In this session we discuss fixed income instruments as an asset class.
More on what was discussed in class (EU rate explosion)…
The figure I mentioned (it is a thing of beauty):
Note the level of country indebtedness at the time:
It all came unstuck until Mario Draghi appeared to calm markets in 2012 by saying the ECB will do whatever it takes to save the Euro.
…reminding me of this clip:
https://www.youtube.com/watch?v=8yaTCXcvTGY
George Soros summarised what was going on in the EU at the time very well (hope this resonates with what we discussed in class):
It took some time for the financial markets to discover that government bonds, which had been considered riskless, are subject to speculative attack and may actually default; but when they did (realize this), risk premiums rose dramatically. This rendered commercial banks, whose balance sheets were loaded with those bonds, potentially insolvent. And that constituted the two main components of the problem confronting us today: a sovereign debt crisis and a banking crisis which are closely interlinked…
Great short paper summarising what was going on at the time:
https://cepr.org/voxeu/columns/panic-driven-austerity-eurozone-and-its-implications
You can also see this presentation (purely for interest) I did in 2013 on the topic at the USB:
Note the time line of events - quite interesting how quickly and dramatically things escalated …