Greek Rescue and ECB SMP Steadies the Eurozone

The EU and IMF announced a sweeping backstop after Greek yields surged into the teens and funding windows closed. Alongside a Greek package, officials unveiled a broader €750bn stabilization mechanism and the ECB activated the Securities Markets Programme to buy sovereign bonds in secondary markets. The euro, under pressure near $1.23, steadied. CDS spreads for Spain and Portugal narrowed from extremes, but remained elevated versus pre-crisis ranges, highlighting the difference between liquidity relief and solvency.

Price action was violent into the weekend and the Monday open. Peripheral bonds gapped tighter as the ECB’s presence signaled a buyer of last resort. Core Bunds sold off modestly on relief while risk assets firmed from distressed levels. Funding stress in dollar markets persisted, with cross-currency bases still negative and bank equities volatile. We viewed the policy mix as necessary triage that bought time for fiscal consolidation and institutional design, not a cure-all.

Our portfolio stance reflected that distinction. We reduced outright exposure to high-beta euro area financials and trimmed peripheral duration that had rallied on the announcement. We rotated into higher-quality European credits with central bank support and added selective U.S. dollar assets to balance euro volatility. In sovereigns, we preferred Bunds and Treasuries over peripherals until policy conditionality and program details matured.

We also raised liquidity buffers. Cash and short-duration instruments gave clients optionality into further headlines, including upcoming Greek program reviews and bank stress tests. Hedging focused on euro downside via options and on tail risk in financials. We expected more institutional steps ahead—ESFS mechanics, fiscal compacts, and bank recaps—before spreads could normalize sustainably. We kept a measured stance, using rallies to rebalance risk.