Wednesday, September 21, 2011

Taking advantage of extreme valuations

Greek Bonds Fall as EU Plans Further Talks; German Notes Rise

Greek government bonds fell for a third day as the European Union said officials will return toAthens next week after three days of telephone consultations failed to produce a solution to the country’s debt crisis.
Yields on German two-year notes, perceived to be amongEurope’s safest securities, dropped toward a record low as Greece’s newspaper Imerisia said labor unions were considering a strike against government austerity measures. Ten-year bunds were little changed after Germany sold the securities at an average yield below 2 percent for the first time. Portuguese notes fell as borrowing costs increased at a bill sale.
“There’s no incentive at the moment to jump back into riskier assets” and sell German securities, said Eric Wand, a fixed-income strategist at Lloyds Bank Corporate Markets inLondon. “The threat over the next couple of months is going to be for continued risk off, and core paper will have its buyers into any weakness.”
The Greek two-year yield climbed 123 basis points to 65.41 percent at 1:12 p.m. in London, according to data compiled by Bloomberg. The 4 percent security due in August 2013 fell 0.445, or 4.45 euros per 1,000-euro ($1,365) face amount, to 42.135. The 10-year yield rose five basis points to 23.29 percent.
Comment: The current valuations seem out of whack. It may be worthwhile to consider the sale of German bunds in favor of buying German stocks and buy some Greek euro debt in exchange of US debt.

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