I read that the last issue of bonds was discounted to the point that the yield was > 25%.
This suggests a lack of faith among investors (that Greece will actUally repay the amonts borrowed).
Does this mean that Grek bonds are effectively “junk bonds”?
Given that the EU is committed to supporting Grece, would these bonds be a good investment?
Or, is there a very real possibility that the Greek Govt. could default?:eek:
Well, if I knew the answer, I could make lots of good investments and become rich!
Since I’m not rich, that settles that fact!
In reality, the fact that they are so heavily discounted indicates that the market is losing faith in the bonds, which means that the investing public is concerned that the bonds might be defaulted upon.
So, it’s your call. In the end, you have to decide if you feel that the benefit outweighs the risk, if you can handle the financial hit if default happens, and how much risk you are really willing to take.
Yes, they’re rated B, which is two ratings below “junk bond”.
What may tend to happen in this situation is - the government will “negotiate” a revised payment schedule with its borrowers - usually the banks and other groups with the biggest holdings. The result will be something the investors can accept, rather than a default which may mean they get nothing. Likely it will involve lower interest rates and longer repayment schedules, or a discount on the amount paid. Either way, the return to the investors is usually less.
This makes the next round of borrowing tougher, and is usually backed by all the others (euro zone central banks?) who have a vested interest that Greece not fail catastrophically; but if they try to borrow on the open market the new interest rate will take into account the risk of a repeat performance with the new bonds.
Update: Moody’s has downgraded Greek bonds again:
“Moody’s downgraded Greece to Caa1 from B1, the same level as Cuba, late yesterday.”
Is there a way to "shortsell’ bonds? If the Greek situation is so dire, there must be some way to buy the bonds in anticipation of a downgrade.
Looks like the Germans will be on the nhook for more bail out money.