Paul Lachine

Barrels, Bushels, and Bonds

Commodity-exporting countries have been booming in recent years, but they are highly vulnerable to a sudden plunge in dollar prices, as a result of a new recession, an increase in US real interest rates, fluctuations in climate, or random sector-specific factors. Commodity bonds may offer a neat way to circumvent these risks.

CAMBRIDGE – The prices of hydrocarbons, minerals, and agricultural commodities have been on a veritable roller coaster. While commodity prices are always more variable than those for manufactured goods and services, commodity markets over the last five years have seen extraordinary, almost unprecedented, volatility.

Countries that specialize in the export of oil, copper, iron ore, wheat, coffee, or other commodities have been booming, but they are highly vulnerable. Dollar commodity prices could plunge at any time, as a result of a new recession, an increase in real interest rates in the United States, fluctuations in climate, or random sector-specific factors.

Countries that have outstanding debt in dollars or other foreign currencies are especially vulnerable. If their export revenues were to plunge relative to their debt-service obligations, the result could be crises reminiscent of Latin America’s in 1982 or the Asian and Russian currency crises of 1997-1998.

To continue reading, please log in or enter your email address.

To access our archive, please log in or register now and read two articles from our archive every month for free. For unlimited access to our archive, as well as to the unrivaled analysis of PS On Point, subscribe now.

required

By proceeding, you agree to our Terms of Service and Privacy Policy, which describes the personal data we collect and how we use it.

Log in

http://prosyn.org/ZSD7RFq;

Cookies and Privacy

We use cookies to improve your experience on our website. To find out more, read our updated cookie policy and privacy policy.