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So the S&P ratings agency has further cut Greece's debt rating down to B which is a junk rating.
"Recent research from the International Monetary Fund shows that every country that has defaulted since 1975 was junk-rated for at least a year beforehand."
yield on benchmark 10-year bonds rising 0.22 percentage points to 15.73%.
The yield on three-year bonds rose 0.4 percentage points to 24.21%.
Compare these rates to U.S treasuries, 10year-3.19% 3year-0.96%
This is a big advantage because the U.S can raise capital so much cheaper and this is what we face eventually without a plan to reduce the debt.
It is interesting to note that Greece is also in an inverted yield curve meaning their short term debt has a higher yield than longer term.
Comments? Would you buy some Greek debt for those juicy returns?
Not with the problems throughout Europe. If it was only Greece in trouble I'd be confident that the rest of the euro zone would bail them out, but I think the euro is doomed.
ReplyDeleteI don't think I'd take the risk. I agree with what Dane said above. I am admittedly a bit shaky on the topic of interest rates in the global economy and am confused by your statement after detailing global interest rates: "This is a big advantage because the U.S can raise capital so much cheaper and this is what we face eventually without a plan to reduce the debt."
ReplyDeleteI'm not sure how this plays out, so if anyone could explain that to me further, I would very much appreciate it.
Oh sorry I meant it is a disadvantage to Greece because when they issue bonds they have to pay those rates of 15% on the money while we only have to pay around 3% on our debt
ReplyDeleteI'm on board with Dane and Beth on this one, I think there is too much risk and too much uncertainty to invest right now. Although these interest rates sound attractive I believe the Euro is too unstable. As we all know greater risk can provide greater rewards... but I think there has to be some level of certainty backed by that risk, and I think there is little if any at all in this case.
ReplyDeleteInvestors and analysts have long thought that it would be impossible for Greece to honor all of its debt at full value, even if it successfully implements its austerity measures. I would also probably avoid taking on the risk of Greece's debt. I thought this quote was indicative of the situation in Europe, "The downgrade of both Greek and Portuguese government debt by S&P is another indication that the eurozone's fiscal crisis is continuing to deepen ," Ben May, an economist with Capital Economics in London, said.
ReplyDelete