Greece 2-year bond yield still over 28%! What's going on?

June 25, 2011 update: A short and not-so-sweet assessment of the debt crisis in the EU from Mish at Global Economic Trend Analysis:

Here is a succinct summation of the current state of Euro-Zone affairs.

Greece will default, but at this point it is irrelevant.

The situation in Spain, Ireland, Portugal, and Italy is now so dire that it is does not matter whether or not Greece defaults.

Expect chaos

_______________________________________________

Greece sovereign debt crisis is looming large in the global economic picture!

This despite the confidence vote for PM Papandreou.

June 21st: Greece held a confidence/no confidence vote over whether the Papandreou government would retain power. Extremely tepid confidence ruled, at least for that day.

This vote in conjunction with a Greek Parliamentary vote next week will potentially allow the IMF and EU to step in with funds to help Greece avert a sovereign debt default... for the time being!

This confidence vote was therefore only step number one.

If the vote to implement austerity programs is successful, months of protests and strikes can then be expected in Greece as the general populace does not favor austerity but rather favors the continuation of the status quo (and why wouldn't they favor that?).

The arbiter of financial success and failure, the bond market!

As a result of this vote and imminent vote that would allow for the injection of funds, has the bond market become more comfortable with Greece and its ability to pay its sovereign debt obligations?

Not exactly!

If investors were indeed more comfortable then Greek bonds would be bid up in price and move down in yield. The cost to insure Greek debt in the credit-default swap market (CDS) would also get appreciably less expensive.

That of course has not been the case!

Greek 2-year bond yield 28.79% on June 18, 2011

Greek 2-year bond yield 28.31% on June 23, 2011 (Bloomberg)

Cost to insure $10 MM of Greek debt on June 16, 2011 was $2,000,000

Cost to insure $10 MM of Greek debt on June 24, 2011 is $2,332,000

This country still has a LONG way to go, even if the funds are injected. The world in the meantime will sit on pins and needles!

Sovereign Credit-Default Swaps

PORTUGAL 5-YR 866.60 44.60 +5.43%

ITALY 5-YR 201.90 4.90 +2.49%

IRELAND 5-YR 846.20 40.20 +4.99%

GREECE 5-YR 2332.00 50.00 +2.19%

SPAIN 5-YR 303.50 0.50 +0.17%

AUSTRIA 5-YR 70.80 0.38 +0.54%

BELGIUM 5-YR 165.10 -1.14 -0.69%

DENMARK 5-YR 42.30 0.80 +1.93%

FINLAND 5-YR 39.70 1.70 +4.47%

FRANCE 5-YR 88.60 0.26 +0.29%

GERMANY 5-YR 44.90 -0.36 -0.8%

HUNGARY 5-YR 294.70 -5.64 -1.88%

NETHERLANDS 5-YR 40.30 1.89 +4.92%

SWEDEN 5-YR 29.30 0.54 +1.88%

UNITED KINGDOM 5-YR 67.80 0.04 +0.06%

UNITED STATES 5-YR 53.50 0.415 +0.78%

Source: CMA

Source

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