Archive - Dec 15, 2011

Many are doing their damnedest Ph.D.-best to somehow fuse economic theory and technical charting, and state that a breach of the 200 DMA in gold is indicative of imminent price collapse. And then there are facts. Such as this nugget from Stone McCarthy which looks at previous episodes of the 200 DMA breach and concludes based on severity of trendline penetration compared to average, that "this is just one reason we see strong potential for a rebound as participants reduce short exposure." So much for technicals.

• Merkel Mired by Woes That May Deter Crisis Effort (Bloomberg)
• Trade wars accelerate: China set to tax US-made car imports (FT)
• Bernanke Tells Senators Federal Reserve Has No Plan to Aid European Banks (Bloomberg)
• Cameron rules out putting extra €30bn into IMF (FT)
• Inside Wukan: the Chinese village that fought back (Telegraph)
• Dems Moving From Insistence on Millionaire Tax (Bloomberg)
• Republicans face voting shake-up (FT)
• Nicolas Sarkozy: David Cameron's like a child (Metro)
• China FDI flows stumble in November as U.S. drags (Reuters)
• Putin Ally Resigns Russian Parliament Post (WSJ)

According to Bloomberg's TJ Marta, market sentiment this morning is "ambivalent with modest, mixed price action on uneven developments in global growth and the EU debt crisis." In addition to the Spanish bond auction, here are the other key developments.

We start off the morning with a key bond auction out of Spain that came rather mixed as only one out of three issues priced better than the previous auction, and two out of three had lower bids to cover; yet somehow it was considered a smashing success because a total of €6.03 billion was sold more than the €3.5 billion targeted. First the details: Spain sold €2.45 Bn of 3.15% Jan'16s, at a worse bid/cover of 2.00 vs. Prev. 2.83, and a better yield of 4.023% vs. 5.276% previously; €2.18 Bn, 4.00% Apr'20, at a worse bid/cover 1.50 vs. Prev. 2.01 a worse yield of 5.239% vs. Prev. 5.006%, and lastly €1.4 Bn, 5.50% Apr'21, at a better bid/cover 2.20 vs. Prev. 1.76, and a worse yield 5.545% that was again higher than the previous 5.433%. However, in this world of living bond auction to bond auction, this is considered a smashing success and the result is 5 point rush higher in S&P. And here is the official party line courtesy of Reuters: "Spanish bond yields fell on Thursday, narrowing the spread over German Bunds after the country surprised markets by selling far more than the amount targeted in its last bond sale of the year, although its cost of borrowing remained close to euro-era highs.Bunds were steady but are firmly supported ahead of year-end by investors seeking safer liquid assets as markets question euro zone leaders' ability to find a lasting solution to the debt crisis now in its third year. Spain sold just over 6 billion euros of five- and 10-year paper, compared with a targeted maximum of 3.5 billion euros, taking issuance this year up to its target of 94 billion euros, according to Reuters data. It paid a yield on the 10-year paper maturing in 2021 of 5.545 percent. Spanish 10-year government bonds trading in the secondary market were 17 basis points lower on the day at 5.57 percent, leaving the spread over Bunds at 363 basis points." And just like High Yield issuers, the fate of Europe now relies on market windows: which means that while bond auctions such as today will "succeed", a bond auction scheduled on a day when the market crashes will fail with almost certainty. And while HY issuers can easily pull a bond issue due to "market conditions", countries do not have that luxury, and what happens next nobody knows.