Thursday, December 2, 2010

Another reason for higher interest rates

This was posted by Boris Simonder in a pro chat room this morning.

The Eurozone bail-out fund will issue bonds next month to provide emergency loans to indebted nations.

The European Financial Stability Facility is expected to raise between €5bn and €8bn in bonds in a triple A rated deal,which will be the first bond issued by the Eurozone as one entity, to fund aid to Ireland.

Bankers expect the bonds will price between 50 to 90 basis points over German Bunds. However, German investors have warned that the bonds could “crowd out” the German Bund market, which saw the first signs of stress this week from the Eurozone crisis.

One hedge fund manager said: “Why would you buy German Bunds, if you can get extra spread on another bond that is risk-free?

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