The next contagion is beginning to spread around the globe.

It is unexpected on Wall Street, misunderstood in Washington — and very dangerous.

It could sabotage the plans of the U.S. Treasury, the Federal Reserve, and many of their counterparts overseas.

It is …

The Collapse of Sovereign Government Bonds

This is certainly not the first financial contagion of recent memory:

Back in 1997, we witnessed a currency contagion —hatched in Thailand, spreading quickly to the rest of Southeast Asia … smacking Russia in the gut … and sinking a major player in the U.S. derivatives market.

Then, 10 years later, came the debt contagion —incubated in a subsector of America’s mortgage market … soon infecting nearly all credit instruments … striking Wall Street like a sledgehammer … and mortally wounding the global financial system.

Those contagions were bad enough. Now, however, the contagion is beginning at a much higher level, in the most important financial instruments on Earth — long-term bonds issued by sovereign governments.

The Saga Begins in Greece

Just 116 days ago, on October 8, Greece’s benchmark 10-year bond was selling for 112.295. Today, it has collapsed to 92.13.

And the drama of its yield surge is even more striking — from only 4.41 percent to 7.14 percent, a jump of more than 60 percent in less than four months.