From MarketWatch / Wall Street Journal – Is Ireland really going bust? Commentary: There’s a lot invested in keeping the euro going:
What are the dangers? There are so many known unknowns, and unknown unknowns, in this situation, that forecasting the future may be a fool’s errand. So, instead, let’s look at this thing from the other way around.
Ten-year Irish bonds are today offering a yield-to-maturity of 9.6%.
Let’s imagine the government can’t escape default, and is forced to renegotiate with creditors down the road.
Let’s say it cuts coupons and principal repayment by 10% each.
In that scenario, your investment return from here still averages 8%.
If the government cuts coupons and principal by 20%, you still end up earning more than 6%.
Indeed the Irish government would have to cut coupons and principal by a third before it brought your total investment return down to just 3.5% a year — or the rate currently offered on 10-year U.S. Treasurys (TNX) .
There are no guarantees. But the odds are certainly intriguing.
Brett Arends is a senior columnist for MarketWatch and a personal finance columnist for the Wall Street Journal.
Perhaps, unlike the heads of broke bookies such as Ivan Yates, this man is just economically illiterate.
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