To those of you thinking that my Fixed Income Weekly has become the Greek Sovereign Debt Fiasco Weekly over the last month or so, you are correct… thank you for reading. This week is more of same.

Things in Greece are downright nasty and getting worse. The ten year debt spread over German Euro Debt reached 5.78% last night. Pushing spreads wider were new reports this week that Eurostat initially underestimated Greece’s 2009 Budget Deficit at 12.7%, the new number is 13.6%, and actually could be over 14% after they figure it all out. What a mess! The Euro system, which is already inherently flawed because of the many different fiscal environments trying to exist in harmony under one monetary policy, is adding insult to injury with their inability to police their own members, Greece being at the top of that list, or even report economic data even semi-correctly.

Greek bill auctions this week were well received from a coverage perspective, meaning that buyers were plentiful, but the cost of the debt has surpassed sustainable levels. Greece probably can’t even sell long-term debt right now, which is eventually necessary for a country in need of as much money as Greece is. As you can tell below, Greece’s yield curve (the white one) is very abnormal. There are market clearing levels for all maturities of Greek debt, but volume is very low and all of the trading is very speculative in nature. One large seller of Greek debt could really blow the spread over the German benchmark way open. That is assuming someone will buy it at some price above 0.

Greece has asked for the EU and IMF to activate the bailout package, but don’t expect the briefcases of rainbow colored glittery Euro bills to be trucked into Athens any time soon. Most EU member countries will need to get approval from their own governments before voting for the measures, and then EU itself will vote. This process takes time, and with over €10 billion in principal and interest payments due in the month of May, Greece has no time. They can only issue 13-week bills at 5% to pay for interest and maturing debt for so long.

The implications for the dollar in the near term, are positive. However, relative strength thanks to the “We Suck Less” mentality can only last for so long though. Our own budget issues and mounting debt problems aren’t improving, but global issues like the EU bailout and asset bubbles in Asia are likely to dominate the global currency market for the near term. Long Term effects are much more up in the air, and in my view hinge mainly on our ability to not follow Europe down the road of heavy government dependence.

Have a good weekend.