Phatscotty wrote:Fruitcake wrote:Fruitcake wrote:.....stuff.....from July 13th
Reported in the FT today was the debacle of yesterday's Greek bond issue. Scaling back from 12 months to 6 (term) and approximately halving the quantity (due to no real takers) they just managed to offload the 50% reduced issue,but that's not the end of the story. Even at just 6 months maturity the Greeks are now paying 4.55% up from 1.38% in January. They would have liked to issue at 12 months but were not prepared to pay the rate the market would demand. 10 year bonds are yielding around 10.5% now, slightly down following some interestingly helpful long term bond purchases. Problem is that tax revenues are heading south big time as the EU/IMF fiscal reforms take hold.
The bond terms are getting shorter, the rates higher....and the end game wont be far away. One can almost see the ever decreasing circles as the EU tries, vainly, to keep the Euro intact as it is....ha!
Greek rates are now 11.6%...just putting it out there....oh, and the Med silly season is in full swing right now, so cash is still rolling in....as the Autumn creeps in after next month, the fun should start.
What is your opinion on if and when the US interest rate hits 11.5%?
Well actually I am talking bond yields rather than bank rates. The yields for a selection of 10 year Soveriegn Euro Bonds and others being issued and more likely traded right now (as I type, so may move slightly by close of UK business) are:
Japan 1.09%
Germany: 2.76%
US 3.01%
France 3.04%
UK 3.47%
China 3.54%
Italy 4.02%
Spain 4.53%
Australia 5.27%
Ireland 5.43%
Portugal 5.55%
Greece: 11.5%
Pakistan 12.13%
In effect, and it is important to get this. If a Govt (for this example Greece) Issues a bond at 3% for every €100 then the investors will mark that price down to around €26 to return 11.5% real. It doesn't take a rocket scientist to realise that this means the Greek Govt has to issue at ever higher rates to get as close to the €100 it needs, so in reality, the Greeks give up trying to issue at anything near 3% as they know there will be no takers at that price and effectively have to issue at 11.5% to raise any kind of capital.
The problem being that this, in turn, creates a vicious spiral into which countries are sucked paying out ever increasing % as the interest payments bite and they have to issue new bonds to help pay for the country infrastructure and the interest now due to Banks and investors worldwide.
Ultimately, the Government throws up it's hands and begs for help (which is what the Greeks have done) and the IMF and EuroBank have to stump up ultra low interest loans to help them otherwise there will be a country sliding into anarchy. The other side of this coin being that in doing so, they install sets of rules regarding fiscal prudence which often bring about very much the same scenario.
Historically, the Med countries in particular have let the value of their currencies fall, which offsets the high rate of interest (borrow €100 today at 1 Drachma parity and pay it back in 10 years at 10 Drachmas to the Euro and you have effectively shot away 90% of your debt...crazy example but you get the picture) Unfortunately, being part of the Euro means they cannot shed their debt by devaluation as this will impact the Germans et al. So we see a steady squeeze getting tighter and tighter.
Hope that clarifies.
(Edit. When I posted this I made the fatal error of not checking. I now see I posted Brazil instead of Pakistan. Apologies to any Brazilians that went into shock at seeing their sovereign debt ratios and rates as looking the worst, in fact, poor Pakistan holds that position presently. Brazil is, in fact, running at around 4.29, see my next post.)
