I have written a number of times about the sovereign debt crisis. In many of them, I warn “The sovereign debt crisis is far from over. In fact, it is just beginning.”
According to Bloomberg, Mohamed A. El-Erian, CEO of PIMCO, the world’s largest mutual fund company and renowned bond trading firm, warned:
Greece is likely to default over the next three years because budget-cutting won’t be enough to reduce the nation’s debt burden.
It’s in Greece’s interest to default “as long as you can contain the contagion to other countries and it is done through orderly restructuring and repricing to retain competitiveness,” El-Erian said at a conference sponsored by the Economist magazine in New York yesterday. Like Latin America’s “lost decade” in the 1980s, “the alternative doesn’t promise growth and employment generation,” he said.
The result of El-Erian’s statement:
Greek bonds slid today, pushing the 10-year yield up 31 basis points to 9.66 percent at 5 p.m. in London, the highest since Oct. 8.
Investors demand 716 basis points, or 7.2 percent, more yield to hold 10-year Greek bonds than they do to hold benchmark German bunds. That’s also the widest spread since Oct. 8.
So again, I repeat: The sovereign debt crisis is far from over. In fact, it is just beginning.