German Bonds

Germany failed to sell all of its 10 year bonds up for sale today. It seems potential investors held back because of the low rate of return and their nervousness that Germany will start to underwrite the debt of the eurozone's weaker states. Germany's borrowing rates are about to increase making it more expensive to operate. This in turn will have an adverse effect on the rest of the eurozone if it is thought Germany is a greater risk than it was before the euro crisis. Roubini is reported as saying that there is at least a 50% chance of the eurozone breaking up in 3 years. A second rating agency, Fitch, is saying that France is in danger of losing its triple A rating status as the euro crisis is likely to generate liabilities which will spill onto its balance sheet which due to the increase in its debts France does not have sufficient capacity to absorb. Despite the failure of the US Congressional Super Committee to find an agreed solution to cope with the US deficit America is still able to attract buyers for its bond issues at great prices. As the world's reserve currency the US dollar is still sought after as a refuge in times of crisis particularly when it appears that China's economy is slowing down with manufacturing activity reported to have dropped to a thirty two month low this month. It will be great if our bonds continue to be bought at such prices we have achieved to date but unless the government cuts back the deficit it won't be long before our bonds fall out of favour.