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Article / 11 July 2014 at 7:51 GMT

World Cup Bond Update: Who will lift the trophy?

Fixed Income trader / Saxo Bank
Denmark
  • German bonds remain the bookmaker's favourites
  • Argentinian bonds rebound since default order
  • Argentine bonds remain the province of risk takers
By Michael Boye

After the historic and mind-blowing win against Brazil in the semi final, Germany will easily be the bookmaker's pick to win the 2014 World Cup Final. Looking to the bond markets, you will get the same answer - by an even larger margin.

Just as on the green football fields of Brazil this summer, Germany is an equally dominant force in the bond markets, and remains one the world's most astute creditors. Argentina, to the contrary, currently finds itself fighting off an imminent default threat.

Following the latest turmoil in European markets, sparked by the concerns over Portuguese lender Banco Espirito Santo, the 10-year German yield has been flirting with the all-time low of 1.16 percent reached in early 2013. Yield-hungry bond investors with a hang for German exposure will alternatively look to Deutsche Bank's CoCo issues (5.9 percent yield for the EUR issue with a 2022 call or 6.1 percent yield for the USD issue with a 2020 call) or the low-cost airliner Air Berlin (6.8 percent yield for the EUR issue with 2019 maturity).

If you are looking for even higher returns, in betting markets as well as bond markets, you might consider looking Argentina's way. From the initial shock when a US court order brought the future payments of its international government bond issues in doubt, the government bonds in question have rebounded significantly. Investors find comfort in the fact that, unlike traditional default cases, this is not a question over Argentina's ability to service its debt, but rather whether they will actually be allowed to by a foreign court.

Confidence in a peaceful solution has been growing, as negotiations with holdout creditors allegedly progresses. The 2017 USD issue currently compensates risk-willing investors with an 8.5 percent yield.

- Edited by Adam Courtenay
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