Rising Bond Yields Add to Financial Pressures in Europe

[Joanne98]

Source: NYT

PARIS — Investors fled the riskiest euro-area government bonds on Wednesday, putting further pressure on policy makers as they grapple with decisions over emergency financial bailouts and who should bear the costs.

Yields rose across the board, including on safer German and French bonds. The yield on the 10-year benchmark Portuguese government bond hit 6.7 percent, as the country’s biggest unions staged a one-day general strike to protest budget cuts.

The yield on Irish bonds reached 8.5 percent after the ratings agency Standard and Poor’s cut Ireland’s credit rating to A from AA- and put it on negative watch. On Monday, its rival, Moody’s Investors Service, said a review of Ireland’s credit rating could result in a “multi-notch downgrade” as a result of the bailout of Dublin, currently being negotiated by international lenders.

The euro slipped to $1.3347 from $1.3368 late Tuesday, although stock prices were slightly higher.

In a speech to the parliament in Berlin, Chancellor Angela Merkel appeared to prod her euro-area partners for a decision about whether to force private bondholders to pay some of the costs of future restructurings.



Read more: http://www.nytimes.com/2010/11/25/business/global/25euro.html?src=busln

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We need a worldwide revolt against the BONDHOLDERS!

[Dreamer Tatum]

1. Um...we need a revolt against bondholders? Care to elaborate while I take a practice swing?

[bossy22]

2. Revolt?

Do you even understaind return on investments, risk, and how bond prices and general investment prices are made? Its not by some evil wall streeter in a basement hatching a way to screw the middle class- its actually a basic system. Here it is- the riskier the investment- the higher the return, that is because bond sellers need to entice purchasers in some way. U.S. entices purchasers through the safety of the U.S. government- basically that we arent anywhere near a collapse- therefore we do not need to offer high returns. a place like greece, whose financial situation is shaky, needs to entice bond purchasers through higher yield-making the bond holders potential risk worthwile.

Don't blame the bond holder- they arent doing this to hurt these countries, they are just protecting their investments. Bond holders arent charity organizations- they are investors

You want to artifically keep bond returns low- fine, but you won't have any investors so you won't sell any bonds and then you will have to go through an even more painful austerity because you will need to balance your budget 100%. You will be unable to capatilize/leverage anything. It would be like having a credit score of 100- no ones going to give you a loan

[Dreamer Tatum]

3. "We need a worldwide revolt against the BONDHOLDERS!"

I will provide a brief education for, minimally, the two people who recommended this post.

Governments issue bonds to finance spending, which I ASSUMED everyone already knew. Those bonds are held by other governments, investors, and so forth. Each bond has a coupon rate, which specifies the amount of interest that those bonds pay, in addition to return of principal at a date specified by the bond itself.

Those bonds then are traded on the open market.

When the price of the bond goes up (due to increased demand, say), the interest paid doesn't go up, so the YIELD on the bond is lower.

When the price of the bond goes down, the effective yield goes up.

So when it is reported that bond yields are increasing, it means that demand for bonds is lower, which reflects (in part) confidence that the bond will be repaid. It also reflects the attractiveness of other investments.

Why anyone would want a revolt against someone who is the rightful holder of government debt is beyond me - it makes zero sense.