Over the period of several weeks, we have seen the same phenomenon play out over and over in the Greek goverment bond markets. The markets drive up yields, officials in Brussels, Berlin and Paris jawbone them back down, and after a few days, skeptical markets drive the yields back up. At the risk of oversimplifying, the Euro powers have been trying to get the job done with rhetoric, not deeds, and the market is calling them on it.
This week, not only have spreads on Greek credit default swaps widened again, but the action has extended to fellow “PIGS” Spain and Portugal (see Risk.net here). I still like my US Dollar longs here, and if I were more aggressive, might think about putting on some Euro shorts to complete the currency hedge fund trade. There’s blood in the water and the sharks are gathering. The Euro is in serious trouble.