First published: Financial Times, 26/06/2012
German bond yields have proven to be a far more sensitive indicator of stress in the euro-system than the euro itself. As Europe rumbles towards another leaders’ summit, but one that has ‘urgency’ boldly emblazoned, the eurozone’s core bond market will tell us more about whether politicians are getting a grip on the crisis than any communique.
If they are, the market should drop like a stone, as flight capital reverses, returning money to other eurozone markets. It is reported several big hedge funds see Europe’s core bond market as an accident waiting to happen.
But haven’t we seen this play before? If German bonds are a ‘big short’ (as opposed to a trading short), you have to be persuaded of two things…..more