Will Ireland need the bailout and can Spain be immune?

With concerns continuing to rise that Ireland will have no choice at some point but to tap the EU/IMF bailout fund, the top EU official will meet with the Irish government this week. Irish CDS are trading around record highs as are Portugal’s. Over the weekend the Chinese Pres said they are willing to financially help the Portuguese if they need it. Greek bonds and stocks are rallying after local elections supported the national party and validate the tough steps being taken. The broader market concerns with these economically small countries are the bank exposure that other European nations have to them and also contagion worries particularly with Spain, the 5th largest economy in Europe. Spanish 5 yr CDS is up 10 bps today to 260, just 15 bps from a record high. The euro is at a one week low vs the US$ in response and the reflation trade is taking a breather.

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