08 September 2006

Country risk

The other day it was announced that the Argentine EMBI+ country risk index hit a record low of 306 points. Of course, this is like Greek unless you're an economist. Or an Argentinian. All Argentinians are amateur economists (and amateur football coaches).

The country risk is a measure of how risky it is to invest here. It is measured based on the interest rate paid by the public debt bonds issued by the country, compared to that of the U.S. Federal Reserve bonds. Having a country risk of 306, for example, means Argentine bonds yield 3.06% + the Fed's rate. Of course, the higher the yield, the riskier the investment is. Ask the Italians, Germans and Japanese who bought tons of fabulous Argentine bonds without being told that more money = more risk. The country risk is also a quick measure of how good an idea it is to invest in (or lend money to) the country.

A few years ago the country risk index was part of everyday life. News shows gave you the temperature, the relative humidity, the price of one dollar in pesos, and the country risk index (I'm not making this up). At a time I remember it being above 7,000 or so. Of course, above 1,500 or 2,000 the figure becomes meaningless for practical purposes. When the risk went below 1,000 there was a minor celebration in some economist cabals (it meant that Argentina had progressed from "not until Hell freezes over" to "when pigs fly"). The latest record low surely went unnoticed by 99.99% of the population.

1 comment:

  1. 306 is great, it means the country is now back within the "high-yield" or dare we utter the words JUNK BOND catergory.

    Pity those pensioners in Italy or Japan where country risk index was like Greek because it was never a concern for them. What you take for grant may be novelty in the 1st world, and of course, vice versa.


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