Eurozone countries 10 year bond yield history - the great unravelling

The great unraveling of the Eurozone has taken an ominous turn...bond yields have shot up in Italy as investors perceive the sovereign risk to have deteriorated. Greece, Portugal and Ireland have already floundered on the credit rocks.

Yesterday, Italy's yields acrossed the 7% Rubicon. A 7% yield is widely deemed as unsustainable and has previously led to bailouts and talk of default in smaller euro zone economies such as Portugal, Ireland and Greece. The crisis will not end simply with Berlusconi's excruciatingly slow demise. If the thinking now is that Italy also needs a bail out, there's a problem. Italy has two trillion euros of debt. That’s greater than the total amount of debt owned by Greece, Ireland, Portugal and Spain combined.

When the Euro was launched in 1999 there was much fanfare over the convergence of interest rates as sovereign risk appeared to equalise with markets not differentiating between economic fundamentals in each Eurozone nation. All started to unravel in 2008.

And, just by looking at the chart, you can tell that there's no way this implosion can be put back the way it was. If the euro is going to weaken, then the best way to play it is to buy the ProShares UltraShort Euro ETF (NYSE:EUO). Every 1% decline in the euro will move the ETF up by 2%.