Home' Trinidad and Tobago Guardian : May 14th 2015 Contents MAY 2015 • WEEK TWO www.guardian.co.tt BUSINESS GUARDIAN
THE ECONOMIST | BG21
Rarely can a market have changed direction
with such speed. For most of 2015 European
government-bond yields had been heading
lower, with the German 10-year yield on a
seemingly inexorable path toward zero. Short-
er-term German bonds were already offering
negative rates, meaning that investors who
held the debt to maturity were bound to lose
Then, in the middle of April, the markets turned and yields
started rising again, which meant that bond prices fell. Germany s
10-year yield is now back where it was at the start of the year.
The sell-off has driven yields in the rest of Europe higher as well.
Higher bond yields would be good news if they were prompted
by a sudden improvement in economic data. That might make
investors more confident about owning equities and less keen on
the safety of government bonds. There has been no great pickup
in the economic outlook of late, however. Analysts at Royal Bank
of Canada have thus dubbed this "the wrong kind of sell-off."
The reversal seems to be the result of a number of interconnected
factors. At the start of 2015, yields were falling because of fears
of deflation, linked to a plunge in the price of oil in the latter half
of 2014, and because investors were anticipating massive demand
for bonds from the European Central Bank as it began its quan-
titative-easing plan in March.
The prospect of QE also caused the euro to fall against the dollar.
With the euro falling and European bond prices rising, international
investors may well have borrowed euros to buy European government
bonds. An alternative strategy, known as the "carry trade," saw
investors borrow euros at low rates and put the money into high-
er-yielding assets such as equities to benefit from the spread, or
carry, between the two.
During the past month many elements of those trades have
turned sour. The oil price has rebounded, reducing the likelihood
of outright deflation and thus relieving some of the pressure on
bond yields. Talks between the European Union, the International
Monetary Fund and Greece have faltered, causing investors to lose
some of their enthusiasm for European equities.
Weak growth in America in the first quarter, analysts assume,
will lead the Federal Reserve to put off raising interest rates. That
has undone some of the dollar s gains against the euro. As a result
investors have unwound their carry trades, buying back the euros
they borrowed and selling the risky assets they bought.
The big question is whether the long bull market in government
bonds is over. The yield on 10-year Treasury bonds also has risen
sharply in recent months, from 1.64 per cent at the end of January
to 2.2 per cent on May 6. Before the financial crisis the last time
bond yields were that low was in 1950 and, during the subsequent
30 years, bonds lost seven-eighths of their value in real terms, ie
As yet, however, there is no sign of inflation. American prices
have been flat for the past 12 months. When the Federal Reserve
hinted at winding down its QE program last year, a big sell-off
in bonds, dubbed the "taper tantrum," ensued; but it soon reversed.
Bears have been calling for a collapse in Japanese government-
bond prices ever since the yield first fell below 1 per cent in 1998.
Although the Japanese government has piled up debt since then,
a combination of an aging population and deflation has kept yields
Since then the bearish trade on Japanese government bonds has
become known as "the widowmaker." That alone ought to prompt
investor caution about making the same bet against government
bonds in America and Europe.
@2015 The Economist Newspaper Ltd. Distributed by the
New York Times Syndicate
As marketing coups go, getting your
logo onto more than 100 million
national-identity cards takes some
beating. Mastercard is about to pull
off this branding feat as Nigeria s
electronic ID and payment card, currently being
piloted, is introduced nationally.
Providing financial services to customers who
previously had no access to them is another side
to fintech, and often it starts with payments.
Globally an estimated 2.5 billion people, more
than half the adult population, lack bank accounts.
This financial exclusion leaves the poor relying
on informal ways of saving, such as cash under
the mattress, and borrowing through exorbitantly
priced payday lenders. Development experts used
to try to get banks to open branches in out-of-
the-way places. Now they gush about bank-free
finance, based on mobile payments or ID-based
schemes of the sort Nigeria is introducing.
In Africa only one in four people has a bank
account, but eight in 10 have access to a cellular
phone. An early fintech success was M-Pesa, a
Kenyan phone-based payment plan launched in
2007 by Safaricom, a telecommunications group.
By knitting together a network of agents selling
airtime into something akin to a banking grid,
the plan opened cheap and instant payments to
the masses. It is now used by three-quarters of
Kenya s 22 million adults, and has spawned a sav-
ings-and-loans cousin, M-Shwari, which has
signed nine million customers and attracted
deposits of US$1.6 billion in its first two years.
It issues plenty of loans, too, which are far cheaper
to administer and easier to scale than the micro-
lending schemes once favored by the development
In India the Jan Dhan Yojana plan, launched
last year by Prime Minister Narendra Modi, aims
to provide each Indian household with a bank
account by 2018. Most of them are with state-
run incumbent lenders, but the government is
issuing light-touch licenses for "payments banks"
designed to appeal to mobile-phone companies.
For now the new breed of financial institutions
will not lend money and will take only small
In South Africa government-issued "smartcards"
linked to accounts into which pensions can be
paid have been adopted rapidly.
Such plans used to be plagued by fraud, par-
ticularly in places with low literacy rates. Biometric
identification makes it much easier and cheaper
to verify people s identity, which is why Mastercard
wanted to be involved in the Nigerian launch. A
sturdy link between wallets and users identity
helps with integration into global remittance sys-
tems, which need to be able to track money to
satisfy Western regulators.
As with M-Pesa, payment schemes often grad-
uate to providing credit, leaving banks out of the
loop. Poor countries are also becoming testing
grounds for loans to consumers with patchy or
non-existing credit histories. In most rich countries
credit bureaus provide lenders with plentiful infor-
mation. In emerging markets tech-driven firms
such as Cignifi, an American group with operations
in Brazil, Ghana and Mexico, try to generate credit
scores based on things like records of mobile-
Increasingly poor-country consumers are being
assessed for loans in the same way as their rich-
@2015 The Economist Newspaper Ltd. Dis-
tributed by the New York Times Syndicate
and the bank
in your pocket
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