Spreads on both investment-grade credit-default swaps (insurance against bond default) and on high-yield indices have increased sharply.

ECONOMIST: Testing times

And as the bond and credit-default-swaps markets expand, the stakes will get higher.

ECONOMIST: Credit-rating agencies

Another reason demand for the long bond has been so voracious is that a lot of investment banks still use them to hedge their corporate-bond positions and interest-rate swaps (between fixed- and floating-rate obligations).

ECONOMIST: Bond bombshell

That is because a default would trigger the bond-insurance contracts called credit-default swaps (CDSs).

ECONOMIST: Economic crisis

Credit-default swaps can be bought as protection against the default of a bond or loan, or they can be sold to create some income in exchange for guaranteeing a credit exposure.

ECONOMIST: Telecoms debt

For instance, Barclays recommends savvy derivatives trades like swaps and short-term hedging strategies that focus on spreads between bond maturities.

FORBES: Where Wealth Managers Should Position Heading Into 2013

If there's to be a Greek disorderly default (hypotheticals are Greek too), not only does it trigger default swaps sweeping through the financial sector, but it raises the obvious question for the bond markets: if eurozone partners will let Greece go, why not Italy, Spain, Portugal or Ireland, so who's next?

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