# Government Bonds and crisis



## twowheeled (Jan 15, 2011)

I don't know anything about bonds but I have always wanted to learn.

I am very curious what happens to government bonds who are at risk of default. What happens to these bonds and is it ever a good idea to buy them? For example, what happened to Greece government bonds during and following their debt crisis? If I were to purchase a 10 year Greece bonds when they were very distressed at 35-40% where would that leave me now? Would I be able to hold it to maturity to 2022 for 35% annual yield?

Is it ever a good idea to purchase bonds like this for countries that are in distress, banking on the opinion that the central banks or IMF would come to their rescue? And alternatively what if I held a greek government bond and Greece defaulted, where would that leave a bond holder?


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## lonewolf :) (Sep 13, 2016)

TW is your primary focus wealth preservation or growth? I m not a big fan of government bonds as governments alway follow the same cycle go deeper & deeper into debt with no intention of ever repaying back debt. Then default on bonds.

When the S hits the fan the political correct thing of the government to get elected is to be concerned with its voters & tax payers not bond holders being made whole across the pond.


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## twowheeled (Jan 15, 2011)

it's not something I'm considering for my own portfolio, I am just curious for the sake of learning about it.


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## InvestingForMe (Sep 6, 2012)

Hi twowheeled

If you are interested in learning about bonds as an investment, I have a Bonds and Debentures section in my website that you may find helpful. I also have a video series on bonds. (The videos are focused on learning so they are not the most entertaining, but the financial info is all there.)

I have always invested in individual bonds of Canadian issuers - government, government agencies and corporates, and been very happy with their returns. I have also invested (and done well) in bonds/debentures of Canadian corporations that were "distressed" - Transcanada, Telus, Bombardier, GMAC, to name a few. I personally believe that bonds do have a place in an investment portfolio.

That being said, I have never invested in bonds of a foreign issuer because I feel they bring too many unknowable risks - such as currency issues, foreign laws and regulations governing bonds, different accounting and reporting rules for issuers, etc. I find that most Canadian investors look at foreign investments incorrectly assuming that foreign jurisdictions have the same rules and accounting as we do here in Canada. This can lead to serious flaws in our investing analysis and decisions.

To your questions: 1) Yes if you buy a distressed bond and the issuer does not go bankrupt, you can hold that bond until its maturity and earn the higher yield. 2) It is never a good idea to buy a foreign investment assuming the laws and rules that exist today will remain unaltered tomorrow. In the 2008-2009 crisis, so many rules, that were thought to be carved in stone, were changed in an effort to manage the crisis. 3) The greek bond going into default - a bondholder might get a 100% back, might get pennies on the dollar or walk away with $0. Each distressed situation is different.

Hope this is useful.


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