LONDON Prospects for a disastrous, disorderly outcome to the Greek debt crisis are beginning to show up on financial markets even though many investors still do not believe it will actually happen.
The result is that today's rising bond yields, stratospheric insurance costs and heavily pressured stock prices may only be a taste of what could come if euro zone leaders fail to halt Greece's decline and ring-fence it from others.
In short, a lot of markets and bond holders have not priced in some of the worst outcomes.
With the European Central Bank becoming louder about the prospects for default or restructuring spreading into the banking system, some financial market sectors are in steel-helmet mode.
Give or take a basis point or two, for example, the price of insuring Greek sovereign debt against collapse rose on Thursday by about the same amount that it costs in total to insure against default in Indonesia.
That's the increase, not the price, and it implies that Greece is heading rapidly for default with little faith that the euro zone can cobble together anything to help.
Others joined in, with the euro falling against the dollar and yen, Spanish 10-year bond yields hitting 11-year highs, and European stocks losing another one percent to rack up a more than 5 percent loss over a month.
All of which may be worrying given that investors have been relatively calm so far about the crisis and its potential to lead to another Lehman Brothers-style global financial collapse.
A survey of institutional investors unveiled by Allianz Global Investors on Wednesday, for example, listed a sovereign debt crisis only the third largest global investment risk, after changes in interest rates and a stock market tumble.
In a similar vein, analysts at last week's Reuters Investment Outlook Summit were confident global markets could stay insulated from the Greek and euro zone crises.
Karen Olney, head of European thematic strategy, suggested buying European bank shares, while Alain Bokobza, head of asset allocation at Societe Generale, said he liked Spanish and Italian sovereign debt.
These are not the calls of people planning for catastrophe.
Two factors in particular are rattling markets at the moment when it comes to the euro zone crisis.
The first is the differing views that various authorities have about how to put together a bail-out package that will stem Greece's decline.
The ECB has been reluctant to agree any plan that allows for a restructuring of debt while others, such as Germany, want private investors to take some of the pain.
This -- along with violent street opposition to austerity plans in Greece itself -- have delayed agreement in a way that upsets financial markets. Reports that Germany is pushing for a delay until September will not have gone down well.
"In our heart of hearts we know that all politicians don't want to tell a bad story and like to kick the can down the road," said Neil Dwane, European chief investment officer for fund firm RCM.
"But the market is beginning to speculate that we get the (outcome) we don't want -- that is that the political situation in Greece collapses."
The second factor is the sheer magnitude of the risk. A disorderly default in Greece would be a major credit event, bringing steep losses to bond holders, including the region's banks and the ECB itself.
Yield spreads would be driven wider in other countries -- in Ireland, Portugal and Spain, but also in Italy, Belgium and even France -- and among various corporate credits.
It was a similar scenario that led to the financial meltdown, from which the world has barely recovered, in 2008 after the Lehman collapse.
Dwane reckons most hedge funds and investment banks that hold questionable euro zone debt are still pricing them at face value rather than market value -- a recipe for sharp losses.
The reality, however, is that most investors believe that the collapse scenario will be avoided and that the euro zone and International Monetary Fund will, in the event, come to the rescue. It is in few peoples' interest for them not to.
"The main case that people are assuming is that when push comes to shove Europe and the IMF will step up," said John Stopford, head of fixed income at Investec Asset Management.
The Greek crisis has also been around for a while and is unlikely to take investors by surprise as Lehman did.
It is for this reason that the moves in some assets, though negative, have been limited.
The euro, for example, may be at a three-week to one-month lows against other major currencies, but it is still buoyant, up five percent or more year-to-date against the dollar and yen.
Similarly, euro zone stocks are down only around 3.5 percent for the year, a far-from-panicky performance given the stresses.
Stopford says asset price moves actually only reflect caution.
"The market is taking risk off rather than necessarily pricing in catastrophe," he said.
Comforting, but it also means there is a long way to go if the consensus scenario proves wrong.