Germany Denies "Elite Bonds" Rumors

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Germany is denying reports that Germany, France and four other Eurozone members with triple A credit ratings are reportedly considering issuing "Elite Bonds". According to German magazine Die Welt, the governments of Germany, France, Austria, Finland, Luxembourg and the Netherlands have discussed issuing jointly issued bonds. The bonds issued together by the eurozone members with the highest possible credit rating would be an alternative to the so-called "Eurobonds" that have been widely discussed as way to raise funds with lower interest rates than the markets are currently forcing countries like Italy and Spain to pay. Backers of the Eurobond idea argue that Eurobonds would bring down the borrowing costs of troubled eurozone countries like Spain and Italy by allowing them to benefit from higher rated countries like France and Germany. However, Chancellor Angela Merkel has voiced concerns that the Eurobond would reward countries that had failed to properly manage their budgets in the past and give them less incentive to do so in the future. The Eurobond idea has proven unpopular in most countries with triple A credit ratings because those countries borrowing costs would rise immediately after their debts were pooled together with those of countries like Greece. Not surprisingly, the Eurobond idea is most popular among eurozone leaders whose countries' borrowing costs have risen dramatically as the market has lost faith in their ability to pay their debts. The "Elite Bonds" could be a compromise between those who have been pushing for Eurobonds and those who oppose them. By only allowing countries with the best credit ratings to take part, the yield on the bonds would remain relatively low compared to countries with lower credit ratings. The bonds could also be used to raise funds for countries with lower credit ratings, with the "Elite Bond" group able to demand certain conditions were met before countries like Portugal and Spain could benefit from them.
ACTION ITEMS:

Bullish:
Traders who believe that the idea of "Elite Bonds" has merit might want to consider the following trade:

  • The iShares MSCI Europe Financials EUFN ETF could benefit if the core members of the eurozone created a joint bond that helped bring stability to the European Union's financial sector. It could be seen as a step in the right direction to shore up the financing of the governments that many European financial institutions are depending on during the current liquidity crisis.
Bearish:
Traders who believe that the "Elite Bond" rumor is just a rumor may consider an alternate position:

  • The Market Vectors Double Short Euro ETN DRR could rise if the euro falls because of a perception that Europe's leaders aren't doing enough to end the eurozone sovereign-debt crisis.
Neither Benzinga nor its staff recommend that you buy, sell, or hold any security. We do not offer investment advice, personalized or otherwise. Benzinga recommends that you conduct your own due diligence and consult a certified financial professional for personalized advice about your financial situation.
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Posted In: Long IdeasNewsSector ETFsBondsShort IdeasSpecialty ETFsRumorsFinancingCurrency ETFsMovers & ShakersPoliticsTreasuriesEventsGlobalEcon #sEconomicsMarketsTrading IdeasETFsGeneralAngela MerkelAustriaDie WeltEuropean UnionEurozoneFinlandFranceGermanyitalyLuxembourgNetherlandsportugalspain
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