Higher yields weighing on equities. Latvias new currency - the voucher

* Yields are rising, weighing on equities
With sovereign and agency yields rising, the risk for equities have increased. Jumping assetprices and a perception that the systemic risks are behind us have pushed markets higher. Macro facts now risk kicking markets back into bearmarket trend mode. Libor rates have now moved higher for five days in a row, with corporate yields inching higher. If corporate spreads widen from here, the assetmarkets will likely move lower again.


*Latvia introducing scraps? Argentinian repeat?
The Latvian centralbank governor Ilmar Rimsevics have recently made at least two interviews where he suggested Latvia introduces vouchers in order to avoid a too abrupt halt of government spending. Scraps was introduced during the Argentinian crisis and was essentially the beginning of the end. The country simply ran out of currency to spend as they defended their Usd peg. It seems to me Latvia is one step closer to devaluation.


* How and when?
I believe there will be a renegotiation with the IMF in June/July where the IMF will loosen up their loan conditions. In exchange, Latvia will have to introduce the ERMII, ie letting the Lvl " float" +-15% around a midrate. The Lvl will then weaken 15% immediately. By fall there will be a free float, devaluing the Lvl by 40%-50% in total vs the Euro.

*Swedish authorities preparing for a Baltic devaluation?
The Swedish Riksbank today decided to replenish their Fx reserves by borrowing 100 BN Sek. Further, the Swedish finance minister Mr Anders Borg seems to be preparing for a big hit to the Swedish economy as well, sitting very tight on the countrys finances, warning about "very rough times" going forward.

Disclosure; I am long Eur/Lvl forwards



*New positions and positionchanges
- Took profit on my long Swedbank puts
- Added to my long Usd/Mxn position
- Long Eur/Sek
-Long Eur/Huf




As usual, good luck

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