Six months after Greece was rescued, the eurozone is entering another crisis. This one may be more difficult to quarantine. Ireland’s bond market has virtually collapsed; yields on two-year Irish paper have risen more than threefold since the end of July, to 6.7 per cent. Portugal is in similar straits. Someone out there clearly thinks a eurozone sovereign default/restructuring/bail-out by 2012 looms large.

The prospect of a eurozone country restructuring its debts has moved closer with the proposed creation, at the urging of Germany and with the support of France, of a sovereign debt restructuring mechanism. At a minimum, this would make a lengthening of maturities easy to arrange. The risk that this might be accompanied by a haircut – a reduction in the bonds’ redemption value – is the real driver of the blow-out in yields. If there is a haircut, investors holding the shortest paper will face the biggest losses.

Some 85 per cent of Ireland’s €90bn of outstanding euro-denominated benchmark bonds is owned by eurozone banks and fund managers. But prices and yields are set at the margin: Irish and Portuguese bonds are at least partly the victims of speculative position taking. Since there is nothing governments can do about this, they may be tempted to ignore the messages being sent. That would be a mistake; while some investors are waving, others are probably drowning.