Making a profit of EU intrest rate differences

Discussion in 'Economics' started by AJJ, Jan 14, 2009.

  1. AJJ



    With regard to the differences in intrest rates between German and Greek goverment bonds I have a question:

    As both countries have the same currency and they are both part of the EU.
    What risk would I run... if I would go short the German Government bond and use the money to go long the Greek government bond and gain the interest rate differences of both countries?

    Thanks Alexander.
  2. moarla


    u have to look also at the bond PRICE....
  3. AJJ


    Hi Moarla,

    What does looking at the bond prices tell?
    The yield on both bonds is different. And that's the reason why going short the German bond and going long the Greek bond is the same as borrowing at a cheap rate and setting it out against a higher rate.

    The question is:
    What must happen before this strategy goes down the drain?
    - As Greece is thrown out of the EU?
    - As Greece starts to print Euro's at free will? (I think not) As I have no currency risk this would not matter anyway!
    - When the EU ceases to exist.

    What happens with the EU if Greece is declared bankrupt?
  4. C6H12O6


    AJJ be careful.
    Don't believe the british financial press, a lot of articles about the euro and the eurozone are often inaccurate at best.
    When you choose where to put your money, you should be aware that there's an information war going on, with daily attacks against the euro and eurozone's countries.
    Sometimes they even write false statements about economic data.