American Consequences - August 2020

The Debt Jubilee Is Going Global

is sprinkled in with a lot of high-yield bond funds. Nearly two dozen emerging-market bond ETFs are traded on the New York Stock Exchange. The largest is BlackRock’s iShares JPMorgan USD Emerging Markets Bond Fund (EMB), with a market capitalization of around $14 billion. Without realizing it, a lot of small investors in the U.S. hold the debt of emerging- market governments and companies in their retirement accounts and other funds or ETFs. In the past, these sorts of big asset managers haven’t raised much fuss when countries want them to take a haircut. They’ve typically simply taken the hit – or rather, the people owning their funds have taken the hit – and moved on. But this time, according to the Financial Times , the asset managers say they’ll play hardball. Although the need for financial relief is stark in many cases, there are indications that some investment groups may break with the custom of reluctantly accepting financially painful compromises to achieve a restructuring and instead fight for a better deal. Some restructuring is inevitable, especially for countries in particularly dire financial straits – like Lebanon and Zambia, which were part of an early wave of emerging economies looking to make a deal with creditors. So far, of the 76 countries (based on level of economic development) eligible for a special G-20 debt service suspension program, around 41 countries have applied – for a total of $8.8 billion in requested postponement.

and messy process. And it usually involves swapping old bonds for new ones that carry a lower interest rate or longer repayment periods. In the end, investors take a “haircut” – that is, they get back less money than they were originally promised. That’s precisely why individual investors need to pay attention . The debt jubilee octopus has wrapped its tentacles around us already. Without realizing it, a lot of small investors in the U.S. hold the debt of emerging- market governments and companies in their retirement accounts and other funds or ETFs. (And this is only a small way... Stansberry Research founder Porter Stansberry recently released a startling presentation that explains how the debt jubilee can hurt you – and how to protect yourself and your family – and your assets.) Is Your 401(k) at Risk? The big private investors in emerging and frontier market debt are recognizable names. They include BlackRock (which manages the biggest emerging-market bond ETF), Vanguard, VanEck, Invesco, Fidelity, and other asset managers. The debt of emerging-market governments

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August 2020

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