Nobody Wants to Buy Latvian T-Bills

It's always a good idea to keep an eye on outlier events which are off most people's radar screens. As I noted in a posting on May 29th, Danske Bank drew attention to possibly disturbing consequences from the collapse in retailing in the Baltic states and the precarious state of the finances of some of these recently inducted EU states.

After a failed auction in Latvia Wednesday, it seems that nobody wants to buy their T-bills and that overnight rates are sky-rocketing. This also had noticeable effects on the Euro and the Swedish kroner in yesterday's session.

Here is the Reuters report on the failure to sell the T-bills taken from the FT Alphaville story.

RIGA, June 3 (Reuters) - The Latvian treasury failed on Wednesday to sell any of the 50 million Latvian lats ($100.7 million) of various treasury bills offered for sale on Wednesday, the stock exchange said.

The failure to attract offers for the paper came as the Latvian market remained frozen due to worries about the currency, which some fear faces a devaluation, and amid central bank buying of the lat to keep it within its peg to the euro.

The treasury, which carries out its auctions via the stock exchange, had offered 20 million lats of paper maturing in July, 10 million lats in September, 10 million lats due in December and 10 million lats maturing in June 2010.

Also worth looking at is the following angle on the story from Zero Hedge.

The lesson to be learned from this surely is that the Latvian government has to get with the times and introduce its own version of QE and get its central bank to buy its T-bills. You know it makes sense.

Comments

[Drew Arnold:]

While this may be seen as a bad thing for emerging markets as a whole, it's important to keep in mind that many of the reason behind this failed auction are specific to Latvia, including the the fact that their budget deficit will be significantly higher than what they promised the IMF. If this causes a pullback in emerging markets, it might be a nice time to buy in if you're bullish.

Jun 04 11:40 AM

[popey:]

Reuters will publish the same story in 12 months:

New York, June 3, 2010 (Reuters) - The US treasury failed on Wednesday to sell any of the 50 billion 30 yr bonds and various other treasury bills offered for sale on Wednesday.

The failure to attract offers for the paper came as the US market remained frozen due to worries about the currency, which some fear faces a devaluation, and amid frantic central bank buying (QE) to keep rates on hold.

The treasury, which carries out its auctions largely via backdoor QE thru clandestine dealer desks, had offered 30 billion of paper maturing in July, 10 billion in September, 10 billion due in December and 10 million nillion maturing in June 2010.

Jun 04 07:25 PM

[jhartz:]

popey,

you might be right in your prediction, but not to worry, because, like Goldman Sachs had hedged their AIG exposure by shorting AIG stock, the Fed too is hedging their overexposed Treasury Bond position. By June they will own 75% of every share of stock in every listed company on the NYSE.

Even better, these purchases will have shored up the GS balance sheet because they will be the broker of record for over 70% of these stock purchases. Unlike America's investment banks, it is becoming increasing apparent that America's economy isn't too big to fail.

Don't cry for us, Argentina, because in a few more months we'll be in the same boat you are in.


On Jun 04 07:25 PM popey wrote:

> Reuters will publish the same story in 12 months:
>
> New York, June 3, 2010 (Reuters) - The US treasury failed on Wednesday
> to sell any of the 50 billion 30 yr bonds and various other treasury
> bills offered for sale on Wednesday.
>
> The failure to attract offers for the paper came as the US market
> remained frozen due to worries about the currency, which some fear
> faces a devaluation, and amid frantic central bank buying (seekingalpha.com/symbo...)
> to keep rates on hold.
>
> The treasury, which carries out its auctions largely via backdoor
> QE thru clandestine dealer desks, had offered 30 billion of paper
> maturing in July, 10 billion in September, 10 billion due in December
> and 10 million nillion maturing in June 2010.

Jun 04 08:14 PM

[Clive Corcoran:]

The Polish government are expressing concerns about spillover effects from the Latvian crisis

"There is a threat that the situation in Latvia may spill over into the region," Dariusz Filar, a member of the Polish central bank's Monetary Policy Council, told reporters on the sidelines of an economic conference in Warsaw. "This situation is a challenge that requires a reaction on a broader scale than just Latvian, there is a need for more international assistance."

Jun 05 06:30 AM