Latvia: Population Plunging, Valuation Declining

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Includes: EWD, FXE, GUR
by: Beacon Asset Managers

The Wall Street Journal reported Wednesday that "Latvian Currency Rattles Markets." Perhaps a better headline would have been "Latvian Demographics Rattle Bond Auctions."

Latvian births peaked in 1986 at about 41,000, and are projected to fall to 16,000 by 2044. This will result in the population falling from a 1989 peak of 2.7 million to 1.8 million by 2044, a 30 percent decline.

No wonder bond holders are nervous.

From Wall Street Journal:

The Swedish krona and a range of eastern European currencies have tumbled as Latvia appears to edge closer to devaluing its currency. In a re-run of the last major devaluation scare, Latvia failed to attract any bids for one of its treasury bill auctions earlier Wednesday. The country's treasury received no bids for its offer to sell eight million lats ($16.7 million) of paper maturing in April 2010.

The poor auction results are the latest sign of economic stress in the Baltic nation, where the government is struggling to meet budget cuts required by the International Monetary Fund, the European Union and other bilateral lenders in return for aid. The Swedish krona, linked to Latvia through Sweden's large banking exposure to the country, tumbled as news of the failed auction emerged. The euro extended earlier gains to reach a peak at SEK10.3670 against the krona.

Source: UN 2007 and Insitut National d'Etudes Demographiques

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