(As written for My Paper on 29 November 2011. Click here to enlarge)
Traders and investors are highly concerned about the on-going debt crisis in Europe.
What is the one crucial clue that is a clear indicator that risk? The clue lies in bond yields.
By definition, a bond yield is the return an investor would earn if a bond was purchased and held to maturity.
It also represents the interest the bond issuer has to pay to borrow the money. Suffice to say, the higher the yield, the more money the issuer has to stump out to repay the bondholders.
What drives yields up or down? Read more…