Here is some context to our last post on Greece nominal bond yields. What really matters is real bond yields – nominal rate less inflation. This chart illustrates that though Greek nominal yields were over 20 per cent in 1993 when Maastricht was ratified, inflation was running at 12-15 per cent, the current account was close to balance, and the country had an autonomous central bank and a national currency.
After the round-tripping, 10-year Greek yields are back to over 20 per cent, the country’s inflation is close to zero and will have to move negative for Greece to become competitive — if it stays in the Euro — , the current account has a structural deficit, and Greece effectively has no central bank and has given up its national currency.
Furthermore, Greece 10-years are a reflection of the recovery value of the bond rather than the rate at what the country can borrow long-term euros Always in context, folks.
(click here if chart is not observable)
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