Greek yields spiking again and ‘irrational exuberance’ in Hong Kong?

Greek bonds didn’t respond well to yesterday’s S&P downgrade to BBB+. Their 10 yr yield is spiking another 29 bps to 5.80% and is up 50 bps on the week to the highest level since March. Greek 5 yr CDS is also rising to the most since March. As a result, the euro is falling to a fresh 3 month low and European stocks are down with Greece down more than 2%. The safer European bonds such as Germany and France are seeing a flight to quality and Treasuries are following. Asia traded lower after Hong Kong’s central bank said as fast as the easy money has flowed into their markets is as fast as it can flow out. While the US$ has caught a bid after Bernanke talked about it 3 weeks ago and will continue to rally ST, the PBOC deputy Gov summed its secular fate the best today, “When the US has to fund its deficit thru the combination of issuing more Treasuries and printing more $’s, it is inevitable that the $ will continue to weaken.”

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