Back during the depths of the global financial crisis there was a focus by investors and politicians on the financial viability of the EU PIIGS!
The PIIGS are a group of countries around Europe that for better or worse Greece is a prominent member!
The concern at that time was that these countries that also included Portugal, Ireland, Italy and Spain would default on their sovereign debt potentially dragging the rest of the EU down with them.
2-year sovereign bond yields in Greece at one point were quoted in triple digits while the 10-year bond yield, during the height of the crisis, was perilously close to 50%.
This scenario was followed by bailouts and austerity measures that led to investor appetite for these instruments sparked by easy money and a reach for yield.
To illustrate this fact, fast forward to 2014 and the yield on the 10-year Greece sovereign bond traded as low as 5.53% in September.
But, under the heading of what goes up must (may) come down, storm clouds may be back on the Greece horizon!
Markets slid this week after euro-area finance ministers clashed with the nation’s leaders over their plan to leave their safety net, sparking concern that Greece won’t be able to finance itself at sustainable rates without the support of its regional partners. The lack of supervision may lead to the country backtracking on reforms agreed with the European Union and the International Monetary Fund.
“Whether that’s a bellwether for more problems to come or not, I’m doubtful of, but we certainly saw the periphery sell off,” Andrew Wilson, Goldman Sachs Asset Management’s chief executive officer for Europe, the Middle East and Africa, said in an interview with Bloomberg Television’s “On The Move” with Jonathan Ferro, referring to the slump in Greek bonds yesterday. “It was a flight to quality, it was a bit of a scary story for a while there and I think that’s all it’s reflecting.”
Greek bonds have lost 17 percent in the past month, cutting their return this year through yesterday to 9.9 percent, Bloomberg World Bond Indexes show.(Bloomberg)
Conclusion
The financial situation for Greece and the rest of weaker EU sisters bears watching as where there is smoke there is typically fire.
Further these types sell-offs can often take on a life of their own as selling begets more selling.
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Written by Michael Haltman, President of Hallmark Abstract Service, New York.
HAS is a provider of title insurance in New York State for residential and commercial real estate transactions specializing in the areas of New York City, Long Island and Westchester.
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If you have any questions you can reach Michael by email at mhaltman@hallmarkabstractllc.com.
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