Bund as a call option

Pubblicato il 23 Maggio 2012 da Veronica Baker

A very interesting analysis by Adam Button in Forexlive

The German bund market is the tell.
Yields are at record lows across the curve today with 2s at 0.05%, 10s down 7 basis points to 1.399% and 30s below 2% for the first time.

I agree with him, in particular here :

Fears of a eurozone breakup have made depositors, especially large accounts, worried about forced conversion. In other words, people and businesses in Greece in the periphery are worried that their governments will confiscate euro deposits and exchange them for some new type of currency.

If the euro breaks up, the best way to guarantee your government doesn’t take your money is to put it in an instrument controlled by a foreign government . Even though you get no yield, you hold a giant call option on a new German currency.

Yes, it is true : Greek istitutions ( curiosity : in Germany there are “only” 500k immigrants from Greece  , the same numbers than italians…) are surely buying Bund and Schatz…

…or having their money ( legally, of course ) in a foreign country , not in Eurozone ( US and UK are good ) and not,obviously, € in portfolio.

And pay attention, because now Bund Future is a CALL OPTION on cash, not fresh cash.

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