Spanish, Italian Bond Yields Rise on Fears of Greek Default

We noted earlier this morning a report from the Institute of International Finance (IIF) suggesting that if the Greek debt swap deal gets derailed, Greece would have no option except default and that markets would instantly assail both Spanish and Italian debt. Some traders apparently didn’t wait.

Yields on Spanish 10-year sovereign debt rose 10 basis points today, from 4.95% to 5.05% and yields on Italy’s 10-year debt rose by the same amount, from 4.87% to 4.97%.

The IIF also put the cost of a disorderly Greek default at more than €1 trillion. Public and private creditors would lose €73 billion and the European Central Bank would lose €177 billion, more than 200% of the ECB’s cash. Another €380 billion would be needed to prop up the other weak eurozone economies and bank recapitalizations would require another €160 billion. About €350 billion would be used to build a firewall around Spain and Italy.

All this to protect a relative handful of eurozone banks, primarily in Germany and France, from going broke.