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EU rescue costs start to threaten Germany itself.The escalating debt crisis on the eurozone periphery is starting to contaminate the creditworthiness of Germany and the core states of monetary union.
The Irish/German 10-year bond yield spread was 11 basis points wider at 508 basis points. Portuguese bonds were also underperforming with the yield spread five basis points wider at 391 basis points.
Throughout the financial crisis, Bunds have been a safe haven during times of volatility. But during the latest phase of the euro sovereign-debt crisis, Bunds have lost their halo. Since the end of August, 10-year Bund yields have risen from a low of 2.11% to 2.81%.
Meanwhile, Bunds have sharply underperformed U.S. Treasurys in recent weeks, further evidence that investors are starting to look outside the euro zone for safer assets. And the cost to insure German sovereign debt against default has risen; credit-default swaps on Bunds traded Thursday at roughly the same level as CDS on several leading German industrial companies like consumer-goods group Henkel, a potent sign that markets are beginning to price in credit risk.
These trends are likely to continue. With the Irish bailout failing to calm market nerves over Portuguese and Spanish debt, and the ECB taking ever-greater exposure to risky debt through its bond purchases, Germany and other core euro-zone countries are likely to have to shoulder an ever greater burden to preserve the euro. Indeed, Bunds fell again Thursday even as peripheral bonds rose in response to the ECB purchases.
Underscoring the risks to bondholders, Standard & Poor’s said yesterday it may lower its credit rating on Greece, which is struggling to reduce its budget deficit from 9.4 percent of the gross domestic product. Finance Minister George Papaconstantinou said that a restructuring is out of the question. The domestic economy probably will contract by 2.7 percent in 2011 and 0.1 percent in 2012, according to analyst estimates compiled by Bloomberg.
“The end game for countries like Greece and Ireland is still going to be a very high level of debt,” Stopford said.
"This demonstrates the lack of demand for German paper at current low yields, especially after the rally of the past two days," said the bank's strategist Peter Chatwell.
"Buyers of Bunds at these levels are taking off their risk trade, they are not investing long term in German debt."
The bid/cover ratio of 1.2 was the lowest since February 2009, according to the bank.
Originally posted by wisintel
...One of the main failings of the current model that you see being addressed is the fact that we are fast approaching a point globally where there isn't enough money in the system to pay the interest on the debt owed on a sovereign level. I think that is why interest rates in western economies have been held soo low.
.... New technological capabilities are wreaking havoc on our employment market. New technologies in some areas are replacing the need for human labor. In other areas rapidly advancing technologies are creating jobs we haven't had time to train people for yet.
It is in my opinion that we are probably already in a situation, (and have been for a long time) where we don't need the entire human race to work to provide for the entire human race. This is a thought I have trouble explaining. You see in our current economic system, one must work a 40 hour a week job and most of the time be in a relationship with someone else working a 40 hour a week job in order to maintain the necessities of life such as food, clothing, and shelter. The problem we are facing, is that thanks to technological advance... our world doesn't need every human on it working a 40 hour a week job. Our economy is not equipped to deal with a scenario where labor is no longer required.
I am sorry if this turned into a bit of a rant... i had only meant to reply with a paragraph.