Why are eurozone debt yields rising?

No, it\’s not dastardly speculators, not the CDS market, hedge funds or anything of the sort.

In total, BNP Paribas, which has been at the centre of market fears connected to its exposure to eurozone sovereign debt, said it had reduced its government debt exposure by 25pc in the third quarter from €106bn (£91bn) to €80bn.

….

The reductions mirrored those seen at Dutch lender ING, which said it had reduced its holdings of Italian government debt by 54pc to €3.38bn.

ING said it had sold off 31pc of its holdings in Greek sovereign debt and 28pc of its Spanish government exposures.

Overall, the Dutch bank pared back its sovereign debt exposure by 44pc in the third quarter, taking the value of its portfolio to €6.13bn.

People who used to own the debt have been selling it.

Which, given the likelihood that it will decline in price further, is rather a good idea really.

And no, it\’s not something that a financial transactions tax would stop or reverse. This isn\’t short-term trading, this is just \”this is shit, get rid of it\” type trading.

17 comments on “Why are eurozone debt yields rising?

  1. But of course, it’s the market’s that are to blame for the high yields recalcitrant governments are paying.

    Unless of course you need to borrow more money, in which case those markets are suddenly your favourite customers.

    Someone needs to explain this to Occupy Wall Street, because those social payments don’t get funded out of ‘fairness’, ‘desire for change’ or a ‘space for dissent’. Pictures of the queen’s head mate.

    Quote stolen from the interweb to try and prove I’m actually more literary and interesting than I really am:

    ‘Creditors have better memories than debtors’ – Benjamin Franklin

  2. And it’s a spiral. Investors get scared, they sell, prices fall & yields rise, more investors get scared, they sell….

    It’s exactly what retail customers do when they remove their deposits from a bank they think is in trouble. This is a run on Eurozone sovereign debt, not a speculative attack.

    Oh, and the interest rates on Greek debt are currently a very nice little earner if you don’t mind possibly not being able to to sell the things.

  3. How very odd. They piled in for the yield when Greek and Italians bonds were yielding 20 basis points more than bunds. Now that these same bonds are yielding 9800 or 600 basis points more they’re piling out.
    I wonder what possibly could have happened.

  4. My money is on Italy being the first to ditch the Euro. Will they have to start issuing bonds in Dollars or pounds? I certainly wouldn’t buy Euro bonds from them.

  5. Isn’t this brilliant? Less money available to oversized wealth-consuming governments to get even bigger with, more money available for entrepreneurial capitalists to create wealth with. Liberals should be cheering loudly.

  6. O/T but sort of related:
    Any ideas on how you’d go about setting up a completely private sector currency? Completely divorced from State(s) interference. Backed by what?

    Could we be going through a process where confidence in governments managing economies is evaporating? That investors are going to get increasingly shy of lending to support deficits in the knowledge that the borrowers can arbitrarily renege on the loans whenever it gets inconvenient to honour them? Manipulate the currencies to suit themselves.

  7. ‘Who the hell is buying?’

    ECB.

    ‘.. the ECB has bought 56 billion euros in bonds, significantly reducing Italian and Spanish spreads over benchmark German Bunds, on top of the 76 billion euros in Greek, Irish and Portuguese bonds it had bought since May 2010.

    . Check Reuters link below for the full story:

    http://www.reuters.com/article/2011/09/09/eurozone-idUSL5E7K91CF20110909

    If your chief economist thinks it’s such a bad idea that he has to resign, it’s telling you something whiffs a bit.

    Of course, if you look at what’s happened to BTP or Spanish Govie spreads since September, it’s not hard to see why the ECB (i.e. German tax payers) are sitting on some fairly serious losses on their recent ‘investments’.

    Their ‘success’ at reducing spreads hasn’t really endured too well since September with the spreads on 2 year debt widening from around 350 bps to 480 bps, a new record.

    So 2 year German Gov’s in Euros at 0.39%, 2 Year BTP’s in Euros at 5.2%.

    And an Italian Government that couldn’t finance itself at 50 bps over Bunds in January of this year.

    Any guesses as to the main course the markets have in mind now the Greek starter is almost finished ?

  8. bloke in spain
    There are lots of (mainly local) currency schemes and they are not illegal. They are regarded as no more than coupons.
    I think the longest lived is one in Bavaria but the name is too long to remember, so google it.

  9. So if these banks have been selling Greek debt, who has been buying it?

    That is the more interesting issue.

  10. ‘So if these banks have been selling Greek debt, who has been buying it? ‘

    err… see Worzel above

  11. Johnathan and Worzel

    Apart from the ECB, main purchasers of Greek bonds now are probably hedge funds. Oh, and anyone who thinks Greece will remain in Euroland long enough for them to make a profit from the coupon payments. Risk-on….

  12. At these (default) prices, the main buyers of Greek bonds (apart from the ECB) will be hedge funds who play the legalities of default.

    Some (very rude) people call them ‘vulture’ funds, but better a ‘vulture’ buyer, than no buyer at all…

    By the way, I wish them well on playing around with Greek law. I know, personally, that some smart/wealthy Greeks tend to hire three sets of lawyers. The first does the actual work, the second check up on the first one’s work, and the third, checks the first two.

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