Seemingly every investor and his mother have been selling Greek government bonds lately amid worries the government may default on its debt.
That may soon change thanks to the growing likelihood that the European Union (EU) will bail the country out.
"You've already had a scramble to close out the short positions," Gary Jenkins, head of fixed-income research at Evolution Securities, told The Wall Street Journal.
The credit default swaps used by traders to bet against a default have begun to slide, and Greek government bond prices are starting to rise. A vicious short squeeze could ensue.
European officials have called for more stringent regulation of the sovereign credit-default-swap market, which also could make those who have shorted Greece suffer.
BaFin, which regulates German markets, is investigating whether speculators are piling on against Greece.
"It is important to know if speculators are betting against Greek national debt," BaFin spokesman Ben Fischer told The Journal.
But increased regulation would probably have to be global to have any chance for success.
And not everyone thinks a bailout will make much difference. "I don't think it's going to be the catalyst people are hoping for," George Papamarkakis of North Asset Management, told The Journal.
The Greek crisis has led the EU to consider a clampdown on its members. "The European Union appears ready for stronger economic coordination and stronger economic governance," EU Commission President Jose Manuel Barroso told reporters.
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