Death comes to us all. Life's but a walking shadow | Both the developing world currencies devaluation (selloff) and the bond selloff are a direct consequence of the anticpation of tapering. In a time of record low interest rates here bonds were a safe haven for money. Big money could at least perserve capital with the meger interest from bonds. Now that interest rates will soon rise the big money is selling bonds and going elsewhere. Likewise, with low interest here investors could earn marginally more in other countries with subsidised interest rates. Some foreign countries, India for example which really don't export much, used the windfall to balance their foreign exchange. Now that foreign investment is being returned to the US and Europe in anticipation of better rates here. It really unbalances some countries balance of payments because they buy things like oil, etcin dollars
The immediate effect for us is that the Brazilian REAL becomes super cheap and the price of their corn & soybeans on the world market goes down dramatically, especially for the Chinese who have US dollars. The longer term consequence for the Brazilian farmer is that fertilizer and diesel become much more expensive so planting the next crop becomes more costly. |
This might explain some of the rise in interest rates
