Martin Fridson, of Fridson Investment Advisors, says that the default rate on high-yield bonds may climb to 10%.
ECONOMIST: Consumers and companies may be forced to cut back
Until this year, ministries kept around 1 trillion escudos in bank accounts, where they earned a lower rate of interest than the yield on government bonds.
The argument regarding inflation is almost certainly incorrect, because the yield on the bonds will be greater than the rate of inflation.
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There are bonds whose yield depends on the federal funds rate staying within a specified band.
In fact, the rate of return you can earn today on high yield bonds (6.61%) is the lowest absolute yield on record.
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If five-year Treasury bonds are yielding 1.25%, as they were on November 2nd, then a negative 0.55% real yield on inflation-linked bonds implies an expected inflation rate of 1.8%.
ECONOMIST: A very unusual sign of confidence in economic policy
As ever, a drop in the yield on German bonds, the fall in the implicit interest rate it would have to pay, is not a sign that investors are any more hopeful that a solution to the eurozone's stresses are anywhere in sight.
The implicit interest rate on 10-year loans to Italy (the yield on 10-year bonds) rose again above the 7% level which is regarded as punitively unaffordable.
The Bombay Stock Exchange's 30-share benchmark Sensex, which had been trading flat before the rate decision, ended down 1.5%, while the yield on Indian government bonds rose to 7.90% after the announcement, from 7.86% earlier.
The yield on Italian 10-year government bonds - which provides an indication of the yearly interest rate Rome would have to pay to borrow new money - rose to 4.89% from 4.48%.
The Bombay Stock Exchange's 30-share benchmark Sensex, which had been trading flat before the rate decision, was 1.3% lower just before 0800 GMT while the yield on Indian government bonds rose to 7.90%, compared with 7.86% earlier.
In a world where Federal Reserve zero-interest-rate policy has made it impossible to earn any real yield the 10-year Treasury rate is well below 2% on standard-issue bonds, the income payout on high yield bonds (the polite term for junk) is proving too hard to resist.
The remaining yield on longer-term bonds is a risk premium that is commensurate with U.S. interest-rate volatility (Japanese risk premiums are lower, but they also have nearly zero interest-rate variability).
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