Last week stock markets rallied on the idea that an all clear was received by the proposed Euro-zone bailout plan. I say proposed because the plan was scant on detail. My take continues to be the following, Firstly 50% haircuts on Greek debt will not be enough but it will buy some time for Greece. Secondly guaranteeing the first 20% of losses on newly issued Euro-zone debt will not be the confidence booster that is was intended to be, nor will it be sufficient, just like Hank Paulson's Bazooka. Thirdly the other little PIGGIES will be lining up for their their haircuts in short order, namely Portugal, Ireland, Spain and possibly Italy, there are already rumblings from Ireland and Portugal.
If the bond market thought the Euro-zone plan was the plan to end all plans it is at least a little confusing why Italian bond yields closed at their highest levels since July 2008 on Friday. When it comes to debt problems pay attention to European bond yields and credit spreads not the stock market, bonds are not signalling the all clear just yet.