Monday 9 August 2010

Isn’t Greece doing well? Its people must be so proud – Aus, UK, US and the PIGS government 10 year bond yields – August 2010 update

It’s been a few months since I last had a look at the 10 year government bond yields of Australia, UK, US and the PIGS (Portugal, Italy, Greece, Spain) however with the IMF and others applauding Greece for their "vigorous implementation of the fiscal programme" I thought it might be a good time to revisit. Generally all yields since June 10 have either been flat or fallen which I think means the market sees investment in these countries carrying the same risk or less risk of default than previously. Let’s look quickly at the yields:
- Australia has gone from 5.11 to 5.16
- UK has gone from 3.35 to 3.22
- US has gone from 2.96 to 2.83
- Portugal has gone from 5.98 to 5.06
- Italy has gone from 4.10 to 3.79
- Greece has gone from 10.60 to 10.31
- Spain has gone from 4.70 to 4.07

Let’s look at 2 countries in particular. Firstly the UK. So we’ve seen the emergency budget from the Lib-Con coalition. Plenty of tax increases for all and plenty of austerity in the form of big cuts to the public sector. This was certainly talking tough however it will be interesting to see if they will actually be able to push these cuts through. We already have the Unions sounding militant with plenty of action being promised. Back in the real world I’ve just a had a quick look at the Office for National Statistics dataset, ANNX, which is the Public Sector Finances: Net Borrowing. Admittedly the latest data point is June 2010 in which we borrowed £14.498 billion compared to June 2009 where we borrowed £14.725 billion. That’s a fall of 1.5%. Big deal. I will be watching this over the coming months to see how quickly this austerity is really being pushed through.

Secondly let’s have a look at Greece. As announced this week and mentioned above the Greeks have won applause from the European Commission, International Monetary Fund and the European Central Bank for cutting their deficit by 45%. Note that’s not cutting the debt but the deficit meaning every month they still need to borrow truck loads of money. The reward for this applause was that the lucky Greeks qualify for emergency loans of EUR9 billion. According to the CIA Factbook in 2009 Greece had a GDP of USD341 billion (EUR257 billion) which means that they can get loans of 3.5% of their 2009 GDP. So they are fixing their debt problems with yet more debt. Sounds fantastic and certainly a long term solution to their problems [sic]. The even better news [sic] is that if they continue to meet their targets they qualify for a broader EUR110 billion rescue package. I guess that “rescue package” is yet more debt. Just how are they ever going to pay this back?

As always do your own research.

- All yields are month end except August 2010 which is the 06 August 2010

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