Let’s use Portugal as our fear gauge. Spreads continue to widen out between Portuguese and German debt, wider by 140 bp on the week and up to about 385 bp at the moment.
The Greek aid package has been approved by several European parliaments but there has been absolutely no let up in fear, a very bearish sign for the euro.
The market is pushing heavily for the ECB to do more to supply liquidity to the market, especially for the banks in PIGS nations. To that end, swap lines between the Fed and the ECB (where the Fed lends USD to the ECB and the ECB lends it to European banks) is seen as a high probability in the near future, perhaps as soon as today.
