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Foreign Investing: The Euro is fixed

Posted April 8, 2008

“The range of euro bonds is quite wide, though they are all an expression of the same currency. The most expensive euro bond is the German, which yields 3.96 percent; the cheapest is the Greek, which yields 4.46 percent.” — Lord William Rees-Mogg

by Lord William Rees-Mogg

Baltimore – (TFN): There is a table in the Financial Times that everyone ought to follow, though it refers to fixed interest securities and moves rather slowly. It is something I regard as a thinking point. It portrays one of the core relationships of global finance, and it is always worth asking oneself why the relationships are what they are, and why they have moved as they have moved.

The table is to be found of Page 37 of the FT for April 2, and is always to be found on the page labeled “Market Data,” along with global equity prices, volatility indexes, and variegated statistics. It is labeled “Ten Year Gov’t Bond Spreads.” It lists the yields on 21 different government bonds, all with a 10-year life.

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It gives the spread based on German bonds and on U.S. T-Bills, but its greatest interest is that it gives a Germanocentric view of the world. It makes very clear the central role of Germany in the eurozone, just as the deutsche mark had a central role in the Exchange Rate Mechanism before the European currencies, or most of them, converted to the euro.

Conveniently, the 10-year German bond, denominated in terms of euros, is the strongest of the euro bonds, and the only one that currently has a yield below four percent. The range of euro bonds is quite wide, though they are all an expression of the same currency. The most expensive euro bond is the German, which yields 3.96 percent; the cheapest is the Greek, which yields 4.46 percent. Read on to learn why William sees the possibility of two Europes emerging in the euro-based bonds market.

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Posted by Lord William Rees-Mogg · Filed Under International Investing 

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