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I've no idea what proportion of the stock of distressed sovereign bonds that represents... any ballpark numbers around?

So :
the ECB claims to be buying up these junk bonds because the market is dysfunctional, i.e. is improperly pricing in the risk of defaults which ALL serious people know to be impossible (which is why they are booked without impairment, as "hold to maturity" zero-risk securities!)

If only. The ECB has given no sign that it believes in market failure, and it has not engaged in market-making of last resort. On why people book bonds without impairment, I can only say accounting conventions are bunk and one of the sources of the current crisis.
therefore the price of these bonds would be MUCH lower, and the yields higher, if the ECB did not intervene,
No, the ECB has made no effort to support prices.
I want to understand whether the ECB is buying these bonds directly from the banks, or whether speculators bought the bonds from the banks, then took fright and sold on to the ECB (in the aggregate) : i.e. are the speculators getting a haircut too?
These are open market operations. They buy them from anyone willing to sell to them. I suspect only banks holding the bonds in their marked-to-market "trading book" would have sold. But the "trading book" puts them in the "speculator" category.
How does default insurance correlate to bond ownership? Is it necessary to own bonds in order to purchase insurance? Are the speculators buying insurance when they buy bonds?
CDS is explained to the public as insurance but it isn't. In the US, famously, it was not regulated as insurance (which would have required people to own the bond in order to buy it - or at least it would have made payout of the CDS conditional on presenting the defaulted bond) in order to allow the market to be more liquid and the CDS volume to be unconstrained. Some people speculate purely on CDS (basically, on the CDS spread noise) without touching the bonds at all.
If the bulk of Greek debt is now no longer held by banks, but by speculators who hold insurance, then when the price drops, their interest is best served  by default, right? Or by full payment at term without rollover, but unserious people like these speculators know that this is impossible.
The bulk of Greek debt is, as ever, held by Greek banks for their position-making. Basically, banks can pad their balance sheets with government bonds in the absence of other assets. It is in this sense that JakeS says that sovereign bonds are not debt instruments but monetary policy instruments
I've probably got hold of the wrong end of a stick that may not even exist; but I'm trying to follow the money here. And you people are writing my book for me.
You're grasping at straws with your "follow the money".

Economics is politics by other means
by Migeru (migeru at eurotrib dot com) on Thu Jun 16th, 2011 at 04:46:44 AM EST
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