In other news from New York | 74 comments (74 topical, editorial, 0 hidden)

the fact that the spread between Italian or Spanish treasuries and their German counterpart has grown massively:

Warning over bond spreads in Europe
March 7 2008
Widening spreads between German government bonds and those of Italy, Greece and other eurozone countries are a "wake-up call" for policymakers, Jean-Claude Trichet, the president of the European Central Bank, warned yesterday.
(...)
The growing gap between yields illustrates the extent to which the global credit turmoil is causing investors to demand higher risk premiums for holding bonds considered more risky and instead buy those of Germany - which has the region's largest and most liquid market.
(...)
Italy's Treasury took some comfort in that the closing spread of 59.7 basis points between 10-year Italian and German bonds, the biggest gap since 1999, was overtaken by Greece yesterday, which widened to more than 60bp. Yields on bonds issued by most other eurozone governments, including Spain, the Netherlands and France, also continued to widen against the Bund yesterday.

In the long run, we're all dead. John Maynard Keynes

by Jerome a Paris (etg@eurotrib.com) on Tue Mar 11th, 2008 at 05:10:57 AM EST
[ Parent ]

Re: There's also been (none / 1)

Sounds like flight to quality on liquidity risk rather than credit risk.Jerome a Paris:

The growing gap between yields illustrates the extent to which the global credit turmoil is causing investors to demand higher risk premiums for holding bonds considered more risky and instead buy those of Germany - which has the region's largest and most liquid market.

It'd be nice if the battle were only against the right wingers, not half of the left on top of that — François in Paris

by Carrie (migeru at eurotrib dot com) on Tue Mar 11th, 2008 at 05:41:02 AM EST
[ Parent ]

Re: There's also been (none / 0)

Should be an investment opportunity for people who don't really need liquidity at the momemt, no?

Unleveraged stuff like bond and money market funds not belonging to banks in the sh*tter (or ordinary people owning bonds). It's not like people will be withdrawing money from those to invest in equites or whatever right now.

Peak oil is not an energy crisis. It is a liquid fuel crisis.

by Starvid on Tue Mar 11th, 2008 at 03:00:51 PM EST
[ Parent ]

Re: There's also been (4.00 / 2)

Lots of asset managers are already going into equities, precisely because it is the only kind of assets that has the slimest chance of offering returns close to (real) inflation (the one even TIPS won't beat).

Because least-indebted global fortune 500 companies with pricing power will be able to inflate their revenue as fast as, or faster than, general inflation. Of course, there may still be a temporary downturn in the near term, but when you're just price-averaging your rebalancing from bonds to equity, now is still a good moment to start.

I'd be wary of bonds, of all flavors, mortgage, corporate, sovereign, municipals: basis risk is demonstrably terrible. spreads might swing in any direction any time because of a deleveraging of some obscure player anywhere in the world. And remember: the market can remain irrational longer than you can stay solvent.

Pierre

by Pierre on Tue Mar 11th, 2008 at 06:16:03 PM EST
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Re: There's also been (none / 1)

Yup.

The other ones - relatively new - are infrastructure and stuff like ETF's, but even there some of the players have over-done the gearing...

"The future is already here -- it's just not very evenly distributed" William Gibson

by ChrisCook (cojockathotmaildotcom) on Tue Mar 11th, 2008 at 06:21:21 PM EST
[ Parent ]

Re: There's also been (none / 0)

Well, just consider the Italian 10 year bond which suddenly has a spread of 60 bp compared to German ones. According to the article, the reason the spread suddenly exploded was due to a flight to quality, or rather to liquidity. As an ordinary saver, you don't really need liquidity, at least if the duration is a bit shorter than 10 years. (I missed the duration in my last comment which kind of reduced the relevance of my comment, but anyway.) If the spread on 1 year bonds exploded too, that might be really interesting, as a private person should have no solvency problems holding on to a bond for a year without having to sell it on the market. At least if the minimum value of an Italian bond is the same as a Swedish, almost €3000.

I might have completely misunderstood what we are talking about here though.

By the way, why wouldn't TIPS give a real return against inflation? They are linked to the CPI, so that's exactly what they are supposed to do.

Or is the "core inflation" ghost around?

Peak oil is not an energy crisis. It is a liquid fuel crisis.

by Starvid on Tue Mar 11th, 2008 at 08:51:26 PM EST
[ Parent ]

Re: There's also been (none / 0)

Pierre:

And remember: the market can remain irrational longer than you can stay solvent.

Great line - and scary thought.

It'd be nice if the battle were only against the right wingers, not half of the left on top of that — François in Paris

by Carrie (migeru at eurotrib dot com) on Thu Mar 20th, 2008 at 09:43:30 AM EST
[ Parent ]

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