Here’s a Really Terrible Investment Offering a 400% One Year Return

15 january 2013

 

Yes, it really is offering a 400% return over one year. Hey, it’s even got a government guarantee on it. And as a sensible investment it stinks, it’s a right pig. Which is, of course, why it is offering a 400% return.

Hardly auspicious.  No wonder yields on 1 year Greek debt hit 400 percent/year today.  That’s not basis points, that’s percentage points.  Invest 20 Euros today, you are promised to get back 100 Euros in a year.

Yes, it’s a Greek Government Bond (GGB in the parlance). You really can buy them for 20 cents on the dollar and the yield to maturity is that 400% (actually, it’s a little higher as there will be a coupon payment as well). Sure, it looks lovely, just great in fact, except when you think about the reason that it’s trading at these levels.

Quite simply, no one believes that the Greek Government is going to redeem its bonds in 12 months time. The current betting is that they will go bust in March: which they will if they don’t manage to get the eurozone and the IMF to bail them out and the talks on that are suspended at present.

This is not one of those investments to rush to purchase: probably more sensible to run screaming in the other direction in fact.

I am well aware that Greece’s major problem is that it does not issue its own currency, does not have a central bank of its own, quite unlike the US or the UK, but that a country can get into a debt crisis so quickly is a sobering warning to those in both countries who insist that just a little more debt to fund some stimulus never hurt anyone.