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Aberdeen Asia-Pacific Income Fu Message Board

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  • flipper_58 flipper_58 Nov 22, 1999 9:07 AM Flag

    Commentary..high yield market


    If the default rate proves lower
    than the market has discounted, then high-yield bonds
    could realize greater upside potential. Meanwhile, the
    higher coupon rates provide some downside protection. We
    think institutional investors will begin re-entering
    the market in December, which could spark an early
    ``January effect''--a surge of buying as managers reset
    their portfolios for the coming year. We expect the
    market to quiet at year-end, and believe mutual fund
    investors are likely to come back in January. With so much
    cash waiting on the sidelines, the high-yield market
    could be positioned for a significant rally. Of course,
    it looked that way last year, too.

    outlook for calendar year 1999 calls for gross domestic
    product growth of about 3% and inflation around 2%. We do
    not see any signs of recession. We expect the long
    bond to remain in a 6.00-6.10% range. To sustain a
    rally, however, we would have to see Treasury yields
    stabilize--if Treasurys continue backing up, the high yield
    market will have to back up too.

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    • Mr. Flipper_58,
      Could you please explain to me
      how the following factors affect the NAV of
      a. Rate of exchange (A$ vs US$).
      b. Direction of
      interest rates in Australia & in the U.S.
      c. Inflation
      rates in both countries.


      • 2 Replies to d_kim_2000
      • Looks like the name change is in force .One way to make the past get lost in the fog .

      • There are a number of folks that could answer
        probably better than I but here's an overview.

        NAV is effected by:
        1)exchange rate.....the fund
        owns Aussie bonds, etc...since we want $ in US dollars
        the fund must exchange the interest and and bond
        proceeds from the AUD the $US. The exchange rate goes up
        and if the AUD goes down relative to the
        $US then the portfolio, as valued in $US will go
        lower even though the Aussie value of them might have
        not changed.
        2)direction of rates....first as you
        may know if bonds yields go up the price of exisitng
        bonds will drop to compensate for that higher yield. If
        rates are climbing, bonds portfolio's values are
        dropping. Inflation drives interest rates up or
        Rates are climbing in both countries.
        Depending on
        the rate of increases relative to each other
        (Australia versus US) it can have an effect on the countries
        currency. If rates are HIGHER in Australia than the US
        chances are that investors will want to be invested in
        Australia pushing up the value of their currency.
        the countries balance of trade (Import versus export)
        deeply effects a counttries currency. If countries
        import more than they export, this means when exporters
        sell AUD's to exchange back into their own currency it
        forces the value down. We've been lucky in the US and
        many of our major creditors(Japan, China) have left
        their money here versus selling and converting back to
        their own currencies. It's difficult to see how long
        this will continue. Australia too, has been running
        record trade imbalances(deficits) putting pusher on
        their currencies.

        To get really complicated,
        Gov't policies must balance their own interest rates to
        attract foreign capital and also try to control inflation
        in their own country. In the US, the FED is lucky
        that so much of our trade deficit money stay
        here...most other countries are not so lucky and must lock
        step rates up with the US in order to keep their
        interest rates competitive enough.

4.52Nov 27 1:00 PMEST