Greece still an issue

With the cost of bank bailout fears flaring up again last week in Ireland combined with a weaker than expected drop in Q2 GDP in Greece, and general risk aversion seen in the rally in Treasuries and Bunds after the FOMC meeting and weak US economic data, Greek asset prices are again pointing to trouble. This week the Greek 2 yr yield at 10.71% has risen 60 bps, is higher by 120 bps over the past 2 weeks and is approaching the 10 yr yield of 10.77%. Greek 5 yr CDS is at 895bps, up 75bps on the week and 140bps in two weeks. It now exceeds Argentina again and is now only below Venezuela. What is most worrying about the action in their 2 yr is that the EU has in place a 3 yr 110b euro bailout package for Greece, fully covering all of their debt obligations during this time. The market clearly has worries still that a debt restructuring is the inevitable outcome. Greek stocks closed down on the day 3.5% to a 4 week low.

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