European Sovereign Debt Crisis Deepening - Risk of Contagion And Bond Market Crash
There is a real sense of the “calm before the storm” in markets globally. Complacency reigns, despite signs that the sovereign debt crisis in Europe is deepening and that Japanese and US bond markets also look very vulnerable due to rising inflation, very large deficits and massive public debt.
The unfortunately named PIIGS have seen their bond yields rise sharply again in recent days. Greek, Irish and Portuguese bonds in particular have come under pressure on concerns of deepening economic contractions and possible defaults.
Greek bonds fell for a ninth day after a report showed the nation’s economy shrank for a 10th consecutive quarter. In less than 2 weeks, the yield on the Greek 10-year has risen sharply from 10.804% to 11.750%.
Irish two-year notes fell sharply this morning, pushing the yield to the highest since the introduction of the euro in 1999. The yield increased 10 basis points to 7.26 percent in London after jumping as high as 7.56 percent. The Irish 10-year yield rose three basis points to 9.26 percent.
Peripheral sovereign bonds remain under pressure despite considerable support and outright purchases by the ECB.