The Eurozone sovereign credit markets saw unprecedented declines in key CDS spreads last week. The spreads are now below the levels reached after the 3y LTRO programs were put in place.
It seems that a number of hedge funds were long sovereign debt protection (short the credits) and have finally capitulated last week. As discussed, Draghi has accomplished his goal of punishing the shorts in the market. But once again, caution is needed here as we enter a potentially volatile week with most of the the "good news" already priced in.
Reuters: - German judges, Dutch voters, IMF inspectors and Brussels regulators could all spring surprises that make it harder to resolve a sovereign debt crisis which is almost three years old and weighing on the world economy.