What a morning

While some Greek and EU officials are in denial over the need for Greece to default and restructure the debt that is impossible for them to service, the market continues to mount the pressure as yields are spiking again. The 2 yr yield is rising 150 bps to 20% and the 10 yr yield is up by 65 bps to 14.50 %. Yields are jumping also in Portugal and Ireland and moving sharply higher in Spain too. Spain sold 12 and 18 month paper at yields well above those sold one month ago. Also adding uncertainty to the situation is the election results in Finland, one of the few AAA credits in the region. The party against any bailout gained ground in parliamentary elections and an EU agreement to extend funds to a member has to be voted on unanimously. In Asia, most markets traded lower after China raised RR another 50 bps to 20.5% but the Shanghai index itself actually bounced a touch on the ‘soft landing’ belief. The RR rise comes just days after the 5.4% CPI print and the yuan is also up at a new high. Property price gains in Shanghai and Beijing did moderate in March as has been hoped for.

Here are the key bullet points from the S&P move to lower the US sovereign credit outlook to negative from stable: “Because the US has, relative to its AAA peers, what we consider to be very large budget deficits and rising government indebtedness and the path to addressing these is not clear to us, we have revised our outlook on the long term rating to negative from stable…We believe there is a material risk that US policymakers may not reach an agreement on how to address medium and LT budgetary challenges by 2013; if an agreement is not reached and meaningful implementation is not begun by then, this would in our view render the US fiscal profile meaningfully weaker than that of peer AAA sovereigns.” “Our negative outlook on our rating on the US sovereign signals that we believe there is at least a one in three likelihood that we could lower our long term rating on the US within two years.”

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