The markets got a big boost Monday after the ECB committed $1 trillion to bail out Europe. We know that this won’t just eliminate the massive debt of countries such as Greece, but it does give confidence that the European Union’s troubles won’t drag down the global economy. If that turns out to be the case, sovereign debt exchange traded funds (ETFs) may be in for a treat.
According to Christopher Werth of Marketplace, the big question over the European Union’s bailout package was whether the ECB would begin buying sovereign debt in an attempt to infuse liquidity into failing countries. Doing so would instill a measure of confidence in the debt of European countries. The markets surged after the ECB announced that it would indeed begin to buy sovereign debt.
But David Bogoslaw for BusinessWeek reports that questions linger about the ability of the ECB and the International Monetary Fund (IMF) to guarantee the debt of highly leveraged countries in the European Union. [The Year of Junk Bond ETFs?]
For the time being, Bruce McCain of Key Private Bank says, “There’s no obvious mechanism in the eurozone area that’s big enough and has the firepower to guarantee what’s going on in Greece. So you have potential for this to go a lot further in terms of a sell-off of sovereign debt if investors truly begin to panic.” [Tom Lydon on Why He’s Still Bullish.]