Bond traders betting on Euro break up..

Joe of Bloomberg points to this interesting article. The article shows how investors anticipating some exits from Euro are buying short term German bonds. Though, the risks are not as large as seen in 2010 period.

However, the sources of concerns are different. He adds that this time the risks are from political troubles and Draghi’s 3 magic words “whatever it takes” will not help:

Once again, traders are placing bets on a breakup of the euro area. Investors are piling into short-dated German government bonds, which would presumably be the safest of safe havens if calamity were to strike.

But is the euro really at risk of a breakup? You’d think, perhaps, that if the currency survived 2010-2012 then it can survive pretty much anything. And obviously at this point (at least going by peripheral spreads) investors aren’t anywhere near as concerned as they were back then.

But one thing to consider is that the problems faced back then by Europe were essentially about monetary architecture. Governments lacked a fiscal union and a central-bank backstop, exposing them to the whims of bond vigilantes. Mario Draghi solved the problem in 2012 with his “whatever it takes” speech.

This time, the stresses building in Europe are perceived as more political. Anti-euro factions are on the rise while mainstream center-right and center-left parties are seeing their support melt away. As risk transfers from the monetary realm to a political one, these problems won’t go away with three simple words from a central banker.

Hmm..

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