Hot Potatoes & Risk Transfers

"Bailouts for Ireland and Greece and speculation that Portugal and Spain may need aid are prompting investors to shun some of Europe’s highest-rated bonds. The cost of insuring German debt against default rose yesterday to the highest since May. The yield on 10-year French securities climbed to as much as 3.247 percent, the most in more than in six months, and the extra yield, or spread, investors demand to hold 10-year Belgian bonds instead of similar-maturity German bunds climbed to the most since at least 1993. More rescuing means a bigger bill for everyone and this partly explains the pressure on yields in some countries, including Germany,' said Elwin de Groot, a senior market economist at Rabobank Groep in Utrecht, Netherlands. 'Now we have the deal with Ireland, there’s speculation about whether we should rescue Portugal or even Spain after that. That’s creating an environment in which there’s going to be risk transfers.'"
Source: Bloomberg

"We are moving apart. Organizations like the European Union are in the process of "fragmenting". During an upward trending mass social mood, we make peace and sign peace treaties. We form cooperative organizations during these times and merge currencies. Now, the tide has shifted. Keep an eye on the EU. As Greece, Spain, and others continue to feel "the pain", their partners in the EU will continue to ask 'why are we being dragged down by them?'."

Random Roving, March 30, 2010