Thursday, March 31, 2011
The Portuguese 2-year bond has hit 8.6%.
The country should be celebrating and praying that the yield will continue on its current trajectory path. That way when political issues are resolved, a plan to consolidate debt with favorable terms is established, the country ditches the Euro and reverts to a a domestic currency, a proposal for government stimulatory measures combined with some smart austerity is imposed, Portugal can buyback its debt at hugely discounted values.
The profit on this will be enormous. In fact, according to my calculations, if Portugal had only issued additional bonds a year ago, at the then lower market yield, the country may have been able to wipe out its deficit, simply by buying back the debt, at the hugely discounted values.