Why That Greek Bailout Could Ding Your Funds

Last Updated Apr 12, 2010 1:04 PM EDT

Greece proved too big to fail, so the European Community and the IMF offered the debt-ridden country a $61-billion bailout over the weekend. The deal basically offers the Greek government low-interest loans (at about 5 percent) it can use to guarantee its own higher-yielding bonds. Analysts expressed some skepticism that the move was enough to 'fix' Greece's widespread problems of debt and economic weakness, but the initial reaction was higher stock prices in Europe, a stronger euro, and an immediate jump in demand for Greek bonds.

If it's all Greek to you, don't worry. Here's what it could mean for your portfolio:
  • Your Treasury bond funds could get dinged. With Greek and other European bonds seeming more secure, international investors may feel they have less of a need to stash money in super-safe U.S. Treasury bonds. Deprived of demand from investors seeking safety, the Treasury will have to raise interest rates to keep attracting buyers. That's good news for people buying new Treasuries. But the lower-yielding ones already stashed in bond funds would become worth less. It's too soon to tell whether that's a blip or the beginning of the sustained rise in Treasury yields some experts, like Pimco's Bill Gross, are predicting.
  • Eurostocks might continue their rally after the U.S. market calms down. European stock markets fell further and have lagged the U.S. market's recovery. They've rallied since their finance ministers put this deal together. Moving forward, they could continue to follow U.S. stocks up.
  • You'll get less for your dollar in Europe, but not that much less. In the aftermath of the bailout announcement, the Euro strengthened against the dollar. Last month, you could have bought a euro for $1.33. Early this morning, it was $1.37. But the dollar had been rising steadily against the euro -- in December, a euro cost $1.50. That means folks who bought European stock and bond funds with dollars over the last two years got a good deal on the exchange rate. Going forward, they might get less of a deal, especially if they sell their funds for dollars.
Maybe you could just go take a look at the situation yourself. Greek tourism is down 8 percent and travel deals abound. Perhaps the best way to "play" the Greek bailout is to go to Greece and actually play.

Photo by Eustaquio Santimano via Flickr
  • Linda Stern

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