Bondholders in Europe get a wake-up call
After a four-month rally in euro-region debt, yields on Italian and Spanish bonds had their biggest one-day jump in almost a year last week as a sell-off that started in Greece spread.
With bids evaporating and prices sliding, traders poured into derivatives as they rushed to protect against losses.
Italy and Spain's bonds extended that slump yesterday.
Despite Irish and Italian borrowing costs hovering near record lows, the sudden price swing shows they're not immune to the bouts of volatility that characterised the four-year debt crisis.
The risk is that speculative traders, who bought debt on the assumption the ECB would support the market, may try to flee at the same time if the outlook darkens.
"You only know how wide the door to the exit is when there are a few of you trying to push through at the same time," said Michael Riddell, a fund manager at M&G Group. "I don't think liquidity has been that great in peripherals at any stage."