Financial Times
November 28, 2010
It was a small decision but the symbolism was huge. A few months before Ireland’s multibillion-euro bail-out, announced last week, Morgan Stanley quietly switched dealing in the country’s bonds, along with those of Greece, Portugal and Spain – together, the four “peripheral” countries often seen as the eurozone’s weaker members – from its sovereign debt desk to traders specialising in distressed financial assets, some of the riskiest investments out there.
“Peripheral debt is now an asset class in itself,” says a person close to the bank.
Just three years ago, the peripherals enjoyed the same interest rates on their 10-year bonds as Germany, seen as the safest member of the eurozone. Portugal and Ireland even had rates briefly lower than German bunds. But today, in the wake of a debt crisis that has already claimed Greece and Ireland as victims, and is threatening Portugal and Spain, the debt of peripheral countries is viewed as among the world’s riskiest. Ireland must pay higher interest rates – also known as yields – to borrow than Hungary, which turned to the International Monetary Fund for $20bn in financial assistance two years ago.
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