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Bond issue and currency impact

  • #1
  • First Post: May 7, 2009 2:25am May 7, 2009 2:25am
Can someone explain to me what the impact would be if a corporation issues a lot of bonds in one currency? would that currency appreciate or depreciate? and why?
  • #2
  • May 8, 2009 1:43am May 8, 2009 1:43am
Quoting Confucius09
Can someone explain to me what the impact would be if a corporation issues a lot of bonds in one currency? would that currency appreciate or depreciate? and why?

Well think about it logically. When government issued bonds are sold to the public, money is removed from demand deposits, loans are called in, money supply decreases. So then either the currency sits in the central bank ,or is spent by the government and goes back into circulation. Same applies with a corporation, they issue bonds and public buys. If the Corporation spends it overseas then the money supply of the domestic market has shrunk thus causing an appreciation (higher scarcity of currency). If the Corporation spends it in the domestic market, then nothing happens unless the consumer then spends it elsewhere causing....you can see how everythings related.
  • #3
  • May 8, 2009 9:57pm May 8, 2009 9:57pm
Thanks man. Yeah i was confused cause a mate of mine works for inv bank and he was saying his firm is going to issue a lot of AUD bonds causing AUD to depreciate. I was a bit confused as to how that could be. I guess the issue really is where that money goes once raised, back into domestic supply or elsewhere. This is probably similar to the debate whether quantitative easing is increasing or keep money supply the same.
  • #4
  • May 9, 2009 12:45am May 9, 2009 12:45am
Quoting Confucius09
Thanks man. Yeah i was confused cause a mate of mine works for inv bank and he was saying his firm is going to issue a lot of AUD bonds causing AUD to depreciate. I was a bit confused as to how that could be. I guess the issue really is where that money goes once raised, back into domestic supply or elsewhere. This is probably similar to the debate whether quantitative easing is increasing or keep money supply the same.
The daily movement of the exchange market is inherently businesses moving money into different currencies, though It would have to be an extremely large supply of bonds to move the currency significantly! Perhaps if you knew the exact time that they were planning to trade you could get in on a small run but that is also quite risky (you can understand why).
  • #5
  • May 9, 2009 1:49am May 9, 2009 1:49am
Quoting Confucius09
Thanks man. Yeah i was confused cause a mate of mine works for inv bank and he was saying his firm is going to issue a lot of AUD bonds causing AUD to depreciate. I was a bit confused as to how that could be. I guess the issue really is where that money goes once raised, back into domestic supply or elsewhere. This is probably similar to the debate whether quantitative easing is increasing or keep money supply the same.

hello,

it seems the bank that your friend works 4 has some financial constraints. because when a corporation needs money(capital injection) 4 investments or projects? it either goes 2 the bank 4 a loan, sells more shares(if it's listed) or find a angel investor(middle east princes) or sell bonds!!!

demand n supply is 1 of the determining factors in the fx markets. only what the finance minister implies, central bank decision 2 raise/cut interest rates, selling bonds(debts of their country) n market sentiment of central banks around the world will cause a currency 2 appreciate or depreciate. of course n the economic health of the country n budget/trade deficits.

y does the us$ rise in times of crisis in 4q 08 till 1q 09. because it's seen as a safe haven currency. now as the crisis abates n fundamentals like it's glaring budget n trade deficits n debts take center stage again. the $ is being taken 2 the dumpster again slowly!!

the aud on the other hand is on a different track. as it's a commodity currency. the future bodes well as countries will need resources again. 4 projects that they put off during the crisis. especially china, who did not stop buying even during the crisis. the aud only got dumped as the smart money were all rushing into the us$.

just my humble opinion. thanks
  • #6
  • Last Post: Sep 30, 2009 1:01pm Sep 30, 2009 1:01pm
Quoting winningfx
hello,

it seems the bank that your friend works 4 has some financial constraints. because when a corporation needs money(capital injection) 4 investments or projects? it either goes 2 the bank 4 a loan, sells more shares(if it's listed) or find a angel investor(middle east princes) or sell bonds!!!

demand n supply is 1 of the determining factors in the fx markets. only what the finance minister implies, central bank decision 2 raise/cut interest rates, selling bonds(debts of their country) n market sentiment of central banks around the world...
why did the aud got bumped ?, it got bumped to 55 against JPY, under 65 it was already too low, australian bond market contracted at that time but this can be an effect not a cause maybe, also what else happened first prices of commodities were low because of the low demand, AUD/JPY falling under 70 to around 60 was something because of the bond market contraction, not because of the commodity prices only,
i want to ask something .. you said AUD was rushing to US$ , short term bonds denominated in AUD had not been rolled over and also US treasury bonds and gold was bought, as the price of gold reached its maximum, this coincided with march when open interest and volume in aud-denominated bond market was up
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