Contagion Continues With Belgian CDS Spreads Surging Following Weak 3/6 Month Bill Auction, EURUSD Drops Under 1.30

The sovereign widening wave continues to push away from the periphery and deeper into the eurocore. While yesterday it was Italy's turn to see its spreads surge, today it is Belgium. At last check the country of monk ale and fries is flirting with 200 bps, following a 3/6 month auction of €2.8 billion bonds which was (not very) surprisingly weak: the 3-month T-Bill auction for €1.425bln came at a plunging bid/cover of 1.48 vs. 3.52 previously even as the yield jumped to 0.864% from 0.784% previously, while the 6-month €1.370 billion Bill also experienced a slump in its bid/cover of 1.54 vs. Prev. 2.67, yielding 1.000% vs. 0.901% previously. Net result widespread widening, with Italy once again taking the head at 25 bps wider to 272 bps (see chart). The bad news is that the EURUSD has once again collapsed to below 1.30, after which the next stop is John Taylor's (and certainly not John Stolper's) 1.26 target. The only good news is that just like in the US, stocks continue to be resilient in the face of massive sovereign onslaught. This will not last, to quote Market News: "Brokers suggest there is a degree of asset re-allocation taking
place, where shares have become a relatively less risky asset class,
while Eurozone government bond yields have ballooned. It's an
interesting idea, but also looking at yield returns, you could argue
that funds may start to flow from equities to government bonds in Europe
given that yields have become quite comparable." In other words, very soon the Fed will need to "stabilize" not only US stock prices but European ones as well.

EURUSD sub 1.30

And some CDS charts - G8 countries ex Canada and Russia:

And G8 and Western Europe:

Comments

[doomandbloom]

contagion will spread...and everyone will be bailed out in Europe...

then contagion will return to US..where there will be another bailout..

At the end of the day , after a few more rinse/repeats, banks will have moved all bad assets, and end up smelling of roses...

Guess i am being too cynical these days...maybe i need to be a bit patient, the beast will die, some day....i hope

[Jeff Lebowski]

Under 1.30?  This is positive.  Robotrader, could you please post one of your irrelevant stock charts for us all?  Oh, and someone wake up Harry. 

[HelluvaEngineer]

Good thing the orders already went out to never, under any circumstances, ever turn off the HFT systems again.

[sabra1]

Google & You Tube Ban Alex Jones

[MrTrader]

Now that´s funny. Stocks continue to be resilient amidst an ongoing sovereign onlslaught. I like zerohedge´s "butcher language". I don´t know who´s more ridiculous. The comments here or the comments from so called ANALysts of government controlled banks like Royal Bank of Scotland and other government sponsored entities from the European Union - like Commerzbank. ANALysts from these banks should better shut the ph..ck up ! Without the taxpayers monies you would only analyze your personal deteriorating credit card situation. !

[Wynn]

no, you only bold your best sentence. which in this case, is none of them.

[Mr.Kowalski]

If nothing concrete is done to halt this, Spain will be torched by the end of next week and the EUR will be near $1.23. It'll be fun to watch the Spanish PM tell his people and their 20% unemployment that more austerity is needed for their bailout.

[koeleköpke]

The split of Belgium will mark the Nord-South border of Europa, like Aldi Süd and Nord in Germany-

[Motorhead]

I'm a Lidl guy, myself, hehe...one of the few bright spots in Wallonie.

[the not so migh...]

Euro to 1.10 ..yes we can..yes we can

[tom]

This is long but worth reading to get an idea of how completely upside down the thinking is getting in Spain, which tells me it's all over. According to this guy, who is basically saying what the Spanish government thinks but can't openly say, Germany is "recklessly" causing this week's crisis by not maintaining the pretense that it can guarantee all private lending to banks throughout the Eurozone forever. (Germany is still maintaining the pretense that it can guarantee all private lending to banks throughout the Eurozone through 2013, of course.) http://www.ft.com/cms/s/0/bb515190-fbf2-11df-b7e9-00144feab49a.html#ixzz16luDFniB Spain braces itself for a crisis made in Germany

By José-Ignacio Torreblanca

Published: November 29 2010 20:03 | Last updated: November 29 2010 20:03

On May 9, when European Union leaders approved the rescue package embodied in the European financial stability facility, Spain saw the light at the end of the tunnel. Six months later, it is looking like it belongs to an incoming train. Seeing how the story unfolded in Greece and Ireland and watching the crisis heading for Portugal, it is no wonder that the dominant sentiment in Spain is concern. But more than that, the prevailing feeling is one of frustration with Germany.

With the May agreement in its pocket, the Spanish government went home and put together a reform package that had everything required to get Spain out of its collision course: government expenditure reductions, labour market reforms, public sector pay cuts, pension freezes, an extension of the retirement age and a rise in value added tax. Subsequently, the government, with the aid of the central bank, decided to rein in regional and local government deficits, forced regional saving banks to merge and made public its bank stress tests. Most of the measures are now in place. Spain’s current problems start not at home but rather abroad – in Germany, to be precise.

In the past, Germany has been both a model and a partner for Spain. In its transition to democracy, Madrid adapted and adopted German institutions such as the Länder power-sharing arrangements and the principles of a social market economy. Even in foreign policy, Spain tried to mirror Germany’s wise combination of Atlanticism and firm support for European integration. In the 1980s Felipe González supported the deployment of cruise and Pershing missiles, while Helmut Kohl supported Spain’s accession to the European Community.

Thanks to the vision of González, who supported German reunification when Margaret Thatcher, François Mitterrand and Giulio Andreotti were fiercely opposing it, Spain and Germany developed a true strategic relationship. But, starting in the late 1990s with José María Aznar and Gerhard Schröder, the bilateral relationship began to cool; then José Luis Rodríguez Zapatero and Angela Merkel let it die. Now, sadly, Ms Merkel’s decisions are damaging Spain, turning Germany into a rival.

Max Weber famously made the distinction between an ethics of conviction and an ethics of responsibility. In the former, typical of science or religion, all that counts is being right; in the latter, more common to politics, it is the consequences of one’s actions that matter. This antithesis perfectly captures the current debate about a permanent crisis resolution mechanism for the eurozone. In an ideal world, Ms Merkel’s proposal to have investors, and not only citizens, suffer the consequences of their investment decisions is both fair and rational. Yet, as we are seeing, there is a good chance that in real life the eurozone could be killed precisely by this proposal to make it work better. This would be no small irony. But it highlights the extent to which religious zeal has replaced political vision in Germany. As the saying goes: fiat iustitia, pereat mundus (let there be justice, though the world perish).

Even more problematic is that such German recklessness points to deep-seated changes in how Berlin views southern Europe. During the 1980s and 1990s, the European integration process resulted in a virtuous circle of growth: the periphery grew faster than the centre, significantly catching up in terms of average per capita wealth; but Germany and others benefited substantially, because that growth was based on their exports and foreign direct investment. This seems to be irreversibly broken now. Germany is looking to Russia and to China as the markets for its exports, but rather than placing its bilateral relations with Moscow and Beijing at the service of the EU as a whole, it seems that it is going solo.

Seen from Spain, it is as if Germany had decided southern Europe was a burden that prevents it from going global and needs to be dumped. True, Spain is at the European periphery, but Europe itself is bound to be increasingly the periphery of Asia. Therefore, this Alleingang (going solo) policy can hardly work. In a century dominated by Asia, no European country will be able to make it on its own. A weaker Europe, especially if the eurozone breaks down, will mean a weaker Germany. This is not only about Spain or southern Europe’s survival, but about Europe’s as a whole.

The writer is senior fellow and head of the Madrid office of the European Council of Foreign Relations

[RubberMartyr]

Since we don't have our own currency we will flood the market with beer and fries!

Greetings from Belgium

[ZeroPower]

I honestly don't know why fries are 'French'. You guys have the best frites i've ever tasted! Cheers (from Brussels till thurs:))

[King_of_simpletons]

The bankers want to get paid. The only way is "contagion". Pay us bitchez..