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“Germany is the core, everything else is secondary”

The Wall Street Journal’s Matt Phillips describes the turmoil in European sovereign bond markets. He says some traders tell him that they now consider countries like France a part of the periphery and are pricing it as such. This risk-off sentiment has spread throughout the euro zone to countries like Finland which is the only country in the euro zone except Luxembourg which is both AAA-rated and meets all of the Maastricht Treaty requirements.

Video below

In the companion video below, the Wall Street Journal also discusses the Spanish and French auctions from earlier today. The Spanish were forced to accept yields of almost 7% for 10-year monry. That is unsustainable. Moreover, Spanish bonds sold off in the aftermath of this weak result. The question everyone is asking, therefore, is how much longer will this last – and who will be the buyer of last resort?

All of this turmoil has made its way into the credit markets, turning the sovereign debt crisis into a credit crisis. Credit is contracting in places like Italy or throughout the entire European leveraged loan market.

About 

Edward Harrison is the founder of Credit Writedowns and a former career diplomat, investment banker and technology executive with over twenty years of business experience. He is also a regular economic and financial commentator on BBC World News, CNBC Television, Business News Network, CBC, Fox Television and RT Television. He speaks six languages and reads another five, skills he uses to provide a more global perspective. Edward holds an MBA in Finance from Columbia University and a BA in Economics from Dartmouth College. Edward also writes a premium financial newsletter. Sign up here for a free trial.