With 10-year Portuguese bond yields above 14% (see Display), the market is suggesting that Portugal will soon need another bailout from its euro-area partners. While we share the market’s skepticism about the sustainability of Portugal’s public sector finances, we doubt that policymakers at this stage will seek to impose losses on private sector creditors, as they did in Greece’s second bailout last year. (more…)
- Market reaction to S&P’s decision to downgrade several euro-area countries last week has been rather muted, probably because the move was not really a surprise. Still, I think euro-area governments should pay close attention to the rating agency’s reasoning.
The current sovereign-debt crisis in Europe is raising long-term questions about some of the bedrocks of finance and investment theory. Namely, are the concepts of a “risk-free rate” and “risk-free assets” still meaningful when the creditworthiness of so many developed countries is under threat?
The fiscal compact that the leaders of most European Union countries agreed on last week to bring some order to the euro area was broadly in line with expectations. While it may eventually be seen as a first step towards true fiscal union, it is more like a pistol than the long-awaited big bazooka. (more…)
A reader of my recent article on dim sum bonds, which was reposted on Seeking Alpha, expressed confusion about what action we recommend. While we are not, per se, making recommendations, here’s a clarification of what I meant. (more…)
This week’s series of high-level meetings in Europe is being billed as make or break for the euro. The good news is that European politicians finally seem to realize the extreme seriousness of the current situation. But any agreement at this Friday’s summit of all 27 euro-area countries is likely to stop short of anything resembling a full fiscal union, in my view. (more…)
Spain was back in the spotlight today, as rising bond yields suggested that investors remain unimpressed by the victory of the Popular Party in Sunday’s election. But the stress is spreading well beyond the euro area’s so-called periphery. (more…)
Today’s European sovereign-debt crisis has much in common with other seemingly unrelated crises of the past decade. The common element? Too much leverage. (more…)
As political casualties of the European sovereign-debt crisis mounted this week, it’s easy to understand why financial markets panicked. But all hope is not yet lost. (more…)
While renewed concerns about economic growth cloud the outlook for US state and local tax collections, we don’t envision a rash of municipal bond defaults if tax collections are lower than expected. Here’s a recent report from my colleague Guy Davidson.