Greece got a Christmas gift from Moody’s and that was only a mild slap on the wrist as their sovereign credit was downgraded only one notch to A2 which is two notches above the S&P downgrade to BBB+. The relief was evident in Greek markets where their 10 yr yield fell by 22 bps and their stock market rallied more than 3%.
In turn, European stocks are rallying but global bond markets are seeing the reverse, particularly here in the US where the 10 yr yield is rising another 4 bps to 3.72%. The stock market is now playing a game of chicken with the bond market as higher interest rates provide a real test for the US economy.
China, who led the world out of the early ’09 malaise and whose stock market bottomed last Nov, continues its correction as the Shanghai index fell to a 7 week low and is down 12% from its Aug high on worries that officials will take further steps to prevent the economy from overheating.