The Riskiest Debt In Europe Isn't Sovereign

The Riskiest Debt In Europe Isn't Sovereign

European bonds haven't been this risky in a long time--and we're not talking sovereign debt, either. Corporate, especially banks, are also having a tough time in this market.

If you're planning to buy corporate bonds in Europe, you need to be aware of some recent news coming out of the badly beleaguered market sector. It's now going to cost a lot more to insure those bonds via credit-default swaps, a vehicle that pays buyers a bond's face value in cash assuming the company that issued them fail to live up to the terms of its debt agreements. The Markit iTraxx Europe Index (the Asian chapter of which recently lowered risk on Australian, Japanese and Singaporean issues) recently raised its index ten basis points on corporate bonds, and bank and insurer bonds saw their rate hike fully twenty two points.

What this means to you, gentle reader, is that European bonds of any time--but specifically bank bonds--are riskier than they've been in years. So will there be accompanying increases in yield rates to make them more attractive? That remains to be seen, but it's worth keeping an eye on. Risk, after all, often equals return...but sometimes, the risk is too great to hazard the possible return.

Especially when you consider that there are still plenty of European nations still hovering within range of disaster mode--Ireland, Italy, Portugal, and Spain are all still at risk, and even the great lion Britain has seen stronger days. If any one of them go, it may well represent a catastrophe of unprecedented proportions--the collapse of Europe itself.

Of course, that's all speculative. Whether or not it'll truly be a disaster is anyone's guess and only time will tell. If you're not very risk-averse, this may be a good time to get in.

Your code to embed this article on your website* :

*You are allowed to change only styles on the code of this iframe.


Add your Comment