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Comment by sliverstorm | Hacker News Reader

'Bond' is another word for 'promise' so you should be able to rely on it... they're supposed to be risk-free

Agreed. I'd be livid right about now if I held Greek bonds. Although I suppose anyone looking for shelter in the form of government bonds could have taken the next step and diversified across nations, further reducing their exposure.

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A large number of the holders (especially the foreign holders) bought the Greek bonds precisely because of the higher risk, which resulted in them having higher interest rates than, say, American or German bonds. They made a bet and lost.

Oh, I see. I was not aware of that.

Not quite true - Greek bonds did not have significantly higher interest rates than other Euro denominated bonds.

Greek bond chart: http://www.bloomberg.com/quote/GGGB1YR:IND/chart German bond chart: http://www.bloomberg.com/quote/GDBR1:IND/chart

Go back out 3 years, and you'll see that as late as December 2009, the yield spread was minor, and that it didn't start to really diverge until July of this year.

Hmm, that makes it somewhat puzzling that anybody bought Greek bonds at all. Was there any reason to prefer Greek bonds to German bonds, given the superior fiscal position of Germany and the greater liquidity of the German bond market?

Is this comparable to an organised default? If the Greek government had instead defaulted on its bonds and the price naturally fallen to 50% of the original, would the effects have been similar?

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