From Mark Gilbert at bloombergview.com:
As Europe belatedly gets around to repairing its weakest banks, investors who have lent to financial institutions by buying bonds face a brave new world. Their money can effectively be confiscated to plug balance-sheet holes. Recent events in Portugal suggest that the authorities should be wary of treating bondholders as piggybanks, or risk destroying a key source of future funds for the finance industry.
Let’s begin with the “what” before we get to the “why.” Here’s what happened to the prices of five Portuguese bank bonds in the past few days:
Picture the scene. You left the office on Dec. 29 owning Portuguese bank debt that was trading at about 94 percent of face value. In less than 24 hours, you lost 80 percent of your money. So what happened?
To continue reading: Portugal’s Bank Bail-In Sets a Dangerous Precedent