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Dr. Catherine L. Mann's presentation at February 29th Debt Ratings Agencies event
Citation preview
Credit Ratings and International Capital Flows:
Implications for the Dollar
Dr. Catherine L. Mann Barbara ’54 and Richard M. Rosenberg Professor of Global Finance
International Business School, Brandeis University Visiting Scholar, Federal Reserve Bank of Boston.
CLMann @ Brandeis.edu
Debt Rating Agencies’ Role in the Global Debt Capital Markets: Past,
Present, & Future Global Interdependence Center, Philadelphia
February 2012
Outline
• Big picture on economic recovery
• Credit enhancements matter • Prospects for international capital flows
• CDS commentary
• Implications for the dollar
Economic Recovery: Trade
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Data: BEA ITA Tb 1
Economic Recovery: International Capital
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Data: BEA ITA Tb 1
7 BEA, Intl Trans, table 5.
Credit Enhancement Ma/ers: Foreign Official Purchases of Official US Assets
Foreign Official Investors increasingly bought Agencies: ‘same’ risk as UST and higher return
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Credit Enhancement Ma/ers: Europe (and CFC) bought AAA Asset Backed Bonds
Data: BEA ITA Tbl 8a
10
Data: BEA ITA Tbl 1
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(Lack of )Credit Enhancement Ma/ers: Sloshing cross-‐border inter-‐bank funding dominates
12 Data: Federal Reserve, Flow of Funds f107
Credit Enhancement Ma/ers: New high-‐return, low risk asset– munis?
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Mann, “How Long the Strong Dollar (2002); calculated Using OECD financial data
Implications for the Dollar: Appetite for US exposure?
Shrinking marginal
allocation to US assets:
Compared to late 1990s, global asset
allocation rebalanced
away from US assets
% of increase in global investor porQolio into US assets
Same methodology calculated Using IMF, CPIS data
16
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Data: Federal Reserve Board
Implications for the Dollar: Foreign Appetite for Own Appreciation?
Credit Ratings and the Dollar
• Credit ratings played a role in international asset allocation…. What now?
• Private portfolio allocation – Plenty of headroom to reallocate toward US assets,
but… maybe no appetite • Official portfolio allocation
– Own currency appreciation harmful to exports and growth…. but overweight dollars
• Recipe for dollar volatility
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