German Government Bonds Buying The PIGS. There is almost nobody who has not heard or read about this acronym. For over a year we mentioned that the network lifeguard who had placed the state above all private credit risk transferred the risk of bankruptcy to the states themselves, and that these would be the next to have problems. It seems the market has realized today. First
was Greece and Spain lately. Many international media openly speak of the potential failure of Spain, claiming that Germany has no intention to conduct any salvage operation on any European country. In the EU does not provide for such aid is expressly forbidden.
This is reflected in the English bonds are coming down hard (and their yields rising) while insurance breaks on Spain, the famous CDS, are shot every other day too. Bankruptcy insurance increasingly used for purely speculative and not really to protect themselves from bankruptcy. At this point, the speculative operation popular among investment banks is betting against the solvency of Spain, buying CDS.
While English bonds fall, German bonds rise. Why? Because German bonds are the ultimate safe haven in Europe, as well as Germany did not offer assistance to other countries, the solvency problems of the weak is not affected. At least in theory. Let's practice. Who has financed the housing bubble big country? English banks and savings banks. Have you gone all the mortgage debt 700,000 million and 300,000 million of debt to saving developers the English? No, Germany has been the one that has funded much of the nonsense of our skin ladrillil bull. Therefore it seems that if Spain had problems, they no stranger to Germany, but you are very close. As close as your own financial system.
What would happen to the euro if bankrupt European countries? Would collapse, would be a reserve currency and would lose all credibility as a strong currency. In Germany you are interested in maintaining a slightly undervalued euro to promote exports, but not interested in the disposing euro on the road. Do not forget that Germany has among its main customers in other European countries, and if they go bankrupt and have to recover old coins, and devalue, will hardly be able to buy the BMW that they manufacture.
Therefore I believe that Germany, but may not offer direct aid, they will do everything possible to continue because all countries in the euro area, meeting their payment obligations. Germany does not want her to Spain to default, because in that case Germany would not collect all the English public and private debt, and would have to save its own financial system. This means that in Spain the tough measures to contain public spending are not from here, but that will be imposed from Germany. No more waste of public money, Brussels will not allow us.
As German bonds currently do not discount that Germany does have a weakness for transmission of the weak countries of the euro area, with prices listed as being the strongest possible refuge, I think it's no nonsense sell German Bund futures .
Let's see then graphs German bond yields at 2, 5 and 10 years.
Does anyone really think that returns can go much lower? Do not forget that besides not being addressed in these low yields by spreading risk, it is not referred to an ever closer interest rate hike. The price indices rising demand yet, but raw materials warn that the effects of credit open bar ECB will see sooner rather than later in the form of higher prices, and will need to tackle rising rates pathway. At the time the bonds are worth less, because when rates rise, the ancient bond that pays a lower interest, depreciation, since the new bond pays a higher interest.
Let's look the graphics of German bonds to 2, 5 and 10 years (Schatz, Bobl and Bund), whose price moves inversely to its profitability. These bonds have a face value of 100,000 €, and its yield is 6% when trading at 100. According to climb 100 indicate that their profitability is less than the 6%, the lower the higher is its price, and always on the time.
SCHATZ
German Bono (2 years)
Bono
German Bobl (5 years)
Bono
German BUND (10 years)
They appear to be at levels too high. No one can say with certainty that they will not keep going up, but you can try some sales of futures, always keeping in mind the maximum loss you are willing to take, and it is an underlying futures contract of € 100,000, the more volatile the longer the term, being especially violent the BUND. If a rookie does not play anything but a SCHATZ and preset loss STOPS on the amount you are willing to lose (each basis point is 10 €). ETFs are also bearish on German and American sovereign debt, but that will write another day.
