| Bonds Online |
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| 5/10/2013Market Performance |
| Municipal Bonds |
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S&P National Bond Index
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3.00% |
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S&P California Bond Index
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2.96% |
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S&P New York Bond Index
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3.13% |
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S&P National 0-5 Year Municipal Bond Index
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0.70% |
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| S&P/BGCantor US Treasury Bond |
400.09 |
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| Income Equities: |
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| Preferred Stocks |
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S&P U.S. Preferred Stock Index
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848.03 |
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S&P U.S. Preferred Stock Index (CAD)
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636.26 |
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S&P U.S. Preferred Stock Index (TR)
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1,701.05 |
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S&P U.S. Preferred Stock Index (TR) (CAD)
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1,276.26 |
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| REITs |
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S&P REIT Index
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174.07 |
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S&P REIT Index (TR)
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425.30 |
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| MLPs |
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S&P MLP Index
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2,469.58 |
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S&P MLP Index (TR)
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5,428.50 |
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See Data
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Anxiety Rises in Euro Zone Bond Market |
The New York Times - Nov. 30, 2009 - by Paul Taylor
PARIS — The bond market vigilantes are back on the prowl in Europe.
Early in the financial crisis, a first frisson of market anxiety about sovereign debt risk in peripheral euro zone countries faded after Germany made clear that any euro state that got into serious payment difficulties could count on help.
Now, a second wave of concern is starting to wash over Europe, as some governments — especially Greece — face abysmal budget deficits and ballooning debts due to revenue shortfalls and the cost of coping with the crisis.
“There is evidence that financial markets are increasingly sensitive to country-specific solvency concerns,” two European economists at the International Monetary Fund, Silvia Sgherri and Edda Zoli, wrote in a paper for Voxeu.org, an economics Web site.
They identified four factors in the risk premium charged by investors for holding the debt of euro zone states: the solvency of each country’s financial sector, the projected increase in national debt, the economic outlook and liquidity expectations and the general level of risk aversion in global markets.
Bond traders began to speculate on a sovereign default or a possible breakup of the 16-nation zone earlier this year, betting against the debt of a group of countries that some branded the PIGS — Portugal, Ireland, Italy, Greece and Spain.
Peer Steinbrück, the German finance minister at the time, calmed market jitters in February by declaring, “If it came to a serious situation, all of the euro zone countries would have to help.”
His comment was seen as a lifeline for Ireland, which was battling a banking and real estate meltdown.
The implicit guarantee from Europe’s biggest economy convinced bond markets there was no need to fear a sovereign default in the 16-nation euro area, although any bailout would probably come with draconian conditions.
A flood of liquidity unleashed by the European Central Bank washed away lingering doubts by giving banks an incentive to buy even the weakest euro zone sovereign debt. Banks used government bonds as collateral to borrow one-year E.C.B. funds at the bargain-basement interest rate of 1 percent, which they then used to buy government bonds yielding at least 3.25 percent a year. It was easy money.
Yield spreads between benchmark 10-year German Bunds and bonds issued by Portugal, Ireland, Italy, Greece and Spain fell back to levels close to those that had prevailed before the collapse of Lehman Brothers in September 2008 triggered a global financial panic.
Austria had also seen its bond spread widen because of fears about its banks’ exposure to Eastern Europe. But those subsided after international financial institutions and the European Union provided a safety net for the region.
Now expectations that the European Central Bank will soon start to withdraw massive liquidity support are making markets more discriminating again, raising the cost of borrowing for some governments.
Greek bonds briefly traded Friday at 2.15 percentage points above Bunds as investors fled risk in shock over Dubai’s announcement of a debt standstill. That is less than the record 3.05-point spread reached Feb. 18, but it signals the return of a bigger sovereign risk premium inside the euro area.
The cost of insuring Greek debt against default also rose. The new Socialist government in Athens disclosed last month that the 2009 public-sector deficit would reach 12.5 percent of gross domestic product, more than double the level announced by the previous, center-right administration.
The Greek national debt is projected to rise to 135.4 percent of gross domestic product in 2011 — the highest in the E.U. — from 112.6 percent this year unless Greece takes remedial action.
Analysts say the market is not convinced that Prime Minister George Papandreou’s cabinet is ready to impose painful austerity measures needed to reverse the debt spiral. Fitch Ratings cut the Greek credit rating to A- last month with a negative outlook, while Moody’s has put Greece on review for a possible downgrade.
The European Commission has proposed deadlines for states with excessive deficits to bring them down below the E.U. treaty limit of 3 percent of gross domestic product over several years, and finance ministers have pledged to start reducing budget gaps in 2011.
But with so many euro zone countries far above that ceiling, the credibility of such commitments under the bloc’s tattered Stability and Growth Pact is open to doubt.
That may prompt fresh debate about a mutualization of euro zone debt, perhaps by issuing joint euro bonds. Germany and France quashed the idea when Luxembourg’s prime minister, Jean-Claude Juncker, raised it in the heat of the crisis.
But if bond market pressure intensifies, straining the cohesion of the euro zone, some new trade-off between greater risk-sharing on debt and tougher European supervision of weaker countries’ fiscal policies may be back on the agenda.
Paul Taylor is a Reuters columnist
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