A decade or so ago, people took the view that currency-speculating hedge funds were ruining countries by betting against on-the-ropes countries. Some leaders of targeted countries lashed out with very bitter words, calling them "immoral." These days, as Business Week notes, the vigilantes are bond market investors, who can really do a number on a country--or a company--by betting heavily against it.

The latest example is Greece. The market had become convinced it was a strong default candidate, and look what happened. They drove up yields to the breaking point, provoking the crisis. This dynamic isn't really new, but the sheer heft of the bond market can give it that much more power when countries and companies start to teeter.

Of course, we've noted that Goldman Sachs (GS) and other countries devised lots of swaps that perhaps helped the country mask some serious problems. But such tactics can only do so much. At some point, the fundamentals cannot be denied. As of now, however, we're seeing speculation in both directions. BlackRock says the country is not another Lehman Brothers, it is overweighted in country bonds, according to Bloomberg. The bet of course is that the EU, led by Germany, will somehow bailout the country. 

For more:
- here's the Business Week article

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