About 10-20%, if you believe the bond markets. Spreads on the debt of southern European sovereigns like Greece, Spain, Portugal and Italy have now widened to record levels over their Northern compatriots’ bonds. These countries all lost their AAA bond rating from Standard & Poor’s earlier this month, which means S&P’s thinks there is a chance, albeit a slim one, that these countries default on their debt.
Some think this could presage the eventual collapse of the eurozone, though others think the rating agencies are getting it wrong again, and see this as a good buying opportunity, such as money managers BlackRock.
“You have got to ask yourself at what point this becomes ridiculous,” Scott Thiel, head of European fixed income in London at BlackRock, which manages $1.3 trillion, said in an interview Jan. 23. “That’s too high if you step back and take a deep breath. We’ve begun to add back exposure” of these bonds.
An interesting question is whether the US could lose its AAA rating. Seeing as the entire credit markets are priced over US Treasuries, this would be a colossal disrupture to bond markets – sort of like the clock at Greenwich stopping.
