Bond Outlook by bridport & cie, August 8 2012

How remarkable that Draghi has moved to the position of being the person towards whom markets look to see if the euro crisis is likely to be solved or not. Certainly his words about “doing whatever it takes to save the euro” are heartening. It is even fairly clear what he means by this:

• The ECB has proposed buying peripheral sovereign bonds, be that direct, or via secondary markets, at the short end of yield curves
• The bonds thus owned by the ECB would be at the same level of preference in the event of restructuring as private sector bondholders - thus removing a major issue in the markets’ setting of yield levels
• The bond buying programme would depend on progress being made in rebalancing budgets in the beneficiary countries.

With regard to the last point, Ireland and Portugal are allegedly on track, Spain and Italy could be, while Greece is more or less written off. It seems that Greece leaving the euro is now far from holding the terror it once did.