Donnerstag, 5. März 2009

Eurozone government bonds

I wrote about Spanish government bonds some time ago.

Now Austria has joined the club: Spreads compared to Bunds have widened to 110 bp.

Ireland's spreads have worsened as well: 255 bp compared to Bunds!

I just don't get it. I can sort of understand the market's reluctance to buy Irish treasuries: A tiny country that overextended itself in multiple ways: A local real estate bubble, a shaky financial industry, current account problems. But Austria? Let those Eastern European loans go bad, it still won't cause Austria to go under. It has a balanced domestic economy with few home-grown problems. Government debt might skyrocket due to the Eastern European exposure, but German government debt is pretty much doing the same thing due to German banks' exposure to subprime.

Why is everybody treating German government bonds to be the ultimate safe haven of the Eurozone, even though Germany's economy is doing just as lousy as the rest of Europe, and quite possibly even worse? Must be Germany's reputation.

Not that I'm complaining: Why would I mind that my government has to pay less for its debt than the other Eurozone countries?

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