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A Preview Of Tomorrow's 10 And 30 Year Spanish Auctions
Tomorrow Spain is coming to market with €3.5 billion in 10 and 30 Year Bonds, which just like all previous recent auctions, are expected to come in at far wider spreads to prior issuance in May and March. The 10 Year benchmark will come with a 4% coupon, while the 30 Year will have a 4.7% clip. Which is not to say these will come at par. At the last 10 Year issuance on May 20, the 10 Year came in at 4.045%, while the 30 Year priced to yield 4.758% on March 28. Reuters reports that some so-called analysts see demand for the bonds to be strong: "Domestic has supported until now and I don't see why that would change," said sovereign debt analyst at RBS Harvinder Sian. Of course, this is the same Harvinder, who blasted Zero Hedge for correctly predicting the bank run in Greece in February, long before anyone else, at a time when investors could have listened to us, instead of Sian's soothing words, have a great exit point and not lose their shirts, unlike those who are still holding bonds at a 600 spread. In other words, in our book Harvinder is as good a contrarian indicator as Goldman's FX team, and is simply confirmation that in addition to Greek exposure, RBS is likely loaded to its nationalized gills with soon to be even worthlesser Spanish Treasuries. Our advice: fade the auction, especially with refuted, and thus confirmed, rumors that Spain is not, repeat not, about to demand €250 billion in European/IMF rescue funds. And, as if anyone needed another indication, the ticker of Banco Santander is STD... That about says it all.
More from Reuters:
"I think there is a risk associated with the auction, but not a risk of underbidding, because Spain has the big banks which show up and front this kind of issuance," said bond strategist at Lombard Street Stefano Di Domizio.
Lingering economic uncertainty, low secondary market liquidity and waning foreign participation were expected to continue to push the yields higher. A report the European Union and International Monetary Fund are preparing an aid package for Spain -- denied by both -- has fuelled concern over the country's debt position.
Comments by the Treasury Secretary Carlos Ocana earlier this week that many banks and companies have been frozen out of the international debt market plus political pressure over austerity measures and structural reforms have added to investor nerves.
"We expect Spain to continue to underperform given prevailing uncertainties surrounding the health of the banking sector and political resistance to proposed fiscal consolidation measures," interest rate strategist for Citi Steve Mansell said.
Media reports Madrid was keen to see stress tests for individual banks made public to help ease worries surrounding the health of its financial system were followed by a declaration from the Bank of Spain on Wednesday that it would publish them in the near future.
The yield spread on Spanish/German 10-year bonds rose to 224 basis points on Wednesday, a long way from around 80 points in April before concerns emerged that Greece's debt problems would spill over in to over "Club-Med" countries.
Spain's Treasury must face a redemption hump of 16.2 billion euros by the end of July, adding to difficulties for the government's fund raising efforts at a moment when financing costs are being pushed up.
"Around 30 percent of gross issuance is in June and July and this comes at a moment when the Spanish market is under pressure which is not helping matters at all," Di Domizio said.
Please no pain = Spain rhymes at this point... Far too obvious.
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Gingerbread man from Shrek > Harvinder
The auctions will go without a hitch. Regardless of who notionally buys the issuance, it'll end up parked with the ECB within a day or two.
Same trick the Fed's been pulling for more than a year now.
I agree. As I've often thought before they are going to manipulate, monetize and continue to game the capital markets until they can game it no longer. Sometimes I'm actualy convinced they can pull it off forever. Whats stopping them? ECB will just soak up the bonds.
We keep waiting for a euro detonation that may never occur.
It's all about the cashflow.
No government ever balances its books. They never consider liabilities. So, like you say, one might think it can go forever (e.g., monetize).
However, the way it works is that the US Treasury needs to issue bonds this week to spend this week. Many of those bonds are to pay off past bonds, and interest on other current bonds. That's the cashflow problem: When people figure out that new bonds can't cover interest payments, then it's the same thing as you no longer being able to make the "monthly minimum" on your credit card. It's the same with all sovereigns, except worse in the EMU, because the countries aren't allowed to print like the Fed/Treasury is able (due to the legal agreements that is the EU). However, they are kind of trying to print anyway, but it can't last (so says game theory).
You're right, the government doesn't care about paying down the principal on its credit cards. However, it MUST make the monthly minimum payment to the bondholders, or it's a SUDDEN STOP.
So, no, it won't go on forever. All sovereigns, including the US, are rapidly approaching the point where they can't make the monthly minimum payment. For example, when the monthly minimum payment is more than the entire tax base, there's no way to even pretend anymore.
Iceland, Greece, etc. -- everybody will take their turn in the barrel. IMHO it's the EU in 2011 and the US in 2012 (although Germany is looking ambitious and could take out the EU in 2010).
Two bankers walk into a barcelona...
"Media reports Madrid was keen to see stress tests for individual banks made public to help ease worries surrounding the health of its financial system were followed by a declaration from the Bank of Spain on Wednesday that it would publish them in the near future."
_
Deckard: Embarrassing.
Bryant: No sir. Not embarrassing, because no one's ever going to find out they're down here. 'Cause you're gonna spot 'em and you're gonna air 'em out!
What's the bloomberg chart title for this. Snakes on a XY-plane?
I'm still waiting patiently for the contagion to spread into little sicily; Zapatero sure's praying Fernando Torres to notch a few goals in the tournament
So true that all this is going to end up on the ECB balance sheet. Monetization Euro version in full effect.