Daily Clueless Musings 5/09

Greece did not exit EU over the last weekend as some had speculated. Rating agencies took the opportunity and tried to jump in front of the curve. All the big three rating agencies warned multiple downgrades of Greek debt. It is pretty clear that the Greeks are not happy that everyone else (the Irish and the Portuguese) are getting a better deal in the bail outs. European officials are engaging in a fig leaf operation to extend maturities without inflicting net present value losses on its creditors. It is amazing how the stock market behaved so fearlessly today. Stocks were up and vix was lower. Fixed incomes are higher today. Weaker euro helped US dollar to firm up from oversold level, which helped US dollar based interest rates. The front end performed strongly on the uptick relatively the back end of the curve, as the flight to safety trade resumes. The long end of the curve seems to be losing its safe asset status, as market is more confident on Fed on hold than inflation and deficit risk.