Are markets pricing in a Greek default?

The bond market concluded that short-term risk on Greece has now hit crisis levels, as Moody's downgraded the country again.

(Bloomberg) -- Greek bonds plunged, driving two- year yields above 11 percent, after the European Union said the nation’s 2009 budget deficit was larger than previously stated and Moody’s Investors Service cut its credit rating one step.
The cost of insuring against default soared, rising above Ukraine and putting it closer to Argentina and Venezuela. Ten- year bonds slid for an eighth day, sending the yield to more than 9 percent.

11.5% yields for a 2-year note are simply beyond sustainability. It was 6.65% only a week ago. At a certain point the government will simply be unable to continue to borrow at these levels.
The trigger for this latest surge in bond yields was a report from Goldman Sachs.

(Bloomberg) -- Greece is likely to cut or delay payments to bond investors even as the country negotiates a bailout package with the European Commission and International Monetary Fund, according to Goldman Sachs Group Inc.

That means "default" in English.

In related news, yields on Portugal's 2-year bond jumped over half a percent after revelations that its budget deficit was 9.4% of GDP, rather than the 8% number previously forecast.

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have those EU "loans" kicked in yet?

Those were "if commercial markets couldn't support a debt purchase" on Greek bonds, the non-bail out bail out announced. I'm referring to this, from April 11th.

Then, I see "negotiations" for $56 billion in a joint IMF/EU bail out. It's not clear which are these past loans and which is new.

Then Germany is royally pissed about bailing out Greece. I can understand that. Your own country is in terrible shape, people are losing their homes, people are out of work, lost all retirement....and your government....goes and helps some other nation. Where have we seen that before? Oops...I guess that's us!

Here's what bothers me the most on this story. The power of the credit rating agencies. They literally can send an entire nation, a sovereign entity into the poor house with a credit rating downgrade.

Yet, we know, they were bought and paid fers in the financial securitization ponzi schemes. Nothing has happened to them. Just on a power scale, this stinks to high heaven because we know their ratings were fiction on many a securitized derivative.

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Greece won't payback

Greece and Spain won't pay back. This was a calculated Risk, and a Lesson for the Banking System. The only thing Germans can do is:
REPOSSESS 170 Leopard 2AEX Battle Tanks from Greece, and 190 Leopard 2A6E Battle Tanks from Spain.
U.S.A must REPOSSESS 170 F-16 Jet Fighters from Greece, … the rest is gone with the wind …forever …
Greece must stop paying lucrative pensions with borrowed money, reform the free health care system, and cut down, 4 times the military budged.

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They Are Pricing in Similarities

They are looking at Greece and wondering how far behind can the UK, the US and the rest of Europe be?

Thats whats driving the market down. Greece by itself is a drop in the bucket but as a symptom of a bigger problem its scaring the hell out of investors who are moving to the dollar and hence oil is dropping as a result. If this were the Fall after a no hurricane season I'd say we were headed for $1.50 gas again but with the spill and a good gulf hurricane overdue thats not happening.

The US kicked in $3 billion for the Greek loan package through our IMF commitments - not a problem we'll just sell some more Treasuries to China or the SS Trust fund (those SS Trust fund iou's will never be paid back).

I've got to get a printing press and see how thats done.

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Just to Add

A3 is still a great rating and the returns are huge now.

So who is jumping in on this great investment or is it a scam like CDO's?

Not me because I couldn't afford to lose my money. I'm sure some pension fund manager wouldn't be scared from the A3 rating though.

Would you say anyone that lost money investing in Greece at this point were duped by the ratings or should the return be a warning sign that its too good to be true? You know my opinion on that.

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