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Greece’s sovereign debt problem has fallen off most people’s radar or it has been replaced with other, fresher concerns like the housing market in the US, the possibility of a ‘Double Dip’, etc.
At what turned out to be the April top for the S&P 500 index, I mused whether the Greek bond market was the appropriate ‘tell’ for the US equity markets. That was based on a simple comparison of the chart of the S&P 500 with that of the 10 year Greek Euro denominated sovereign bond yield.
The real fireworks arrived a month later in May when the Greek sovereign debt crisis caused the price of the same bonds to crash and their yield to spike up to 12.45%. The 2 year Greek bond yield flew into the stratosphere at 18.3% on May 7th 2010.
Soon afterwards, the ECB threw out all the rules of the Maastricht Treaty and came out with a €750 billion European bailout. That served to cool the fixed income market down instantly.
But almost immediately, Greek bond prices started to recede once again and yields to creep up ever so slowly. Right now, the 10 year Greek bond are at 11.41% and the 2 years closed at 11.84%. The long term, 30 year Greek bonds are at 9.14% after spiking to almost 10% in June.
Obviously, this issue has not been resolved. If you pull up a 1 month chart of the two, you’ll see them mirroring each other. And so, it is not a bad idea to keep an eye on this tell because it could have significant repercussions a long ways from the sun-kissed islands of Greece.
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