As a result, Argentina must either pay the holdouts in full or default on the new bonds.

When financial markets discovered that supposedly riskless government bonds might be forced into default, they raised risk premiums dramatically.

CAMBRIDGE Greece will default on its national debt.

Either banks need to default on their senior obligations, or the government will need to default alongside the banks.

After 2005, Argentina maintained debt service on the new bonds.

And, in Japan, ten year yields are below 0.4 .

Argentina defaulted on its debt in 2001.

Second, use the profits on those bonds to pay off the IMF.

Even if their nominal returns are negative, they must defer to safety.

So default no longer seems a question of If'' but of When.''

Why Greece Will Default

At that point, Greece will default.

Eventually, default became inevitable.

Brazil's debt equals 60 of GDP, of which 35 falls due within a year.

Its benchmark C bonds now yield around 22 in dollar terms.

At that time, the interest rate on ten year Treasury bonds was close to 4 .

Only one major proposal related to such bonds, from Argentina, is on the table.

The risk premium is falling, pushing stock prices higher and lowering yields on long term bonds.

If only 40 of the men are still alive after twenty years, the bonds will pay out 20 million.

US budget deficits as far as the eye can see might excite fear of losses on US Treasury bonds.

Adjust and Reschedule or Delay and Default

Innovative financial instruments such as derivatives and credit default swaps enabled the distribution of risk throughout the economy.

Yields on Spanish and Italian government bonds have been inching up again, and equity investors mood is souring.

CAMBRIDGE Argentina s latest default poses unsettling questions for policymakers.

For starters, they have moved into riskier credit instruments, resulting in a compression of corporate bond spreads.

Yields on German Bunds are now negative out to eight years.

One would have hoped that the banks might have managed the default risk on the bonds in their portfolios by buying insurance.

In the US and the UK, yields on intermediate term (5 year) inflation indexed bonds are already actually negative this year.

(Shiller bonds, in theory, pay more when a country s economy is growing and less when it is in recession.)

Indeed, the interest rate on inflation protected bonds has now become 0.5 , even for a five year maturity!

That predictable dollar decline makes the relative return on holding dollar bonds even lower than the interest rate differential alone implies.

Relative to German bonds, the spreads in February of secondary market yields of government bonds with maturities of close to ten years were 141 basis points for Italy, 257 for Greece, and 252 for Ireland, compared to just 32, 84, and 25 basis points, respectively, in 2000.

This scalability was magnified by the use of credit default swaps (CDSs), which offered phony insurance against default.

Creditors in cases like that of Argentina need to be made to pay a penalty.

Instead, it is claimed, eurozone members should have been allowed to default.

After all, how would a Brazilian default affect Mexico?

In this situation, a country would be faced with the sole option of default.

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China and Hong Kong are the largest net purchasers of US Treasury securities. Otherwise, Treasury bond yields would be far higher, thwarting monetary expansion by the Fed.

Ten year yields on British government bonds were at historic lows long before Cameron took office.

Otherwise, Treasury bond yields would be far higher, thwarting monetary expansion by the Fed.

First, interest rates are higher on euro and British bonds than on similar US securities, making investments in those currencies more rewarding than investments in dollars.

Despite repeated threats from the IMF, Argentina took a hard line with foreign creditors, who were owed 100 billion.

A default would be painful but so would any other solution.

And default with an orderly restructuring would instantly set Greece s finances on a sustainable path.