Down and up (and down?)
As Easter nears, it is time once again for my annual musing on the topic of resurrection. Not in the religious/biblical sense but in a more general, metaphorical one.
Easter, as I have said before, is my favourite time of year because of its symbolism of falling and rising again. And it is amazing what a difference a year or three makes.
Last year at Easter, I was complaining about the wintery weather, which included snow (if you can remember what that is). I also argued, rightly as it turned out, that "the euro is unlikely to be blown apart by the recent mess in Cyprus" (if you can remember what that was).
Three years ago, when, like this year, the Greek Orthodox Easter coincided with the "Western" one, I awarded the "2011 Easter Bad-Debt-Bunny" to Greece. At the time, the country was cut off from the bond market, and the interest rate on its existing three-year bonds was over 20 per cent.
Last week, Greece returned to the market, raising €3 billion — much of it snapped up by hedge funds — with a five-year bond that was massively oversubscribed. The interest rate was just under five per cent. Although this is still high by current standards, the bond issue represented a psychological triumph for Greece, just two years after its debt default.
Serious doubts remain about the government's progress in reforming the economy, but Greece's current public finances are certainly in better shape than a few years ago, even if its total debt is still around 175 per cent of GDP.
Greece's bond issue is part of a more general development that has seen bond prices rise strongly — and, therefore, bond yields fall dramatically — in the troubled countries on the eurozone's periphery, the so-called "PIIGS": Portugal, Ireland, Italy, Greece and Spain.
So, the award for the 2014 Easter Good-Bond-Bunny goes to the PIIGS collectively, together with Mario Draghi, president of the European Central Bank (ECB), who, as I mentioned last week, promised in 2012 to do "whatever it takes to preserve the euro".
This comment frightened speculators away from betting against both the euro and the bonds of eurozone governments. Draghi's comments that more monetary easing may be on the way has further supported bonds in the eurozone, not least on the periphery.
Too good to be true? Possibly. There is indeed a danger that, after the recent bond-price resurrection, bond markets on the periphery are becoming overheated and could crash again at the first sign of bad news.
And that, in a sense, is the real resurrection message. What goes down can not only come up, but it/we can also fall (and rise) again. For a more profane interpretation of falling and getting up, see this delightful British song.
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