Wednesday, 3 June 2009

Latvian T-bills - outlier events can take center stage rather quickly

It's always a good idea to keep an eye on outlier events which are off most people's radar screens. As I noted in a posting on May 29th Danske Bank drew attention to possibly disturbing consequences from the collapse in retailing in the Baltic states and the precarious state of the finances of some of these recently inducted EU states.

After a failed auction in Latvia yesterday it seems that nobody wants to buy their T-bills and that overnight rates are sky-rocketing. This is also having noticeable effects on the Euro and the Swedish kroner in today's session.

Here is the Reuters report on the failure to sell the T-bills taken from the FT Alphaville story.

RIGA, June 3 (Reuters) - The Latvian treasury failed on Wednesday to sell any of the 50 million Latvian lats ($100.7 million) of various treasury bills offered for sale on Wednesday, the stock exchange said.

The failure to attract offers for the paper came as the Latvian market remained frozen due to worries about the currency, which some fear faces a devaluation, and amid central bank buying of the lat to keep it within its peg to the euro.

The treasury, which carries out its auctions via the stock exchange, had offered 20 million lats of paper maturing in July, 10 million lats in September, 10 million lats due in December and 10 million lats maturing in June 2010.

Also worth looking at is the following angle on the story from Zero Hedge.

The lesson to be learned from this surely is that the Latvian government has to get with the times and introduce its own version of QE and get its central bank to buy its T-Bills. You know it makes sense.

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