Bond yields question

[viciam]

Afternoon all,

Are there any bond experts here that might be able to answer the following question?

I'm hearing in the news that Spanish Bond Yields are rising to historic highs. So what does this mean?
Does this mean if I buy Spanish bonds I will get a higher return?

Are the yields high because of the risk associated with the bonds because no one knows what's going to become of Spain?

Thanks

 

[young-gun]

Afternoon all,

Are there any bond experts here that might be able to answer the following question?

I'm hearing in the news that Spanish Bond Yields are rising to historic highs. So what does this mean?
Does this mean if I buy Spanish bonds I will get a higher return?

Are the yields high because of the risk associated with the bonds because no one knows what's going to become of Spain?

Thanks

I'm no bond expert, so am more than happy for anyone to elaborate further. But as far as I know bonds yields are determined by the amount of risk involved with that particular bond. The more risk there is involved with the bond, the higher the yield. Given Spain's current economic situation, investors expect a high return on their bond purchases as Spain is considered high risk. So yes if you were to purchase spanish bonds at the moment, you would see a return of around 6.5% I think on a 10 year, well down from their previous highs of jsut a month or two ago, but still quite high.

As a nations bond yields push higher, it becomes harder and harder for them to pay their bond holders, and will eventually require a bailout from the EFSF.

There are a number of factors that contribute to why a nation may be considered riskier than others, I am unsure of all of them. It's not that no one knows what is going on in Spain, I think it's that everyone knows they don't have a paddle.