In normal times the slope of the swap curve is flat or slightly positive, reflecting more uncertainty about more distant future . In times of stress, however, the slope typically turns negative, mirroring fears that the country may not survive in the short term. But, if it does, it will not default later on.Yes, paying bondholders in full is synonymous with national survival.
Which makes sense, I guess, if you're looking at the world only through the bond trader's terminal, where Ireland, say, is not a group of people or a political or historical entity, but simply an asset class. Doug Henwood has a wonderful quote in Wall Street from Charles Leggatt, who liquidated his family's 172-year old art dealership: "What I came into was the art trade; what I am leaving is a financial service." I don't know what's scarier about our rulers: that they are trying to do the same thing to the whole world, or that they think it's already done.