logo
  Join        Login             Stock Quote

The Defeat Of The Euro Bond Vigilantes?

 December 06, 2012 03:13 PM


Paul Krugman has written many blog posts downplaying the fears of a sudden increase in US government bond interest rates (what he calls the invisible bond vigilantes). Despite continuous warnings by some market commentators about the risk of high inflation and the possibility that investors start dumping US government bonds, interest rates on these bonds have gone in the opposite direction and are now lower than when some of these fears were first expressed.

In Europe the evolution of interest rates for governments bonds has been very different with several countries seeing very high levels and in some cases no access to funding. The fear was due to probability of default and potentially an exit from the Euro area, not so much inflation. But after a volatile period and following the statement of Mario Draghi supporting the Euro (no action yet) and the more recent agreement for funding for Greece and Spain, interest rates are coming back to levels which are not far from the historical average during the Euro period (and significantly lower than what these countries faced before joining the Euro).

[Related -The Sixty Percent Alibaba Play No One Is Talking About]

Below are 10-year government bond rates for Spain and Italy.

[Related -The Finer Points Of Hedging… Or Not]

Rates remain higher than the low values of 2006 but they are at levels which are not far from what we had seen in the early years of the Euro. Of course, this does not mean that the level of confidence is the same as those years, for that we want to measure the premium relative to German bonds, where we will see higher levels. But, at the same time, what matters for sustainability of government debt is the interest rate that a government pays and not its relative value relative to other countries.

There is still plenty of uncertainty in both of these countries and I am almost sure we are not done with swings in confidence and some negative surprises but it is good to see that, at least measured by these rates, there is a growing sense of stability in financial markets.

iOnTheMarket Premium
Advertisement

Advertisement


Post Comment -- Login is required to post message
Name:  
Alert for new comments:
Your email:
Your Website:
Title:
Comments:
 

rss feed

Latest Stories

article imageThe Sixty Percent Alibaba Play No One Is Talking About

It's official: Chinese e-commerce juggernaut Alibaba (NYSE: BABA) goes down as the biggest U.S. IPO in read on...

article imageThe Finer Points Of Hedging… Or Not

Barry Ritholtz asks the right question—Why hedge?–in the wake of last week’s announcement that California read on...

article imageBulls Leverage Hopeful News to Launch a Tepid Breakout Attempt

Stocks were able to leverage some optimistic news and dovish words from the Fed to take another stab at an read on...

article imageG-20 Minus One Country Plus 900 Bullet Points Equal 2 Percentage Points of Extra Growth?

For investors, the G-20’s super-secret plan to make the world grow faster is more a sideshow than a reason read on...

Advertisement
Popular Articles

Advertisement
Daily Sector Scan
Partner Center



Fundamental data is provided by Zacks Investment Research, and Commentary, news and Press Releases provided by YellowBrix and Quotemedia.
All information provided "as is" for informational purposes only, not intended for trading purposes or advice. iStockAnalyst.com is not an investment adviser and does not provide, endorse or review any information or data contained herein.
The blog articles are opinions by respective blogger. By using this site you are agreeing to terms and conditions posted on respective bloggers' website.
The postings/comments on the site may or may not be from reliable sources. Neither iStockAnalyst nor any of its independent providers is liable for any informational errors, incompleteness, or delays, or for any actions taken in reliance on information contained herein. You are solely responsible for the investment decisions made by you and the consequences resulting therefrom. By accessing the iStockAnalyst.com site, you agree not to redistribute the information found therein.
The sector scan is based on 15-30 minutes delayed data. The Pattern scan is based on EOD data.