Yesterday, I showed you that contagion had spread and default probabilities were blowing out right across Europe. Every single name on the list for sovereign credit default wideners was European and names like Austria, Estonia, and Slovakia showed marked deterioration, with default probabilities over 10%.
Today is no different. The Netherlands is the notable credit to deteriorate today. Their default probability has just crossed the 10% threshold. Take a look.
At the risk of repeating myself, I have to note that this is a rolling crisis through the euro zone. It will eventually infect every country until we get a systemic solution: full monetisation and union or break up. The longer the ECB waits, the worse things will get. No euro zone sovereign bond is safe.
Source: CMA
Update 1455 EST: There’s nothing wrong with the Netherlands. It’s indiscriminate selling. Warren Mosler reported this morning that he received this message from a AAA bond trading desk:
Our Trading Desk reports “mayhem” in the AAA Eurozone markets
– France 11bps wider
– Netherlands 6bps wider
France now 178bps over Germany
Increasing talk/fear of Eurozone break up and capitulation trades in AAA markets are widespread.
We are seeing no real demand for anything – even Germany.
Tomorrow’s Shatz auction looks a big ask with a yield of 30bps and no risk appetite out there.
These are not high yield punters here. They are AAA bond managers who thought they were buying safe assets. Because of the sovereign debt crisis, no eurozone sovereign bond is safe. So now there is panic.