Emerging and frontier debt markets have something developed markets like the US are missing these days: high yields.If interested see also Can You Trust the Bank of Sierra Leone's Bearer Bonds?:
Nigeria is one of these countries. Nigeria ’s 10-year bonds pay close to 15%, while 10 year US Treasuries pay 1.56%.
But with higher yields come higher risks: for example, inflation risk (Nigeria’s inflation is running at 17.60%, while America’s runs at 1.10%); liquidity risk; political risk; and credit risk, as reflected in credit rating agency reports.
S&P’s credit rating for the United States stands at AA, and B for Nigeria. Moody’s credit rating stands at Aaa for the US, and B1 for Nigeria. Fitch’s rating stands at AAA for the US, and B+ for Nigeria....
...Simply put, Nigeria’s high debt yields reflect a risk premium over America’s debt yields. That’s a premium markets have already factored in.
But what happens to this premium in the future? It depends on how a number of key metrics that determine the investment risks in the two countries change over time.
There’s one metric worth close examination: the Debt to GDP ratio, where Nigeria beats America by a big margin—see table.
True, Nigeria’s government debt may have not been accurate, as it doesn’t account for the debt of different states, where the country’s debt problem is. But America’s numbers aren’t terribly accurate either....MORE
That, of course, is the first question any rational person would ask when reading FT Alphaville's "Once you turn base money into short-term debt, can you go back?"....