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spread between Greek and German Bonds during Financial Crisis 2007. Przedmiot: Financial
Markets realizowany na University of Hertfordshire, United Kingdom. Był to projekt grupowy.
Ocena otrzymana za projekt: 5
Task
Towards the end of 2009 there has been an increase in the spreads between Greek and German
government bonds. Making reference to relevant theory and available empirical evidence, critically
evaluate the factors explaining the above market response and how this latter evolved over the last
six months.
The 2007 Global Financial Crisis seriously influenced countries across the world. Almost all sectors
of the economy could feel its effects. Firstly, the crisis concerned only the banking and real estate
sectors; however it later spread to other areas such as national economic performance.
Consequently, poor performance of world leading economies resulted in poor figures of government
assets. Greek and German government bonds require particular attention in this issue. Actions that
took place in both countries seriously affected the others economic performance. This resulted in an
increase of the spread of bonds. The aim of this assignment is to discuss the spread between Greek
and German bonds over the last six months. Firstly, the essay will apply an appropriate theory
framework in order to explain the term bond spread and how it applies to the economic performance
of a particular country. Secondly, the assignment will describe the role of Greek and German bonds
in the European Economy. After that, it will carefully discuss past data covering the problem of
bond spread. This will show how the situation evolved and influenced the current scenario. Then,
the essay will carefully examine Greek and German government bond rates, followed by a
discussion of factors that led to the high spread and consequences government bond rates. After that,
the assignment will present future trends indicated by the economists. Finally, it will introduce
certain conclusions about the situation.
To begin with, the term spread of bonds must be defined in order to discuss such a large spread of
bonds between Germany and Greece. The term spread of bonds relates to “the difference between
the yields of two bonds with differing credit ratings” (Investorwords.com, 2010) This difference can
be caused by the difference between corporate bonds and treasury bonds as well as the difference in
yield between countries. It is the later that is to be considered within this essay. In this case, the
spread of bonds this refers the comparison between two nations credit ratings in terms of debit, and
how this debit affects the yield of bonds issued by the two different nations - Germany and Greece
and how this has been affected in the past six months.
In order to understand the behaviour of Greek and German bond spread, it is important to assess the
performance of each bond separately. German bonds always had the lowest yields within the
European Monetary Union (EMU). The yield of a bond is naturally inversely related to its present
price; that is, the lower its yield is, the higher the price. Moreover, the size of the German economy
is inordinate compared to the other EMU members. In case of a serious crisis, Germany will be
unable to be bailed out by another country because of the large size of its economy. Finally,
(…)
… service by Greece was condemned by the European commission for falsifying data about its
public finance but also for political pressure to prevent the collection of accurate data (The Financial
Times 2010). Theses falsifications were done in the perspective of election by the previous
government, and then the Greece's deficit was revised from 5% to 7.7 in October 2009. Secondly,
Greece, comparative…
… economic environment is uncertain. If actors were uncertain about the evolution of Greece's
economic situation, they would expect a high rate of return on Greek bonds. There could be a
random event that would lead to a new increase of spreads or to a decrease and the return to a stable
situation. Greece has to improve the reliability of its official statistical data; this will lead to good
expectations of…
… to 113% in 2010 (The financial Times 2010). But some actors think that these expectation are too
optimistic, and expect the Greece's debt to hit a peak of 150% of GDP in 2016 (The Financial Times
2010). The spread between Greek and German government bonds reached its crucial point. This was
caused by a number of factors, which occurred in both countries. Most of them were the result of the
global…
Przepływ pieniędzy po angielsku
wyroki w sprawie dóbr osobistych przed ETPC
warrants
International relations
Słownictwo - New Insights Full
Chemia - wykład 6 - Związki kompleksowe
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