You're 'Developed'? Italian vs LDC Bond Yields

♠ Posted by Emmanuel in ,, at 11/08/2011 12:59:00 PM
Ah Italy, G7 member country and the land of bunga bunga parties (but until when?) With Italian bond yield spreads over German Bunds now in orbit somewhere above Brussels and Strasbourg, I came across an interesting chart from Trading Economics that compares 10-year bond yields of a number of developed and developing nations. From this (abridged) list alone we see that Singapore (kinda obviously), Thailand, China, Malaysia, South Korea, Brazil, Russia, Mexico, Indonesia are able to borrow at cheaper rates for debts due in a decade than Italy's 6.59%--or fellow EMU members Ireland, Portugal or Greece for that matter. Moseying over to the ADB bond site, we too should add the Philippines to this list. Why is this important? After doing so, we find that all five original ASEAN members (Indonesia, Malaysia, the Philippines, Singapore and Thailand) now have lower 10 year borrowing costs than an erstwhile G7 stalwart undergoing difficult times.

As it so happens, pop financial writer Michael Lewis has a book just out entitled Boomerang: Travels in the New Third World that features him embarking on journeys to recent crisis-hit Western countries alike Iceland (chapter title "Wall Street On the Tundra"), Greece ("And They Invented Math?") and Ireland("'s Original Sin"). While his characterization of each new third world country's failings may border on the simplistic, he does hint at a wider question that I increasingly find harder and harder to answer: Does it still make sense to divide this world of ours into developed and developing countries or first and second or third world ones?

Remember, it was not so long ago during the Asian financial crisis that the likes of Thailand, South Korea, and Indonesia mentioned above had their own catastrophic run-ins with financial contagion. Being a charitable sort to those willing to atone for past misdeeds, I mention all this not out of schadenfreude but out of a wish that these peripheral European economies recover just as quickly.

Here's my parting thought for you: Why is the world's foremost regional grouping headed by someone from a nation whose borrowing costs are definitely third world (Portugal's Jose-Manuel Barroso) and its central bank by, well, someone from Italy circa the end of 2011 (Mario Draghi)?

As you ponder that, the development divide blurs more when it comes to borrowing costs.