It was hard to miss Greeceâs blow-up in the debt markets on Thursday. Well, where to from there? First up, itâs Deutsche Bankâs Jim Reid, who says these are pivotal weeks for the market: The fact that Greece 5yr CDS widened a stunning 160bps yesterday to close at 640bps (with 10-year bond yields edging over 9% at one point and 2-3yr reaching double digits) shows that the market is worried about a more imminent restructuring of their debt than anyone believed a few days ago. If you believe that the EU are within a couple of weeks of providing Greece aid at the terms outlined earlier in the month then going short Greece risk here would be a very dangerous game. The recent price action must therefore be pricing in a risk that we wonât get the full bail-out or maybe the market is just playing it right to the wire along the lines of our long-held view that aid will only come at the 11th hour when the market forces it. If Greece did have to restructure its debt to the detriment of bondholders (surely unlikely in the short-term given the recent political commitment) then we think it would have huge ramifications for financial markets around the globe. As soon as you set a restructuring template for stressed Sovereigns then you run a huge risk of a Lehman-type event with confidence in other stressed Sovereign evaporating. Portugal, Ireland and Spain 5yr CDS widened 43bps, 23bps and 13bps yesterday as the contagion spread. Its not just Greece that needs the bail-out, the others need it as a first line of defence. http://ftalphaville.ft.com/blog/2010/04/23/210376/reflections-on-the-greek-melt-down/
Isn't there a lot of politics in all of this? The Germans are opposed to the policy the other EU countries want.