The panic that EU default trouble could move beyond Greece to the sovereign paper of Portugal, Spain, and even Italy grew today. News reports say that some EU officials now think a bailout of Greece will have to involve some level of defaults. Fear has spread that a global economic slowdown will make it impossible for other southern Europe nations to meet obligations.
Spreads on Italy, Spain, and Portugal debt hit their highest levels since the EU was formed.
Bloomberg writes, “There’s pronounced risk-off sentiment,” said Michael Leister, a fixed-income analyst at WestLB AG in London. “You can clearly see the market is worried. We are seeing a self- fulfilling prophecy, where yields increase due to contagion and then the market gets worried about the high funding costs, as do the rating agencies.”
Just a week ago, it looked like a private/public sector bailout of Greece would calm markets concerned about contagion. It has only take that week to throw bond markets back into turmoil
Douglas A. McIntyre