The firewall should be helping Spanish and Italian bond yields the most, yet Spanish yields were higher across the board today, and Italian bonds 5 years and out were all weaker. If the firewall doesn’t help those bonds, why should it help the market so much?
We saw in Greece, that switching who a country owes money to doesn’t solve a problem, and in fact makes it far worse for any private sector holder silly enough to think things get better.
If a patient is given a drug to cure cancer, and the cancer isn’t affected, why would you think the patient is better?
This firewall fixes nothing. These countries need to reduce their debt load, and sooner rather than later is better. It will come in some form of PSI, and banks will pay the price for prior mistakes, but with ECB and EFSF support, will be given every chance to make the same mistakes again, but hopefully for their new equity investors.