Germany Set to Approve Bailout Fund Purchases of Sovereign Debt

Paul Ausick — Tue, 19 Jun 2012 18:11:36 +0000

In a reversal that was bound to come sooner or later, German Chancellor Angela Merkel is reportedly ready to agree to allow the Eurozone’s European Financial Stability Fund (EFSF) and the European Stability Mechanism (ESM) to use their combined €750 billion to purchase sovereign bonds. The dramatic rise in Spanish bond yields to more than 7% is the most likely driver of Merkel’s capitulation on the issue.

Spain is set to auction medium-term debt later this week, and there has been every indication that yields on that debt would rise above 7% as well. Sovereign debt interest rates above 7% are considered to be unsustainable.

In some ways, agreeing to allow the EFSF and the ESM to purchase sovereign bonds could turn out to be very much like an agreement among nations to release crude oil from strategic reserves. The mere threat acts as a brake on bond yields. If EFSF/ESM funds are actually used to buy Spanish debt, it will be the first time that has Eurozone bailout funds have been used to purchase sovereign debt.

Another effect of Merkel’s change of heart could be a widespread belief that Germany will acquiesce (eventually) to the issuance of eurobonds. Many observers think that until the richer Eurozone nations agree to stand behind the debts of their distressed neighbors no real solution to the continent’s financial crisis is in sight.

Paul Ausick

Filed under: Banking & Finance, Bonds, Economy, International Markets Tagged: European financial crisis, European Financial Stability Fund, European Stability Mechanism, Eurozone, sovereign bonds, sovereign debt, Spanish bond yields, Spanish debt

Short Sellers Could Drive Portugal Debt To Breaking Point

Douglas A. McIntyre — Sat, 27 Nov 2010 13:44:58 +0000

Investors may have begun to aggressively sell off the bonds of Portugal and Spain. They will try to convince international investors that the Portugal and Spain sovereign debt yields are too high to allow sustained borrowing.

The war over whether Spain and Portugal can survive without aid is not a PR campaign between the governments themselves and those who have heavy gamblers based on fears of default and contagion.

The shorts are winning now as yields on Spanish ten-year notes have risen to 5.2%

Douglas A. McIntyre

Filed under: General Tagged: Portugal debt, Spanish debt

24/7 Wall St. » Spanish debt

Germany Set to Approve Bailout Fund Purchases of Sovereign Debt

Short Sellers Could Drive Portugal Debt To Breaking Point