Archive - Aug 25, 2010 - Story

The 10 Year continues to burrow ever deeper inside 250 bps, last seen at 2.46% or 8 bps tighter on the day, as now the Greek-Bund spread has blown up: did the fake stress tests buy Europe all of one month of time? A country fully backed by the faith and credit of the ECB is once again imploding - what can we say about the "faith and credit" of the ECB then? The only thing keeping the EUR from plunging at this point is the expectation that the Fed will (soon enough) print another cool $2-3 trillion. And the kicker, for Julian Robertson and whatever the macro hedge fund rumored to be liquidating (aside from the TRS which we pointed out yesterday), the 2s10s has just crossed inside 200 bps, the tightest the spread has been since April 2009. Since at least half the market players are still stuck holding on to steepeners, and are now about 30% underwater from the top 4 months ago, add 10x TRS-based leverage, and you can see why whatever fund is blowing up now won't be the last.

As we earlier predicted, the S&P downgrade of Ireland has thrown all of Europe a curve ball: CDS spreads are wider across the board. Also in cash land, the Irish-Bund spread hits the widest since early May at 335 bps (+17), and its CDS leaking to 315 (+8 bps) while Portugal is slowly starting to catch up, hitting 316 bps in spread to Bunds. Portugal also auctioned off €1.3 billion in bonds maturing 2016 and 2020. The auctions were disappointing with yields continuing to leak wider:the 4.2% €0.628 bn due 2016 closed at 4.371% compared to 4.128% previously, and a 2.1 bid to cover, in line with the previous 2.0, while the 4.8% €0.672 bn due 2020 closed at 5.312% and a 1.8 bid to cover, also closing wider than the previous of 5.225%. Yet the most Yet the most underreproted, and most troubling news, continues to be that one solitary bank persists in taking advantage of the Fed's FX swap line: today it bid for $40 million in a 1.18%-fixed rate USD-based tender. This is an increase from last week's $35 million, meaning that while most banks are still finding themselves in a EUR shortage (3M Euribor was once again wider), one bank has gone completely against the grain and will not benefit from the traditional ECB liquidity boosting measures.

RANsquawk European Morning Briefing - Stocks, Bonds, FX etc. – 25/08/10

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