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Goldman Warns That Spanish Bonds, EUR Poised For Technical Breakdown

Tyler Durden's picture


As if Spain did not have enough to worry about with now daily protests gripping the main cities (the live webcam for the daily festivities in Madrid can be found here), next according to Goldman's John Noyce not only are Spanish bonds on the verge of a technical breakdown (and yields about to breakout), but due to the very high correlation between the Bund-Spain spread and the inverse EUR, it likely means that should the market start pricing in the Spanish domino, then the EUR, already lagging the move, is about to take out 1.40 rapidly. And with Spanish spreads flying as is over concerns what the Spanish elections on Sunday could mean for the country and the region, we can see something snap in advance of the weekend any minute.

From Goldman:

Spanish 10-year yields – Nearing very important triangle pivot at 5.53 and 5.58%

  • Over the last few weeks market focus on the Eurozone periphery has returned and one chart in particular which it seems important to have on radar screens in this regard is Spanish 10-year yields
  • They’ve been consolidating in a tight range since the November ’10 peak at 5.58%
  • Given the underlying structure of the multi-month chart, the consolidation over this multi-month period appears most likely to complete as a yield bullish (price bearish) continuation pattern
  • Resistance of the pattern comes in at 5.53%, a move above which would give an immediate triangle continuation target of 6.01%
  • Structurally a move significantly beyond 6% does seem quite feasible when you take into account the setup on the multi-year chart
  • Overall, this really looks like a chart which has to be on radar screens as a potential driver of EUR sentiment

Spain/Germany 10-year Spread – Breaking through material resistance

Spain/Germany 10-year Spread overlaid with inversed-“EUR Index” – Not a perfect correlation, but the broad trends are similar

  • Blue is the Spain/Germany 10-year spread
  • Green is the inverse of the “EUR Index” so higher is EUR-weakness and lower is EUR-strength. It’s approximately 30% USD, 30% GBP, 20% JPY, 10% CHF and 10% SEK.
  • From a broad trend perspective the spread and the inversed index have been positively correlated

And here is Citi's Stephen Englander adding some more color to imminent EURUSD weakness:

EUR weakens on Spanish election concern

After rallying sharply yesterday the EUR is under pressure today over concern that the Socialists will be defeated in local and regional elections. The concern is that new local and regional governments would be more inclined to reveal any corner-cutting in previous budgetary shortfalls. Spanish spreads versus Germany are now at 187bps, vs. 120bps in early April and are now at their highest level since mid-February.

Accompanying the elections has been a series of extremely large demonstrations and sit-ins that have grown in size as the election has approached. It looks likely that demonstrations will continue, even though election-related rallies are banned on the day of and prior to elections.

The anticipation by the market that resolution of peripheral debt issues will occur when the ESM takes over in 2013 means that the next two years hold a combination of rigid fiscal austerity and extremely high real and nominal rates across the peripheral countries. Sovereign borrowers may find funding in the 3-6% range form official sources, but private sector borrowers are likely to be paying rates more closely linked to secondary market rates. Thus the widening of peripheral spreads may be putting more pressure on the private sector than public sector, since private sector borrowers have to borrow at market rates. The big downside risk for the EUR is that global and euro zone economies underperform our baseline expectations and that the economic pressures end up more powerful than we expected.


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Fri, 05/20/2011 - 08:33 | 1294991 Stormdancer
Stormdancer's picture

We live in an era of "suddenlies"...

Fri, 05/20/2011 - 08:34 | 1294995 Quintus
Quintus's picture

...and 'Unexpectedly worse....'

Fri, 05/20/2011 - 08:38 | 1295001 Miss Expectations
Miss Expectations's picture

...and of my dearly departed mother, Mrs. Expectations.

Fri, 05/20/2011 - 09:41 | 1295057 G-R-U-N-T
G-R-U-N-T's picture

Expectation is default and any result to the contrary is fantasy! Such is the consequence of ANY Welfare State. Sophisticated fools haven't the itelligence to see their own self inflicted borrow and spend reality. Nobody that spends more than they produce survives.

Fri, 05/20/2011 - 16:50 | 1296725 Guy Fawkes Mulder
Guy Fawkes Mulder's picture

This is a perfect storm that no one could have forseen...

Jon Stewart making fun of perfect storms:

Fri, 05/20/2011 - 21:26 | 1297248 Hephasteus
Hephasteus's picture

"These are regular storms and we have a shitty boat." Jon Stewart

Fri, 05/20/2011 - 09:31 | 1295119 Arius
Arius's picture

and musical chairs...but have to dance as long as the music for the long run we all will be dead....

Fri, 05/20/2011 - 08:50 | 1295003 slaughterer
slaughterer's picture

EUR puts bought last night by many a hedge fund--time for the EUR to be raided today. 

Fri, 05/20/2011 - 08:57 | 1295046 scratch_and_sniff
scratch_and_sniff's picture

Don’t go all in yet mate, sovereigns have been buying Euro all week, there is nothing to say they will stop. Then there is also possible intervention, which could well happen considering its spain with signs of a broader contagion, they might want to nip that in the bud before it gets nasty. There is no fucking way 1.4 is being taken out today.

Fri, 05/20/2011 - 11:27 | 1295537 Mountainview
Mountainview's picture

It will be a nasty street week end in Greece and Spain! Well played!....

Fri, 05/20/2011 - 08:39 | 1295005 GeneMarchbanks
GeneMarchbanks's picture

Words then charts some more sentences...

Buy the Euro, got it, thanks Goldman.


Fri, 05/20/2011 - 09:10 | 1295076 101 years and c...
101 years and counting's picture

but, one of the other douchebags at GS said to buy the EUR earlier this week. EUR to 1.50.  what to do.....which douchebag do you believe?

Fri, 05/20/2011 - 09:22 | 1295095 scratch_and_sniff
scratch_and_sniff's picture

Which ever douchebag sounds more credible. If you are wrong then you always have someone to blame, and if you are right well then they are still douchebags anyway!

Fri, 05/20/2011 - 08:36 | 1295006 cowdiddly
cowdiddly's picture

Boy these Goldman guys are quick I tell ya. DUHHHHHHH

Fri, 05/20/2011 - 08:37 | 1295007 falak pema
falak pema's picture

GS the main manipulator of the currency markets...lets see how this works out...

Fri, 05/20/2011 - 08:42 | 1295008 hugovanderbubble
hugovanderbubble's picture

With All my respect


ive been telling this Farce since ive appeared in zH.


First time GS and me Agrees in any statement.

Maybe its a turning point in my life.


Please feel free..

Cortesy of BOA

Fri, 05/20/2011 - 08:46 | 1295029 Stormdancer
Stormdancer's picture

Agreed.  Quite disorienting to find myself agreeing with anything coming out of that den of vipers.  Interesting weekend in store.

Fri, 05/20/2011 - 08:39 | 1295011 ADirtyChapCalle...
ADirtyChapCalledWanker's picture

Let's buy some Spanish villas.

Fri, 05/20/2011 - 08:45 | 1295020 hugovanderbubble
hugovanderbubble's picture

Best place Mallorca

*Camp de Mar.

Fri, 05/20/2011 - 08:59 | 1295051 serotonindumptruck
serotonindumptruck's picture

And Basque in the fires of revolution.

Fri, 05/20/2011 - 09:04 | 1295060 snowball777
snowball777's picture

Je suis un chien andalu.

Fri, 05/20/2011 - 11:39 | 1295571 Bonesetter Brown
Bonesetter Brown's picture

I wanna grow up to be a debaser

Fri, 05/20/2011 - 08:44 | 1295013 FunkyMonkeyBoy
FunkyMonkeyBoy's picture

The Bernank needs Europe to fail before the U.S... it's all engineered.

he will say 'external problems in Europe...' (like Europe's problem were not caused by the FED in any way) '...mean that we need another round of QE to ensure Europe's problems don't damage the U.S. economy'.

It's all a game and we are being played left, right and center.

Fri, 05/20/2011 - 09:11 | 1295071 SheepDog-One
SheepDog-One's picture

Except the Russians predict US takes the big swan dive first.

Fri, 05/20/2011 - 09:37 | 1295128 LawsofPhysics
LawsofPhysics's picture

Yep.  They are still bitter about the Fed successfully crushing the ruble in the 80's and 90's.  How is that ruble looking now anyway?  I have not looked in a while.

Fri, 05/20/2011 - 11:40 | 1295598 Bonesetter Brown
Bonesetter Brown's picture

But when is the last time the Russian's got this stuff right?

Fri, 05/20/2011 - 09:24 | 1295102 Clockwork Orange
Clockwork Orange's picture

Let's hang 'em.

Fri, 05/20/2011 - 11:39 | 1295590 Bonesetter Brown
Bonesetter Brown's picture

Yes he does.

Break the Eurozone, justify more QE, move the PIIGS into the de facto USD bloc

Get enough countries pegged to USD and hence an importer of FED monetary policy, all that QE ends up being put to use

Fri, 05/20/2011 - 08:45 | 1295016 lizzy36
lizzy36's picture

So Goldman is short Spanish bonds, and China is long.....who wins here?

Fri, 05/20/2011 - 08:43 | 1295022 hugovanderbubble
hugovanderbubble's picture

GS will dissapear sooner or later.


its the biggest fraud bank ever

Fri, 05/20/2011 - 08:48 | 1295024 the not so migh...
the not so mighty maximiza's picture

I agree i still cannot find any Goldman Sacks ATM machines, what kinda bank is this?

Fri, 05/20/2011 - 08:58 | 1295054 lizzy36
lizzy36's picture

I hear there is one by the washrooms at Bergdorfs. Joint project between Amex (black card only) and Goldman.

Fri, 05/20/2011 - 09:14 | 1295078 Whatta
Whatta's picture

GS ATM's work in reverse...they have a vacuum that sucks money FROM your wallet as you pass by.

Fri, 05/20/2011 - 09:15 | 1295088 snowball777
snowball777's picture

I think Lizzy confused the location of the Lost ATM of the Goldmanites with the place you go to shine Lloyd's head for luck, but as far as Goldie is concerned, the US taxpayer is the ATM (ask Money McBags for an explanation of the acronymic pun). Oh, you meant a way for you to get money from Goldman...ummm...yeah.

Can we get back to you on that?


Fri, 05/20/2011 - 08:48 | 1295026 ivana
ivana's picture

think GS bastards are reading ZH a lot and when their lies are systematicaly deconstructed here - than GS comes with opposite thoughts!

Fri, 05/20/2011 - 08:54 | 1295045 hugovanderbubble
hugovanderbubble's picture

I dont have any fear to Goldman Sachs,

I dont have nothing to lose in my life.

My name is Hugo Peterssen Roldán and i Reiterate and Scream Goldman Sachs = ALL OF U MUST  BE PROSECUTED and in jail but ur president Super Barack is part of the scam.

Banksters ¡



Fri, 05/20/2011 - 09:59 | 1295195 DeadFred
DeadFred's picture


Fri, 05/20/2011 - 09:20 | 1295091 snowball777
snowball777's picture

Lloyd, please live a long and happy life free of suicidal thoughts, old chum.

Fri, 05/20/2011 - 13:55 | 1296195 ColonelCooper
ColonelCooper's picture

Count to ten and don't think about a monkey...Count to ten and don't think about a monkey....Count to ten and don't think about a monkey....

Fri, 05/20/2011 - 08:49 | 1295027 Jack Sheet
Jack Sheet's picture

Then should the concerned reader take the average of the above EUR/USD projection and this one?


Fri, 05/20/2011 - 08:55 | 1295050 Stormdancer
Stormdancer's picture

Though I highly respect the source, focusing pointedly on Greece seems to ignore recent developments in Spain.  Spain is no Greece.

But, I'll be the first to admit that, short term, anything is possible in this environment. Which is why I don't believe in anything but PM's strongly enough to put money on it.

Fri, 05/20/2011 - 08:46 | 1295028 kito
kito's picture

boy those goldman guys, always cutting edge

Fri, 05/20/2011 - 08:46 | 1295030 Pretorian
Pretorian's picture

Beauty! God work

How Does Goldman Sachs Make Its Profits? (Part 1)

How Does Goldman Sachs Make Its Profits (Part 2)

Fri, 05/20/2011 - 09:22 | 1295104 snowball777
snowball777's picture

thieves, thieves and liars, murderers
hypocrites and bastards
hey thanks for nothing!

morals in the dust
two-faced bastards and syncophants
no trust

thieves! liars!
inside, outside, which side, you don't know
my side, your side, their side, we don't know

which side are they? which side are they?
which side of their mouth do you suppose that it came?

which side are they? which side are they?
which side of the grass is greener?

inside, outside, which side, you don't know
my side, your side, their side, we don't know

you're like a great big fucking gun,
just breathe and squeeze!

greed, corporate erection!
toxical injection
geriatric buttfucks
with dissimilating minds

Fri, 05/20/2011 - 09:30 | 1295112 Farcical Aquati...
Farcical Aquatic Ceremony's picture

+1.  Ministry was ahead of their time.  

Fri, 05/20/2011 - 08:58 | 1295047 Bohemian Clubber
Bohemian Clubber's picture


Recovery on its way bitchez...

Fri, 05/20/2011 - 08:57 | 1295053 Dollar Bill Hiccup
Dollar Bill Hiccup's picture

Oh golly gee, I thought that Goldie had just reiterated its 1.50s EURUSD via Mr. Stolper ...

What's going on in Spain, is there a problem?

Fri, 05/20/2011 - 08:59 | 1295056 FunkyMonkeyBoy
FunkyMonkeyBoy's picture

Not a lot happening in Spain... that is the problem.

Fri, 05/20/2011 - 09:33 | 1295122 Clockwork Orange
Clockwork Orange's picture

They are leap years ahead of American sheeple.

Fri, 05/20/2011 - 10:30 | 1295303 doggings
doggings's picture

They are leap years ahead of American sheeple.

true dat.

Fri, 05/20/2011 - 09:06 | 1295068 AccreditedEYE
AccreditedEYE's picture

Fantastic. The moment institutional money has been watching like a ADD teenager on Speed is about to occur. Perhaps the games can at last begin..

Fri, 05/20/2011 - 09:09 | 1295072 bob_dabolina
bob_dabolina's picture

Didn't Goldman just put a 1.55 target on the euro in 3 months? 

Now they are saying it's going to break down? 

Fri, 05/20/2011 - 09:26 | 1295105 BobPaulson
BobPaulson's picture

That was their previous reverse^n psychology brief. We've moved to n+1.

Fri, 05/20/2011 - 09:36 | 1295126 oogs66
oogs66's picture

don't be stupid, that was fundamental, this was technical, and they are never wrong and only work in the interests of their clients

Fri, 05/20/2011 - 09:13 | 1295081 dcb
dcb's picture

didn' they come out pro euro teh other day, I'd like to see this posted next to this post. I thought i saw something about all in.

I bought into some shorts yesterday, alas didn't make the sales I wanted, but I could see all the channels were lining up for a drop, and by the measured move we had qmost the same bounce from before upwards. therefore time to get short again.

Fri, 05/20/2011 - 09:20 | 1295096 rookie
rookie's picture

Dear Mr. President,


The financial crisis was caused by credit default swaps on subprime mortgage backed securities.  The next financial crisis will be caused by credit default swaps on sovereign debt.  How were the same financial institutions allowed by regulators to create and expand credit default swaps on sovereign debt after the financial crisis?  What are you and your administration doing to prevent and protect the American people from this next financial crisis?


Fri, 05/20/2011 - 09:23 | 1295097 magpie
magpie's picture

Go long Spanish Hidden Debt, i.e Debt that will be discovered for the taxpayers

Fri, 05/20/2011 - 10:30 | 1295300 snowball777
snowball777's picture

Think they did "under the covers" swaps with Goldman like the Greeks?


Fri, 05/20/2011 - 09:23 | 1295101 BobPaulson
BobPaulson's picture

The real question is who is GS trying to clean out by feeding them this analysis so they can take the other side of the trade and stiletto them?

Fri, 05/20/2011 - 09:25 | 1295110 Global Hunter
Global Hunter's picture

Goldman has all the bases covered, one analyst says buy the euro another says short.  

Fri, 05/20/2011 - 09:39 | 1295130 LawsofPhysics
LawsofPhysics's picture

Yep, GS maybe coming down after all.

Fri, 05/20/2011 - 09:36 | 1295132 ArrestBobRubin
ArrestBobRubin's picture

Patty cake patty cake bakers men...

Seems to me we're observing just another scripted WWF match with lots of window dressing and "media" to get the proles bought in and onboard.

I really do need to get into forex, ya just need to keep playing EUR/USD or USD/EUR depending on the signals from Vince McMahon...

Ok, listen up, your fiat's gonna suck the big one for the next 4 weeks, then yours for the next 6, then back to you till I tell ya. Got me?...


Fri, 05/20/2011 - 09:49 | 1295154 MrTrader
MrTrader's picture

IF, WOULD, COULD, MIGHT....As long as more than 60 % of retail traders are short EUR/USD = no chance that this pair breaks even 1.4200.

Fri, 05/20/2011 - 11:40 | 1295596 Max Hunter
Max Hunter's picture

I guess i'm going to have to call my FX broker because my station shows 42 was broken...  I love the FX predictions that have so much confidence in them.. how could they possible be wrong..

Fri, 05/20/2011 - 10:17 | 1295263 Ferg .
Ferg .'s picture

Oh for God's sake . Is there any coherence at the Goldman Sachs FX department ? The EUR is going up ,  the EUR is going down . The EUR is going up , the EUR is going down . Their clients must be so utterly confused . Noyce does some sound analysis though , so I'd certainly keep an eye on the EUR/USD downside . 

Fri, 05/20/2011 - 10:34 | 1295307 Apostle of Unknown
Apostle of Unknown's picture

Yup, Goldman Sachs is definitely saying something to which I can agree:

* there ARE real problems in the eurozone,

* even more than in the other blocks European politicians have to make it up as they go along; there are so much more moving parts in the EU than anywhere else

* contagion can occur swiftly and brutally. Beyond Spain to Italy and the real black swan maybe is Belgium,

* and finally: there IS an implicit incentive for other central planners like Bernanke to let the eurozone fever play up as a kind of temporary "get out of jail" card.

Especially for Europeans, it makes sense to keep rolling over extreme OTM puts on EUR. Also Euro satellite markets such as Norway seem a very attractive place to send money.

In the very long run, however, I think Europe will do better than China and US and Japan. Perhaps not because of their great devotion to real free markets, but because their sheer irrelevance and being out of the way.

Fri, 05/20/2011 - 10:38 | 1295319 Bubbles the cat (not verified)
Bubbles the cat's picture

"....rigid fiscal austerity...." Shuck down them trousers Lloyd an let's try that out on you. Now squeal piggie:

Fri, 05/20/2011 - 10:53 | 1295394 Dabale arroz a ...
Dabale arroz a la zorra el abad's picture

Now politians will have another excuse for our (I'm Spanish, you see) terrible economy: "All you demonstrators are causing panic to the markets! We can't sell more debt because of you! Now you'll see, on with the police!!!"

Immediately, and off camera, Emilio Botín pats Joaquín Almunia's shoulder saying "Well done, you've served me well. You'll be rewarded".

Fri, 05/20/2011 - 12:13 | 1295759 Highrev
Highrev's picture

After rallying sharply yesterday the EUR is under pressure today over concern that the Socialists will be defeated in local and regional elections. The concern is that new local and regional governments would be more inclined to reveal any corner-cutting in previous budgetary shortfalls.

Now that's a real concern! God forbid that there be any semblance of transparency.

We wouldn't want to see the real evidence for the 700 million Euros from funds originally destined for the unemployed that went to early retirement for Andalusian Socialist cronies, now would we?

Just one example.

The best thing that could happen to Spain would be the utter and complete disappearance of the Socialist party.


Fri, 05/20/2011 - 13:08 | 1295968 silberblick
silberblick's picture

Japanese governments FAQs for People Living Outside the Fukushima Evacuation and In-house Evacuation Areas

Click the link below to read an incredible work of misinformation that will surely--at a future point in time--become forensic evidence used in a lawsuit against TEPCO and the Japanese government for criminal negligence.

By using this document, the Japanese government is trying to talk down the Fukushima problem and assure people that there is absolutely nothing to worry about, which we know is total hogwash because even small dosages of radiation are said not to be safe (and the dosages Japanese are getting are NOT small). Some of the goggle translated 22 FAQs and answers include (read here):

Sat, 05/21/2011 - 00:49 | 1297625 longorshort
longorshort's picture

Hey asspirate yahoo message boards are hiring spammers.

Do NOT follow this link or you will be banned from the site!