European Bonds Endure Worst January In History

From Larry Edelson: You read that right: Last month was the worst start to a year on record for European bonds.

EU bonds from Germany to Greece saw yields surge and prices fall, amid an increase in support for anti-euro rhetoric and rising populism.

Overall, Euro-area sovereign debt handed investors a 2.1 percent loss in January. That’s a heck of a loss in a single month.

Adding more downward pressure: Expectations that the European Central Bank’s (ECB) quantitative easing will come to an end soon is making investors nervous to be holding onto EU debt.

But this shouldn’t come as a surprise to any of you who have been reading my Edelson Wave column with regularity: The fact is I’ve been warning about the looming sovereign debt crisis for years. And now the bond bust is starting to unfold.

The rise in European government bond yields has been widespread since hitting recent lows in early fall of last year, led first by Italy and now France. And Greece is a total disaster with yields on Greek 2-year notes nearing 10%.

Greece continues to fight with the International Monetary Fund (IMF), which has refused to sign on to the aid program unless EU authorities grant further debt relief to Greece.

But the EU leadership is balking: German Finance Minister Wolfgang Schäuble went on TV last week saying the only way Greece can get relief is if it leaves the Eurozone.

Now, the IMF is due to deliver a major decision on whether it will contribute to the country’s 86-billion-euro bailout when finance ministers meet in Brussels later this month.

Greece is small potatoes, especially when compared with the political uncertainty looming ahead of the general elections scheduled in France, Germany and the Netherlands later this year. All told, these elections have investors nervous, very nervous.

Take France, for example …

We are now about three months away from the final round of France’s presidential election. And investors are concerned about the strong showing of far-right candidate Marine Le Pen, who has promised to take France out of the Eurozone and to hold a referendum on European Union membership.

And I don’t have to tell you: If Le Pen wins, the euro is toast.

Bottom line: Europe was doomed from the outset. The EU leadership has done everything in its power to prop up bonds prices, but the end is near. We’re now heading into the early stages of a sovereign debt crisis.

The iShares International Treasury Bond ETF (NASDAQ:IGOV) was trading at $89.77 per share on Wednesday afternoon, down $0.04 (-0.04%). Year-to-date, IGOV has declined -0.06%, versus a 4.86% rise in the benchmark S&P 500 index during the same period.

IGOV currently has an ETF Daily News SMART Grade of B (Buy), and is ranked #12 of 19 ETFs in the Global Bond ETFs category.


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