Despite unprecedented intervention by the ECB there has been a relentless move higher in Greek bond yields. While the ECB appears to be able to make a market in Greek government funding the market clearly remains wary of the future of the Greek economy It looks to me like the market isn’t sitting around waiting for the Greek bailout plan to fail. There is clear evidence that austerity is unlikely to solve all of Greece’s long-term problems and bond investors are demanding that they be paid for the excessive risks. As of Monday morning the cumulative probability of default stood at 52% – little changed from the week before, however, the 2 year and 10 year note are both heading north of 11%.
(Greek 10 year bonds)