"'Mr. Paulson told investors in a call on Monday that he was betting against the creditworthiness of Germany, regarded in markets as among the safest sovereign borrowers, because he saw the problems affecting the Euro Zone deteriorating severely,' said a person familiar with Mr. Paulson’s strategy."
There is some evidence of contagion spreading from problems in Spain where bond yields are over 6%. For example, French CDS has just passed over 200 bps for the first time since January. In addition, the bad loan ratio at Spanish banks has skyrocketed in recent months to €143.8 billion and many believe that Spanish banks have not written down their real estate losses yet.
Other prominent investors have questioned Germany's financial stability as well. For example, Kyle Bass of Hayman Capital previously said that Germany was in worse shape than the U.S. if they recapped their banks.
"Germany you have to remember has defaulted twice in the last one hundred years. Germany has 81% on balance sovereign debt to GDP and they haven't recapped their banks. Once Germany recaps its banks, it's worse than the U.S., it's worse than many other developed nations of the world. The reason it hasn't recapped its banks is that it doesn't have the money to do so."
There is an ETN for German Bunds under the symbol BUNL. However, this is a thinly traded security with an average volume of only 4000 shares traded per day. Retail investors should be careful playing the long or short side of German Bunds.