Portugal and Greece Downgrades Offer Silver Lining for Yield

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About: Vanguard Total Bond Market ETF (BND)
by: Edward Harrison
This article is exclusive for subscribers.
Edward Harrison
Value, contrarian, bonds, long-term horizon

On Thursday, Moody’s (NYSE:MCO) cut the outlook for the sovereign debt of Portugal and put Greece on negative watch for a downgrade, signaling growing concern over spiraling debts. Just as with Spain and Ireland which I discussed earlier, Portugal and Greece are smaller countries within the Eurozone with large fiscal problems due to the recession. For example, the Wall Street Journal says that Greece expects a budget deficit of 12.5% of GDP this year – that’s more than 4 times larger than the limit set by the Maastricht treaty.

Bonds sold off on the news. The Wall Street Journal reports:

The news spooked investors in government bond markets. The yield spread between 10-year Greek government bonds and