Sovereign debt bubble thread

[Caliga]

Peoples' optimism in sovereign debt is astounding in its insanity and its irrationality. Look at the fictional nation of Poyais for example. They floated 200k worth of bonds on the London exchange, and the damn country didn't exist. People think that shit is safe.

[The Larch]

Hans, explain to me how default of a member state would kill the EMU.

Whom would they default on?  Northern European banks.

In the case of Portugal their debt is held mostly by Spanish banks.

[Neil]

Hans, explain to me how default of a member state would kill the EMU.

Whom would they default on?  Northern European banks.

In the case of Portugal their debt is held mostly by Spanish banks.

Even the most Europhile of civilized banks isn't so foolish as to invest in Portugal.

[Zanza2]

We are starting to see the collapse of the bismarckian system of gov't that has dominated western civ for the last 100 years.  The question now is what will replace it?

You can at best count Caprivi as a continuation of the Bismarckian system of government, but it was over by the time Bülow was chancellor.

PS: What the fuck is this bismarckian system of government supposed to be? The social state?

[Ed Anger]

Hans, explain to me how default of a member state would kill the EMU.

Whom would they default on?  Northern European banks.

In the case of Portugal their debt is held mostly by Spanish banks.

Even the most Europhile of civilized banks isn't so foolish as to invest in Portugal.

If I invest 5 dollars, how much of Portugal will I own?

[DGuller]

If I invest 5 dollars, how much of Portugal will I own?

More than you want to.

[Martinus]

Hans, explain to me how default of a member state would kill the EMU.

Whom would they default on?  Northern European banks.

In the case of Portugal their debt is held mostly by Spanish banks.

Even the most Europhile of civilized banks isn't so foolish as to invest in Portugal.

Funny you say that, considering a Spain-based bank is one of the most powerful banks in the world (and, unlike say many British banks, in a pretty good condition).

[Ed Anger]

If I invest 5 dollars, how much of Portugal will I own?

More than you want to.

But would I own enough to make Slargos my Governor-General of Portugal? The cork must flow.

[Martinus]

Hans, explain to me how default of a member state would kill the EMU.

Will the poor ostrich die for nothing?

[Neil]

Funny you say that, considering a Spain-based bank is one of the most powerful banks in the world (and, unlike say many British banks, in a pretty good condition).

A Chinese bank might be the greatest bank in history, but that doesn't make the Chinese civilized.

[MadImmortalMan]

What a surprise.

Portugal Seeks Financial Aid From European Union


Portugal's prime minister said Wednesday his country has asked for financing assistance from the European Union due to its high debts and difficulty raising money on international markets.

"The government decided today to ask the European Commission for financial help," Prime Minister Jose Socrates said.

Portugal becomes the third financially troubled eurozone country after Greece and Ireland to request assistance from Europe's bailout fund and the International Monetary Fund.

Analysts expect Portugal will need up to €80 billion ($114.4 billion). The precise amount of aid will be determined shortly, according to Economic and Monetary Affairs Commissioner Olli Rehn.

Such an announcement had long been expected as Portugal, one of the 17-nation eurozone's smallest and weakest economies, struggled to finance its economy. Following a rejection of additional austerity measures by its parliament last month, Portugal has seen its borrowing costs rise to unsustainably high levels.

Earlier Wednesday, the nation's finance minister acknowledged Portugal was considering asking for financial assistance.

"In this difficult situation, which could have been avoided, I understand that it is necessary to resort to the financing mechanisms available within the European framework," said Finance Minister Fernando Teixeira dos Santos.

Rehn called Portugal's move "responsible," and said it was made "for the sake of economic stability in the country and in Europe."

http://www.cnbc.com/id/42458440

[MadImmortalMan]

And now for something a little different.

PIMCO bets against U.S. government debt

(Reuters) - The world's largest bond fund began betting against the United States last month by taking short positions on its debt on expectations the nation's shaky finances will drive interest rates higher and imperil its triple-A rating.

Bill Gross, PIMCO's oft-quoted co-chief investment officer, in January warned that "mindless" U.S. deficit spending could result in higher inflation and a weaker dollar.

He has also been raising alarms about a lack of buyers for Treasuries once the Federal Reserve ends its own bond purchase program, also known as quantitative easing, in June.

The portion of PIMCO's $236 billion Total Return Fund held in long-term U.S. government debt, including U.S. Treasuries, declined to "minus 3" percent in March from zero in February and 12 percent in January, according to PIMCO's website (www.pimco.com).

"They are one of the largest investors in the Treasury market, so yes, it is significant," said Gary Pollack, a portfolio manager with Deutsche Bank Private Wealth Management in New York.

"They have the ability to move the market, that is something that makes me a little nervous."

Investors in exchange-traded funds and futures have mirrored the PIMCO trend in recent weeks.

PIMCO expects the lingering U.S. budget deficit and the Fed's easy monetary policy will fuel faster inflation and hurt the dollar.

Gross' shorting of Treasuries in March preceded Washington's narrowly averting a government shutdown after Democrats and Republicans agreed late on Friday to cut $38 billion in spending for the fiscal year.

The 11th-hour compromise probably had little impact on the investment strategies of Gross, who said in an April newsletter that the U.S. government was "out-Greeking the Greeks," a reference to Greece's out-sized government debt that forced the country to ask for a bailout.

"We are smelling $1 trillion deficits as far as the nose can sniff" if the government fails to address the biggest entitlement programs: Medicare, Medicaid and Social Security, Gross said in his outlook.

Investors have pulled money from PIMCO's Total Return Fund, which registered $1.59 billion of outflows last month, according to Lipper. That was the fifth straight month of outflows, the longest streak of net redemptions since Lipper began tracking the data in 2004, totaling $18.05 billion of withdrawals.

Like other bond managers, PIMCO attracted huge net inflows in the wake of the global financial crisis, and oversees more than $1.1 trillion. The Total Return Fund has returned 1.48 percent this year, putting it in the top 22 percent of similar funds as cataloged by Morningstar, but it has lagged major U.S. stock indexes.

Treasuries have come under selling pressure on signs the U.S. economic recovery is strengthening, and the outflow that began in November has led to reallocation into other sectors, including stocks and commodities.

PIMCO's move echoes a broader dislike of U.S. Treasuries. Some ETFs that bet against the Treasury market have seen a jump in volume lately. Volume in the ProShares Short 20+ year Treasury, which shorts the Barclays Capital U.S. 20+ Year Treasury Bond Index, last Thursday had its most active session since February 24.

Speculators went net short on Treasuries for the first time in six weeks as of April 5, according to the latest data from the Commodity Futures Trading Commission. In a short position, an investor sells a borrowed security on a bet it can buy it back later at a lower price.

The Total Return Fund's cash equivalents, including Treasury bills and other debt with maturities of less than a year, rose to 31 percent of the fund's assets from 23 percent in February.

It also reduced mortgage-backed debt holdings to 28 percent in March from 34 percent in February.

Looks like they are really serious about this. I don't know whether to be spooked. I'm fairly sure the Pimco TRF is one I have money in...

[Admiral Yi]

Spooked about what?  If (when) Treasury rates rise your fund will make money.

If you're spooked about the debt then I think you should be very, very spooked.

[MadImmortalMan]

Spooked about what?  If (when) Treasury rates rise your fund will make money.

If you're spooked about the debt then I think you should be very, very spooked.

Yes. The debt. Rising rates would be catastrophic on the deficit.

[Caliga]

My sovereign debt fund is down 0.08% today.  It's an emerging markets fund (PCY).