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Posts tagged ‘Government bond’

Bailouts Are Not Working!

The European authorities had hoped that, as soon as their massive, supposedly “definitive” Irish bailout package was announced, investors would jump for joy. Instead, investors have done precisely the opposite.

The authorities had hoped that the premiums on government bond default insurance would come down dramatically. Instead, the premiums have gone higher, as I’ve just shown you.

The authorities had hoped that Irish bond yields would come down sharply, helping to avert a disastrous, additional interest burden for the government. Instead, bond investors have dumped Irish bonds with both hands, driving their prices down and yields up.

Exactly seven days ago, on the morning after the big bailout announcement, the yield on Ireland’s benchmark 10-year government bond was near 8 percent. Now, it has surged by more than a full percentage point to 9.17 percent. That extra interest cost alone threatens to eat up a big chunk of the bailout money.

The authorities had hoped — and prayed — that their earlier bailout of Greece would have been enough to contain the cancer. Instead, it has metastasized and spread — not only to Ireland, but also to Spain and Portugal.

Right now, the cost of insuring against a default on Spanish and Portuguese bonds is at new, all-time highs, far surpassing the levels reached earlier this year when the Greek debt crisis was first exploding.

Even Greece itself, which the authorities thought was largely cured, is back in the emergency room.

But this time, all life support systems are in serious doubt. And this time, investors are in open rebellion against the spin doctors.

The facts: At the height of the last Greek debt crisis — on February 8, 2010, to be exact — the cost of insuring a €10 million 5-year Greek government bond reached a peak of €420,855.

But last week, the cost on the exact same instrument had surged above €1,000,000!

That’s like shelling out an outrageous $50,000 for a term life insurance policy that pays no more than $500,000 in death benefits.

Why so expensive? Because investors now realize that austerity, no matter how necessary, can never be a quick ticket to fiscal balance.

In fact, the more the Greek government has cut spending, the more its economy has sunk. Ditto for Ireland and other countries.

Urgent Lessons for All U.S. Investors

Even if you’ve never invested a penny in Europe — and even if you’ve never set foot outside the United States — this new phase of the debt crisis has far-reaching implications and lessons for you and your family …

Lesson #1 America Is Definitely NOT Immune to the Contagion

For 2011, the Bank for International Settlements estimates that Portugal’s and Spain’s government debts will be 99 percent and 78 percent of GDP, respectively.

But for the same year, U.S. government debts will be 91 percent of GDP.

Thus, by this measure, America’s debt burden is similar to

Portugal’s and bigger than Spain’s — two countries that are ALREADY victims of the sovereign debt crisis.

Yes, the U.S. dollar is the world’s reserve currency.

And, yes, that gives Washington the ability to print money with impunity … press other rich countries to accept its debts … and borrow huge amounts abroad to finance its deficits.

But that’s more of a curse than a blessing!

It means that, more so than any other major nation on the planet, the U.S. government is beholden to investors overseas — often the same investors who have repeatedly attacked Greece and Ireland this year.

Ultimately, that could make the U.S. even more vulnerable than Europe.

Lesson #2 Governments CANNOT End a Debt Crisis by Piling on Still MORE Debt Europe tried by announcing a Greek bailout earlier this year … and it failed miserably.

Europe tried again by expanding the Greek bailout to a $1 trillion fund for all euro-zone countries. But that effort is also failing. In fact, just one more bailout — for Spain — could wipe out the fund.

And now, even before Europe has figured out precisely how the bailout fund is to be used, there was new talk in high circles this weekend of expanding it even further — another desperate attempt to “reassure investors.”

But again, it is not working.

In fact, the more money Europe throws at the crisis, the more investors seem to recoil in horror.

Investors can now see, as plain as day, how past rescues have backfired.

They can see how the debt disasters can’t be papered over with bailouts or printed money.

And they KNOW that money printing can only gut the currency they’re investing in — be it the dollar or the euro!

In either case — bailout or no bailout — bond investors want out.

Lesson #3 Before a Government Debt Crisis Can Be Ended, It Must FIRST Get a Lot WORSE!

In order to slash deficits …

  • Governments must impose austerity — deep cutbacks in spending, tax hikes, or both …
  • The austerity inevitably drives the economy into a tailspin, and …
  • The economic tailspin always causes even LARGER deficits!

It’s only after years of fiscal discipline and collective belt-tightening that this vicious cycle is ended and balance is restored.

That’s why the cutbacks in Greece, Ireland, Portugal, and Spain are, in the near term, making the crisis even worse. And it’s also why a similar vicious cycle is now looming in the U.S., as the new Congress seeks to slash the deficit.

Lesson #4 The Great Debt Crisis Of 2008 Never Ended!

Politicians talk about the U.S. debt crisis of 2008 … the Detroit bankruptcy crisis of 2009 … the European sovereign debt crisis of early 2010 … the Greek debt tragedy … the Irish debt mess … the California budget debacle … the U.S. municipal bond collapse … and more.

Then, they talk about the urgent need to make a show of resolve to bail out the world — to stop the “contagion” from spreading from one sector or region to the next.

But these are not separate, isolated disasters. Nor is the contagion of fear the true source of the problem.

Instead, what we are experiencing is one, single, integral debt crisis that never ended.

It is one crisis that has spread from the U.S. to Europe and beyond … morphed from a private-sector banking crisis to a public-sector government debt crisis … grown in scope and power … and begun to drive the large debtor nations on a collision course beyond anyone’s control.

Lesson #5 The New Phase of the Debt Crisis Can Bring Surging Interest Rates

I showed you how the yields on Ireland’s 10-year notes have surged from 8 to 9.17 percent in just a few days. Yields in other European nations have shot up as well.

Meanwhile, I assume you’ve seen how, despite the Fed’s massive bond purchases, U.S. Treasury yields have also moved higher.

And you’ve seen even bigger jumps in U.S. municipal bond yields.

This is just the beginning.

source http://www.marketoracle.co.uk/Article24628.html

Irish Government Bond yields continue to rise , now junk status ?

Bond yields continue to rise , now junk status ?

Despite reassurances from Brian Lenihan last night on a British TV news program that Ireland would not need to access the bailout fund from the EU and his denial that it was his incompetence along with Brian Cowen’s,  was the reason the country was bankrupt.

The markets this morning gave its verdict , the yield on the Irish 10-year Government bond was 8.062 per cent. The Market is saying that they do not believe a word this Minster or any other Minster is saying ,this government is Bankrupt and we need a General election nothing else will now satisfy the Markets  

Clearing house LCH Clearnet said it will increase margin requirements for customers trading Irish government bonds. ( see circular)

Dear RepoClear Member,

1. In accordance with the Sovereign Risk Framework issued on 5 October 2010, LCH.Clearnet Ltd has revised the risk parameters for Irish government bonds cleared through the RepoClear service.  The margin required for positions of Irish government bonds will consequently be increased by 15% of net exposure. This will also apply to Irish government bond exposures in the single ‘A’  €GC basket. LCH.Clearnet will continue to monitor the situation closely and keep the parameters under close review.  

2. The additional margin will be charged on net exposure at close of business on Thursday 11 November 2010 and will be reflected in a margin call on Friday 12 November 2010.

3. Those members affected by the changes will be contacted individually later today and given an indication of the size of the margin call.  

4. Details of the Sovereign Risk Framework can be found on the LCH.Clearnet website (www.lchclearnet.com) under Risk Management > Ltd > Margin rate circulars > RepoClear.

5. Report 74 (available on the LCH.Clearnet Member Reporting website) will detail any further changes in the margin levels charged under this framework. 

6. This circular supersedes circular LCH.Clearnet Ltd Circular No 2702; RepoClear/147 dated 25 October 2010.

7. For further information please contact either myself (chris.jones@lchclearnet.com), +442074267103 or Tom Chapman (tom.chapman@lchclearnet.com) +442074266338

Christopher Jones
Director, Risk Management

The fact that they themselves cannot put a figure on the amount of margin call says it all Irish Government bonds are now priced in as “Junk status” in the Markets and we don’t need Moody’s to tell us that either!

Lenihans Houdini act with States Borrowings

The rate the State pays to borrow money reached a new peak of more than 7 per cent today.

The yield on Ireland’s 10-year bond climbed 12 basis points to 7.36 percent as of 10:29 p.m. in London this morning and by 13.00hrs today it was back down to 723 points, or 7.23 per cent, at 1pm.
The spread between Irish bonds and the German Bund also reached a euro-era high of 477 points.
Bond prices spiked last week following the collapse of Portugal’s budget talks, while Greece’s tax revenue shortfalls have reignited fears that peripheral European states may struggle to cut deficits.

The extent of and uncertainty surrounding the €15 billion budgetary adjustment being sought by the Government here in Ireland will have some effect.

Minister for Finance Brian Lenihan said the negative developments in Greece and Portugal had helped push Irish Government bond yields up in the secondary market. This of course is crap it is because Lenihan has lost all credibility with the markets, with his constant Houdini act of pulling ever more borrowings out of his hat against a background of diminishing tax revenue speaks for itself .

This minster is totally out of his debt and should be removed for all our sakes!

Ireland needs her patriots to stand up now and be counted isn’t she worth it ???????

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