Archive - Apr 20, 2011

Faced with a large capital funding need in advance of a substantial bond redemption next week, Spain had no choice but to hike rates on today's auction of €3.37 billion in 10 and 13 Year bonds.  Spain auctioned off €2.49 billion in April 2021 bonds at a yield 5.472% vs. Prev. 5.162% (5.5% interest) at a 2.1 bid/cover Prev. 1.81. it also sold €0.885 billion in 2024 bonds yielding a whopping 5.667% vs. 4.26% previously. The jump in yield caused the bid/cover to rise to 2.3 vs. 1.84 before. From Reuters: "Ten-year Spanish yields eased to 5.46 percent after the sale, having risen to around 5.55 percent since late last week -- just 20 basis points shy of the euro lifetime high. The surge in yields had sparked concern that Spain was being dragged back into the crosshairs of investors looking for the next candidate for an international bailout. The auction was seen as a test of whether Madrid was still seen as insulated from Portugal, Greece and Ireland, which have sought help. ""Spain's debt servicing costs have ratcheted higher and, while not yet providing any cause for alarm in terms of their outright levels, arguably have little in the way of headroom before such concerns might begin to take effect," said Rabobank strategist Richard McGuire. Traders said the 5.6 percent level in 10-year Spanish bonds was key, although yields have failed to break above that level on a sustained basis to date. "If that goes it could turn very nasty," one trader said." Elsewhere both Portuguese and Greek 10 Years hits fresh lifetime highs (low prices), printing 9.5% and 14.68%, even as an oblivious euro surged to a fresh 18 month high.

A series of earnings misses was yawned upon by the market. But a couple of earnings beats and the market goes insane. Or, more specifically, the dollar plummets. While anyone can plug whatever narrative they wish to what is happening in the market, here is Reuters' take: "The euro rose to a 15-month high versus the dollar in thin trade on Wednesday, buoyed by an improvement in risk appetite and expectations of further euro zone interest rate increases. A decent response to a Spanish bond auction also helped boost the euro which rose to $1.4548 on EBS, up 1.3 percent on the day and at its highest since January 2010. Traders said stop-losses were triggered through last week's high of $1.4521 and on the break of $1.4530." Whatever it is, the DXY just took out a multiyear low below 74.50 - the lowest since December 2010, the EURUSD is trading above 1.45 and after gold futures touched upon $1,500 yesterday, now it was spot's turn which cut through $1,500 like a hot knife through butter and never looked back. If the DXY drops below 74.25, watch out below (or above if you are gold). Looks like Jim Rogers' "confetti" scenario is playing out: after crossing $44 yesterday, silver is preparing to take out $45.

One would think that with the bail-out of Portugal, even more downgrades of Irish government bonds and Greece a Dead Man Walking, the euro would get hammered with this tsunami of gloom & doom news from the European markets. But, on the contrary, the euro is going strong… very strong!