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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Stormdancer's picture

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

Quintus's picture

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

Miss Expectations's picture

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

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.

Guy Fawkes Mulder's picture

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

Jon Stewart making fun of perfect storms:

Hephasteus's picture

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

Arius's picture

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

slaughterer's picture

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

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.

Mountainview's picture

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

GeneMarchbanks's picture

Words then charts some more sentences...

Buy the Euro, got it, thanks Goldman.


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?

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!

cowdiddly's picture

Boy these Goldman guys are quick I tell ya. DUHHHHHHH

falak pema's picture

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

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

Stormdancer's picture

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

ADirtyChapCalledWanker's picture

Let's buy some Spanish villas.

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.

SheepDog-One's picture

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

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.

Bonesetter Brown's picture

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

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

lizzy36's picture

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

hugovanderbubble's picture

GS will dissapear sooner or later.


its the biggest fraud bank ever

the not so mighty maximiza's picture

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

lizzy36's picture

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

Whatta's picture

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

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?


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!

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 ¡



snowball777's picture

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

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....

Jack Sheet's picture

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


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.

kito's picture

boy those goldman guys, always cutting edge

Pretorian's picture

Beauty! God work

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

How Does Goldman Sachs Make Its Profits (Part 2)

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

Farcical Aquatic Ceremony's picture

+1.  Ministry was ahead of their time.  

Bohemian Clubber's picture


Recovery on its way bitchez...

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?

FunkyMonkeyBoy's picture

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

Clockwork Orange's picture

They are leap years ahead of American sheeple.

doggings's picture

They are leap years ahead of American sheeple.

true dat.