Contagion Arrives: European Peripheral Bond Risk Soars

Just yesterday, German FinMin Schaeuble bent the truth, proclaiming that there was no sign of contagion from Grexit concerns. Today, it appears, he will be eating his words, as Italian, Spanish, and Portuguese bond spreads have exploded higher (up 15-30bps this week) amid the collapse of Greek sovereign and bank bonds.

 

It's not just Greek Sovereigns that are plunging, Greek Bank Bonds have collapsed...

 

and here is the contagion that Schaeuble is in denial about...

 

It's not just Schaeuble that doesn't see any problems. Stan Druckenmiller, the Chairman and CEO of Duquesne Family Office, said that with regard Greece leaving the euro:

"Draghi has QE at his disposal.  My guess is there won’t be contagion, but even if there is, he can contain it, and soon as market participants see that, you won’t get contagion."

However, it's no longer about bonds or Draghi, it's about redenomination risk once again and who gets what idea next (because if there is one thing that is not allowed in the EU, it's thinking for yourself).

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All we need now is for some EU leader to claim "Grexit risk is contained," and we know trouble is ahead.

Charts: Bloomberg