flooding secondary market to where nobody shows up at the auction but I doubt they got enough bonds to do this or that they would sell them in such manner anyway.