Euro-coupons: Mutualise the interest payments, not the principal

For weeks we have been hearing "agreement soon" on Greek bond haircuts. The theme for the day today as it was yesterday and as it was a week ago is "tomorrow". One problem with all of these "deal is close" announcements is none of the have included agreement from those who stand to benefit if there is a credit event. Until those CDS holders are made whole, or at least the CDS holders are satisfied, there is no deal, just noise.

TODAY, Treasury reached its debt ceiling and began emergency manoeuvres to gain a few months before running out of borrowing room. Most everyone agrees that failure to raise the debt ceiling before that happens would be a calamity.

Carl Dincesen submits:The offering statements for the State of California’s most recent bond issues remind me of New York City’s for the sale of general obligation bonds and notes in 1974. Then, the City's short-term debt had no source of funding other than issuing new notes to retire the old. A few months later, the market refused to accept additional paper.

Long-term interest rates are now unsustainably low, implying bubbles in the prices of bonds and other securities. When interest rates rise, as they surely will, the bubbles will burst, the prices of those securities will fall, and anyone holding them will be hurt.

Michael Johnston submits:Crumbling global equity markets have been the story of recent weeks, as investors around the world endure increased levels of volatility related to Europe’s deteriorating fiscal situation and concerns over government debt levels. Furthermore, tame inflation and a stronger dollar has tempered demand for inflation-protected securities as well as most precious metals.

David I. Templeton submits: One thing that seems almost certain is the next move in interest rates will be a move higher. What will a move higher in interest rates mean for stock and bond investors? It should be noted that longer term market rates have already been trending higher over the past twelve months. The 30-year US Treasury rate has increased from around 3.5% a year ago, to 4.6% today.

Germany's current account surplus has reached six percent, an amount that bureaucrats in Brussels have decided is a threat to the entire continent. The EU commission will likely issue a warning to Germany with threats of sanctions if Germany does nothing about it.

“We are literally running out of superlatives to describe how much we hate bonds.” - Jeremy Grantham, GMO Advisors As of this writing, the 30-year treasury yield is less than 3%. Who wants to lend to Uncle Sam for three decades at that rate? Apparently lots of folks.