It doesn’t matter until it does. Now it does in terms of the market reaction to what’s going on in Greece. Greek yields are blowing out again with the 10 yr yield up 46 bps to 8.53% and their curve has gone firmly inverted as the 2 yr yield is up 140 bps to 9.2%. 5 yr CDS is skyrocketing by 71 bps to 559 and 1 yr CDS is higher by 105 bps to 745 bps. Italy, Portugal, Spain and Ireland are all feeling the heat as bond yields are all higher and CDS is wider. These countries have a combined $4.8T of GDP, 35% of Euro zone GDP and European banks have sizeable exposure and large sovereign bond holdings as part of their capital. The EU said Greece’s deficit to GDP in ’09 was 13.6% vs their previous forecast of 12.7%. Greece seems to be headed to a debt restructuring where haircuts are going to have to be taken as it seems the only way out for them as it’s impossible for their economy to grow out of their debt obligations. The Euro zone cannot guarantee Greek debt as who would buy a German bund yielding 3.05
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