Market crash 'could hit within weeks', warn bankers

From The Telegraph:

A more severe crash than the one triggered by the collapse of Lehman Brothers could be on the way, according to alarm signals in the credit markets.
Insurance on the debt of several major European banks has now hit historic levels, higher even than those recorded during the 2008 financial crisis.
Credit default swaps on the bonds of Royal Bank of Scotland, BNP Paribas, Deutsche Bank and Intesa Sanpaolo, among others, flashed warning signals on Wednesday. Credit default swaps (CDS) on RBS were trading at 343.54 basis points, meaning the annual cost to insure £10m of the state-backed lender's bonds against default is now £343,540.
"I think we are heading for a market shock in September or October that will match anything we have ever seen before," said a senior credit banker at a major European bank. 

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Euro crisis: contagion talks ahead of EU meeting

Stock markets are up today, although given the following comments we can expect an interesting emergency meeting tomorrow:

The International Monetary Fund said there is now "serious risk" of eurozone contagion with "large" potential knock-on effects worldwide. "Market participants remain unconvinced that a sustainable solution is at hand," it said.

Suki Mann from Societe Generale caught the mood in a note to clients, asking whether it is "all over". "Eurozone politicians don't – or don't want to – understand that the eurozone as we know it is on the precipice. Greece appears beyond repair, Italy is on the brink, and the chances are that the euro might be no more very soon," he said.

RBS fears that Europe is on the cusp of "system-wide convulsion" after yields on Spanish 10-year bonds reached post-EMU records of 6.34pc this week, and Italian yields topped 6pc. "We believe that Spain has entered the danger zone for yield levels," said Harvender Sian, the bank's credit strategist, who fears the "point-of-no-return" may be 6.5pc. "Given that Spain [and likely soon Italy] has entered this territory, there is a growing risk that a large systemic risk event is plausible in the near term and if not then in a matter of weeks."

"We are approaching the endgame for this part of the European sovereign crises: the number of cans that now need kicking down the road would challenge the left foot of Lionel Messi," said Gary Jenkins from Evolution Securities. "The chances are that the EU will only take the step of fiscal union or common bond issuance at one minute to midnight on a weekend when it is clear that the system is close to collapse." 

The bond fund Pimco has its own idea of solving the Euro disaster: throwing Greece, Ireland and Portugal to the wolves, and concentrating €1 trillion in "overwhelming force" to defend Spain and Italy. That major players should utter such thoughts shows how fast events are moving.