The European Union may have done a very costly mistake by banning naked CDS shorts, because traders will now retort to outright shorting the underlying bonds. And short they will: Greek yields reached a staggering 188% for a 1yr note and they don't show any signs of cooling off. With Angela Merkel and Nicolas Sarkozy still undecided about the European Rescue Fund, things can only get worse. Meanwhile America continues its slow road to serfdom.
Europe and Greece
Greek bond yields have shot up as a direct result of the ban on naked short selling of Greek credit default swaps (a kind of insurance against sovereign default). Without the possiblity of buying insurance, the price has nowhere to go than down. Further concerns appeared regarding the disagreement between Germany and France on the EFSF (European Rescue Fund), right before the European financial summit which will take place at Bruxelles on the 22nd of October. The EUR/USD held (temporarily) the 1.3710 level at 9AM GMT, but the big move is expected to come after the weekend.
Whilst Europe is boiling, the much neglected US debt crisis continues relentless its path. An IMF piece of research points out that by Halloween this year GDP per capita will exceed Debt per capita, meaning that for each US citizen on average there will be more debt than value added. Got milk ?
Snippet-foto Source: Bloomberg