Greece Update

Currency in Crisis

There have been two developments in the past couple of hour or so that may be helping Greek debt instruments to stabilize and lending the euro support as well.

The first are comments from Trichet. His comments suggest that officials are trying to weather the storm--the dramatic sell-off of Greek bonds--without panicking. He also suggested the risk of default was still very low. He also defended the support framework outlined by EU leaders, saying it was "workable".

The second development, which may also be a calming influence, is news from Greece that its Q1 budget deficit fell 40% to 4.3 bln euros. This would suggest that thus far they are on target. While Greek bonds sold off hard in the European morning, they have steadied over the last few hours, but the 10-year yield is still up 18 bp on the day, widening the spread over Germany by another 21 bp today. The 2-year yield is around 85 bp higher compared with yesterday.

The euro extended its recovery from $1.3283 to $1.3349. Although additional gains are possible, they are likely to be marginal at best. In fact, selling into 75 tick bounce seems to have been a profitable strategy for short-term traders this week.