Bond Investors

A year ago, it appeared that many Wall Street firms would have trouble meeting their debt payments. This has not happened. Wall Street has been going up for the past few months (until the past two weeks).

Now bond investors are examining Europe closely. Countries such as Greece are having trouble meeting their debt payments.

The Los Angeles Times says:

With Greece's budget deficit ballooning, major credit rating firms downgraded the country's debt last month, turning it into a market pariah. Now investors are demanding a yield of almost 4.9% to buy a two-year Greek government note — 3.5 percentage points more than in November.

If some poor Athenian pensioner plunked his savings into a government note at 1.4%, he's now feeling like a chump. Not to mention that his investment is worth less than he paid, because rising market interest rates automatically devalue older bonds issued at lower fixed rates.

The debt woes of the Middle Eastern emirate of Dubai gave markets a brief jolt in late November. But Greece's struggles are more worrisome. For one thing, European Union fiscal rules are supposed to ensure that member nations can't borrow themselves into oblivion. Yet Greece's budget deficit, at nearly 13% of gross domestic product, is four times the EU limit.