Today's Lesson For Bond Vigilantes: Governments Aren't Kidding When They Say They'll Crush You

Europe’s bond vigilantes pushed up European bond yields in the marketplace, alerting the world to the Eurozones growing debt problems. For the ones who hung around too long betting against nations like Greece or Portugal, their reward has been death at the hands of European leaders.

A few weeks back, Greece’s finance minister said that anyone betting against Greece would lose their shirts and it looks like they just did.

Greece’s 10 year bond yield has collapsed a remarkable 47% to 6.6% from 12.4% (as bonds surged) just before Europe’s new bailout fund was announced, in what has likely been unprecedented upward move for Greek debt in such a short period of time. Portugal’s 10 yield dropped 20% to 5%, while Spain’s fell 11% to 3.95% according to Bloomberg.

Anyone using credit default swaps to bet against PIIGS creditworthiness has been annihilated in an instant, as shown by the huge reductions in default spreads taken from CMA below.


It’s a tough game betting against government muscle, today it’s paid to rather ride alongside European governments and bet on a bailout by buying PIIGS bonds, and of course buying European stocks, which are soaring. Once again, this lesson is learned —  ultimately bet on bailouts, not ‘the right thing.’ 

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