Wednesday 1 June 2011

When will the haircut and pain occur – Aus, UK, US and the PIGS government 10 year bond yields – June 2011 update

It’s been many months since I looked at the 10 year bond yields of Australia, the UK, the US and the PIGS.  These can be seen in today’s charts.  When I last posted in August of 2010 Greek 10 year debt was yielding 10.31%, as of the end of May 2011 that is now 16.29%.  Mish’s post yesterday raised some great points and gave plenty of food for thought prompting this post.

What is clear when it comes to Greece is that the can continues to be simply kicked down the road with no real solution being found.  This cannot happen indefinitely.  At some point the reset button has to be pressed, haircuts taken and a lot of pain felt.  The sooner it happens the less the haircuts and pain will be.  I just don’t understand why they don’t do it.  Do they honestly believe the current solutions are working and sustainable?

I believe (along with the market) that Greece will now have to default.  It’s now not a matter of if but when.  You can’t keep the patient on life support forever.  The question for me now is how long until Portugal follows suit.    

As always do your own research.

-          All yields are month end


  1. > I just don’t understand why they don’t do it.

    Because for an elected government, the alternative is suicide. Any attempt at restructuring Greek and Portugue debt would require bailing out French and German banks which would sink any chance of future electoral success. Ireland would probably be next which might require further support for RBS and Lloyds. If Spain went the same way, we'd have son of Crunch.

    The most sensible solution would be for Germany and France to leave the Euro. You might as well ask Merkel and Sarkozy to have sex in public. There is no way out for these people and they will go on sticking their fingers in their ears and singing la-la to the bitter end. It's all such a mess. I'm trying to keep a lot of cash.

  2. Hi SG

    I agree that it is political suicide. It however just goes to show again that the elected few are in it for themselves rather than for the long term good of the people. At some point somebody is going to have to deal with it. I guess it's like the banks and the financial crisis. They all "knew" they were doing "wrong" but just hoped they weren't around when the music stopped.

    From your blog I understand you are sitting on about 34% cash. If I include my NS&I Index Linked Savings Certificates I'm on 30% so we are not that far apart.


  3. > Because for an elected government, the alternative is suicide

    You can see that for the Germans forcing the issue, but for the Greeks it must be getting time for the 'in emergency break glass' button, being in the Euro isn't serving them at all!

  4. From the Greek side, negotiated restructuring/reprofiling would probably be best. Leaving the Euro would increase their debts and be pointless (the damage has been done). Unilateral default would be very popular domestically, but the long term consequences might be dire.

  5. > Leaving the Euro would increase their debts and be pointless (the damage has been done)

    Agrred that what's been lost to date has gone, but it would give them self-determination. If, economically and stylistically they prefer a high-inflation economy and sell services then even a 100% debt forgiveness wouldn't help. The cycle would merely begin again.