Friday, July 20, 2012  Eurozone update: it's not as bad as many
think  With markets swooning yet again over eurozone fears, it's
time to revisit spreads and yields for a look at just how likely
a default or disaster is likely to be, according to market
pricing. As should be apparent, the fears are much worse than
the facts.  First, a look at 2-yr sovereign yields, which are a
decent barometer for the likelihood of a near-term default. What
stands out in this chart is how much things have improved in
Portugal and Ireland. It was almost exactly one year ago that
yields on Irish and Portuguese debt exploded skywards. Since
then they have settled back down quite a bit, with Ireland now
trading through Spain and approaching Italy. Who would have
thought there could be such a dramatic change in Ireland's
fortunes? (It helps that Ireland has been serious about reining
in government spending while keeping tax rates as low as
possible.) Portugal was thought to be a basket case sure to
follow in Greece's footsteps, but