Is 6% yield on sovereign bonds the crisis point of no return?

With Italian 10 year bonds having crossed a critical 6% yield threshold this week, it is worth seeing how other  sovereign bonds behaved. Let us look at the 20 week run-up period before the crossover...

For Greece, the chart starts on September 4th, 2009, and it first crossed the 6% threshold in the week of January 15th, 2010.

For Ireland, the graph starts on May 7th, 2010 (right before the original bailout) and it breaks 6% for the first time during the week of September 10th, 2010 (around the time of EFSF announcement).

For Portugal, the graph starts on May 14th, 2010 (right before the original bailout) and it breached 6% for the first time during the week of September 17th, 2010 (around the time of EFSF announcement).

For Italy the graph starts on June 17th 2011 (before the “big” July bailout) and it just crossed the 6% threshold.

Greece broke 6% and never looked back. It had a few rallies, but never really got close to 6% again. Portugal and Ireland had similar experience until quite recently. Portugal continues to track the path first blazed by Greece. Maybe Greece is unique, but from a time series study, Portugal seems right on track to follow it. Ireland has materially turned the corner, though it hasn’t improved recently. I don’t think it is a co-incidence, that Ireland had let some financial institutions experience severe write-offs, and then it turned the corner.

It is too early to tell what path Italy will follow, but at least for the other countries, they traded similarly prior to the breach, and followed similar paths after the breach. Italy is too big, that I don’t think it can turn like Ireland did. If Italy moves much further, I think it will follow Portugal and Greece. It has more debt than Portugal, Ireland and Greece combined.

Governments do not have months to fix this, they have weeks, and they have been squandering them.

Otherwise, austerity measures will become a regular fixture of day to day living for the populace going forward.

One can anticipate protection by examining purchasing an ETF called Proshares UltraShort Euro (NYSE:EUO) which increases in value by 2% for every 1% decrease in the value of the Euro. 

Click here for more info: Eurozone countries 10 year bond yield - the great unravelling