Home / Banking / Today, PIGS Can Fly. How Long Will It Last?
Print Friendly and PDF

Today, PIGS Can Fly. How Long Will It Last?

Posted on January 15, 2014

The bond market is finished? You can only lose money in it from now on? That was very much the consensus in the market at the end of last year. But no one told investors in Europe. The one roaring trade for the start of 2014 has been euro-zone peripheral debt, with yields tumbling in the crisis-hit, debt-loaded nations within the euro.

The trouble is, it is going end in catastrophe.

Right now, the PIGS — Portugal, Ireland, Greece and Spain — are flying. But that can’t last.

Investors are taking a big bet that the euro-zone crisis is gradually being fixed, that yields will start to converge again across Europe, and the banking system will stabilize. They are wrong on each count. In reality, the fault lines in the system are growing worse, it is just that right now they are under the surface. When the crisis flares up again, as it inevitably will, there will be huge losses on those bonds. And the banks will be in a deep crisis again.

For the last six months euro-zone peripheral debt has been the asset to own – and it has kicked off the New Year with an even stronger performance. The yield on Greek 10-year bonds is now just 7.7%. Back in the summer it was above 11%, and at the peak of the crisis when many people thought it was about to get kicked out of the single currency, yields topped 30%.

There are plenty of signs the market has turned. The Irish government has returned to the debt market and found plenty of demand. So have the Portuguese. Italy auctioned bonds on Monday at the lowest yield since 2011. The Greeks even said last week they were contemplating resuming private bond sales again this year. The PIGS really are flying.

If the definition of a bubble is a market that has become completely divorced from reality, and only wants to hear good news, then this is the biggest bubble we have witnessed for some time.

True, Ireland is genuinely in better shape than it was. But Ireland was always the exception. It was already a wealthy, competitive economy (one of the five richest in the world, remember) before the crisis began. And it exports mainly to the U.K. and the U.S., both of which have been growing this year — 18% of Irish exports go to America, and 17% to Britain. When your main customers are doing well, it is not that hard for an economy to recover.

Continue Reading on www.marketwatch.com

Print Friendly and PDF

Posting Policy:
We have no tolerance for comments containing violence, racism, vulgarity, profanity, all caps, or discourteous behavior. Thank you for partnering with us to maintain a courteous and useful public environment where we can engage in reasonable discourse. Read more.

5 thoughts on “Today, PIGS Can Fly. How Long Will It Last?

  1. WOW………..what a load of crap, you Yanks stick your geads in the sand and dont ever bother to find the truth about European countries………sure the P I G S are is serious shape…………..all due to the bansk greed….just like it was that caused the USA to collapse……………so next time do try to come with facts that are correct, not assuming that all EU countries are in the dame shit sty as the USA

  2. That's PIIGS to both you and Gary, don't forget Italy, but if you think uddeboda2 that North has his head in the sand then you have not read his books. IF there is anyone without his head in the sand it would be North. Get and educashun son.

  3. Doofus, this article was written by Matthew Lynne, a Brit.

  4. There is not a financial system in the world today that is truly safe and secure. It is dangerous times in which we live. A combination of greed for money, greed for power, and political ineptness have put us here. I'm not sure we can walk it back. See my blog t http://cranky-conservative.blogspot.com

  5. wow, I didn't notice it wasn't written by North, LOL. Nonetheless, the Brit is correct this time, and the European that answered is still a doofus.