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Recent Trends in Interest Rates on Government Debt.

In Debt on April 15, 2011 by CQCA

The chart above compares the interest rates on 10 year government bonds in 2007 and 2011. In 2007, when investors believed all government debt was risk free, these six countries paid about the same rate on government debt. In 2011, investors realized that government debt, like any other kind of debt, has the possibility of default. German debt is still considered less risky, meaning demand has increased so much for German debt that investors are willing to buy it at a lower rate of return. However, the German government also spends more money than it receives in tax revenue, so eventually it will be in the same situation that most of Europe is in.

As discussed in a previous article, Spain is pushing its debt out into the future. If it cannot repay debt that has a 4% interest rate, how does it expect to repay future debt at a higher rate?

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