Italy – Germany 10 Year Bond Spread
Source: Bloomberg
The above chart shows the spread between Italian 10 year bonds and German 10 year bonds. I found it via Paul Krugman’s blog.
As Krugman suggests it looks like things are starting to look pretty grim again in Euro land as the spreads are heading towards those “pre-Greek debt deal” levels. Throw in the US debt debacle and it looks like the rough time in equity markets will continue.
So what to do? Short term, it looks like Australian bonds or cash are best…bonds are certainly expensive with yields very low (yields are below RBA cash rates out to 7 years maturity) but that’s probably not surprising as I’m sure the financial strength of the Australian government has put them in great demand given troubles in the other developed nations of the world.
Despite this suggestion, equities are priced relatively low but so they should be given the risks.