KERS Real Estate

An unprecedented withdrawal of capital from emerging markets is threatening to create a wave of debt defaults as governments struggle with the double whammy of falling oil prices and the rapidly spreading coronavirus outbreak. Governments, already saddled with the high medical costs and the cost of shoring up their economies, could face a public backlash if they try to repay international bondholders when their local populations are suffering, Mr. Glossop said. The most vulne...rable include Zambia, Angola, Nigeria and Ghana. Ecuador has already begun the process of restructuring its debts. Meanwhile, Venezuela, Argentina and Lebanon had started defaulting on sovereign bonds even before the pandemic roiled global financial markets. A group of African finance ministersconfronting a 2 to 3 percentage-point decline on average in their projected economic growth this yearon March 19 requested a waiver on $44 billion in interest payments on their sovereign bonds and public debt for 2020. They are also seeking an emergency $100 billion stimulus package to counter the economic impact of the virus. A few days later, the IMF and the World Bank made a preliminary request to bilateral lenders to consider suspending debt payments from some of the world’s poorest nations, which include Zambia, Nigeria, and Ghana. The weakest emerging markets make up only a small part of most emerging-market bond portfolios. But a string of sovereign defaults could spell trouble for some global investors, who have piled into emerging-market debt in recent years as bond yields tumbled across the globe. There will be reluctance to invest in [emerging markets] if you start to see countries, one by one, default, said Abdelak Adjriou, portfolio manager at American Century Investments. Emerging markets borrowed $122.6 billion through sovereign dollar-denominated bonds last year, according to the latest Dealogic estimates, up from $63.3 billion in 2009. Nearly $24 billion of sovereign emerging market dollar-denominated bonds are set to mature this year. The dollar’s recent rally has compounded worries about the sustainability of that debt, as a stronger greenback makes it more expensive for countries to make interest payments on such bonds and loans, especially at a time when their overseas revenue may also be declining. The ICE Dollar Index, which tracks the dollar against a basket of currencies, this month climbed to its highest since January 2017. https://on.wsj.com/2w2cKQH

A handful of real-estate investment trusts that buy mortgages or mortgage-backed securities, called mortgage REITs, have reported margin calls by the banks that finance them. These firms are doubly exposed to the market right now. First, their core assets have seen spreads widen, liquidity plunge and prices drop. Second, they typically leverage themselves by using the repurchase-agreement, or repo, market, where the cost of financing has been volatile, especially for terms lo...nger than overnight. Given that mortgage REITs are required to pay out their cash to shareholders as part of their favorable tax treatment, they typically have little cash in reserve. When banks make margin calls, these REITs either have to raise cash or pledge more loans or securities. This dynamic leaves banks in a tough position. Waves of selling by these firms only contribute to lower prices. But accepting or seizing more collateral also would put pressure on their balance sheets. Big dealer banks’ books are already working overtime as the Federal Reserve tries to push liquidity out to the broader market. Now banks are much more protective of their balance sheets, both through their own caution and tighter regulation. Plus, the Fed has made a massive early commitment to the market, including for certain mortgage assets, well ahead of a banking crisis. If banks are indeed lenient with the mortgage REITs, it is a hopeful sign for the containment of risk to individual companies, for banks’ risk management, and for the Fed’s backstopping success. It also would be an important read-through for banks’ exposures to a much wider range of nonbank lenders through other forms of leverage, such as warehouse financing, which clients draw on to fund loans until they are sold via securitizations. https://on.wsj.com/2WXsfV7

Depending on how the pandemic evolves, the report released in May could show unemployment soaring toward double digits and more than one million jobs slashed. That would mark the largest one-month drop in payrolls since Japan surrendered to the U.S. in September 1945, prompting the country to wind down its wartime efforts. A general rule of thumb, said Joseph Brusuelas, chief economist at RSM US LLC, is that the unemployment rate rises by 1 percentage point for every 1.5 mill...ion initial jobless claims. Given last week’s record-shattering unemployment claims, the jobless rate will likely approach at least 6% in April and exceed 10% by midsummer, Mr. Brusuelas said, adding the numbers could keep climbing. While millions of workers are working remotely now, just 34% of American jobs can plausibly be performed at home, University of Chicago economists Jonathan Dingel and Brent Neiman estimate. I know I’m on the high side, he said. But the jobless-claims data tell me a lot more workers got laid off early in the month than people realized. Mr. Naroff said business closures and layoffs in hard-hit areas such as New York City occurred early enough to get counted in this report. Like many economists, he sees the March data as the tip of the iceberg. He predicts the economy could shed upward of 10 million jobs during the pandemic and the unemployment rate will top 14%. https://on.wsj.com/3aw0K8Z

Government officials across the U.S. are using location data from millions of cellphones in a bid to better understand the movements of Americans during the coronavirus pandemic and how they may be affecting the spread of the disease. The federal government, through the Centers for Disease Control and Prevention, and state and local governments have started to receive analyses about the presence and movement of people in certain areas of geographic interest drawn from cellpho...Continue reading

Health workers worry that the shortage of adequate protection may help explain why the virus has infected so many health workers in Spain, which in turn has reduced the number of available medical personnel. According to authorities, around 15% of known cases in Spainor about 9,400are health workers, compared with roughly 8% in Italy. https://on.wsj.com/2QXq7ZO