It's pretty simple, actually - just see what the guy's trying to sell!

Sept. 20 (Bloomberg) -- Four months after a European Union- led bailout, Germany’s biggest bond dealers say the worst is over for the region’s most-indebted nations.

Note: Bond Dealers.

Now what would a "bond dealer" have to sell you?  Oh yeah, a bunch of bonds, right?  And where would they get said bonds?  Why, they bought them - and now need to sell them - lest they get caught with a bunch of worthless paper!

Even better, given that they're "government" bonds, they almost-certainly bought them with leverage, and I bet there's some duration in there too, which means that the losses are compounded when they happen.

Nobody ever bothers to ask why would you recommend that other people buy something when you could just buy it and make a fortune if you're right?

These guys are all the pinnacle of virtue and altruism, right?  They want you to make money?

Uh, no. 

Think car dealer.  Or Realtor.  Or any other sort of salesman, for that matter.  They have inventory and they need rubes, er, "customers."  If they don't find them they could get stuck with that inventory.  Now getting "stuck" would be a good thing if they were reasonably sure that performance was in the cards, especially in the bond world where contraction in rates means that resale prices soar.

So again, if that's really their projection and belief, why would they want to offload these things to you now, instead of capturing the trading value increase themselves, then sell them to you once they've appreciated when spreads do contract?

Well, I know the answer to that one - they're concerned that spreads are going to blow to the moon and they're going to get caught with their pants around their ankles.

HSBC and Goldman Sachs recommend Greek 30-year bonds as the price languishes at about 50 percent of face value.

Yes, it's a good idea to buy bonds in a failed state that has a horrific pension and public policy problem at "half off."  After all, that which is cheap never gets cheaper, right?  And incidentally, why is it that I can't find in that article a statement on how much of this crap Goldman and HSBC are holding themselves?  They wouldn't be a bit "heavy" in that little speculative play, would they?

“There are definitely” some “opportunities in these countries for investors with a long-term approach,” Pictet’s Benhaim said.

This sort of thing, incidentally, is what they tell you when they want to try to keep you from dumping out of a losing position, instead doing the Slim Pickins thing and riding it all the way down.... 

While the derivatives market is pricing in a greater chance of default for Greece, Ireland, Spain and Portugal, the nations are still able to sell debt.

Of course they are.  With The Fed and other Central banks destroying yields among "safer" (temporarily) nations, all those pension funds are reaching for the moon in an attempt to avoid immediate insolvency.  Their actuaries are playing tricky games and so are the investment desks, buying things with alleged 6, 7, 8% "coupons", never mind that the reason it's yielding 8% is that it's unlikely to pay for more than a year or two and then will either default outright or get "recast" via some sort of restructuring - at 50 cents on the dollar, returning a big fat 50% capital loss.

The danger here is not just the obvious - it is that those "safer" nations are gearing up into the insanely low borrowing rates, which makes them subject to the risk of instant insolvency if and when yields rise.

The bond market is a minefield at the present.  While nobody can tell you what will set off the cascade, this much is certain: rates do not go below zero, and the sensitivity to increases goes up as the rates approach zero and sellers of debt ramp issuance into what they see as "cheap" financing.

Cheap it is, right up until it has to be rolled over and the coupon has doubled.  Then that "cheap" turns into instant bankruptcy.

Don't think it can't happen. 

It both can and might.