Greek Bond Market in trouble!

This blog links to Article 12 (page 64) in the new edition of Reading and Understanding the Financial Times:The FT ran two very interesting and related stories on Monday of this week (14th December, 2009). In the Companies and Markets section the paper reported that investors had lost heavily on stocks (shares) but gained on bonds in the last decade. This is a very unusual situation as normally the returns on shares far outweigh those made in bonds markets. Sadly some investors in bonds have made huge losses in recent days. This is clear from the main story in the Main section of the FT with the dire warning to Greece over the state of their bond markets. This article reflected the recent credit-rating downgrades with Fitch cutting Greece to BBB+ and Standard & Poor’s putting Greece’s A- rating on watch for a possible downgrade suggesting it may be reduced within two months. This makes Greece now the lowest-rated country in the euro region as it struggles to shore up its finances amid a year-long recession. The Country’s Gross domestic product shrank nearly 2% in the third quarter from a year earlier. There is now immense pressure on the socialist government to cut the budget deficit with a series of measures including a partial freeze on public-sector pay and severe cuts in public spending. The yields on Greek Sovereign bonds rose by some 117bp last week to stand at over 3%. If firm action is not taken soon by the Greek government there could be a total loss of confidence in their Sovereign bond market. The impact on the whole eurozone could be very serious.