Schizophrenic Sentiment Turns Positive Following Another Potential European Bond Market Intervention, "Strong" Greek, Spanish Auctions

Tyler Durden's picture

Following last week's blatant secondary bond market intervention ahead of Italy's two auctions which even Willem Buiter predicted would need central bank intervention (ECB, but any would work), we were waiting to see if the ECB would announce an increase in its bond purchasing activity via the SMP for the week the passed. It did not. Which leaves just one culprit to explain the dramatic moves ahead of bond auctions (which naturally set the mood and allowed the primary issuance to proceed smoothly and not bring down the euro). China. And we venture to assume that it was China again who started buying bonds in the secondary market ahead of today's 4:30 am and 5:00 am issuance of €4.5 billion in 12 and 18 month bills and €1.25 billion in Greek 3 month bills, which resulted in the 10 year tightening -7bps to 1550; after it hit 1564bps earlier today, highest since at least 1998, while Italy's 10-yr yield over bunds tightened -22bps to 310bps vs yesterday’s 332bps, the highest since 1996. Yes this was before the auctions on no good news, and happened just as gold hit an all time high of just under $1610. Sure enough, following this sudden spike in buying interest, the auctions priced tremendously, and have resulted in a major shift in market sentiment in the past 3 hours, leading to a surge in Italian financial stocks, a jump in the EUR and thus a spike in futures.

Below are the results for Greece:

Greece's Public Debt Management Agency (PDMA) sold 1.625 billion euros ($2.3 billion) of 3-month T-bills on Tuesday, with the yield easing compared to a previous June auction.

The sale was covered 3.08 times with Greece paying a yield of 4.58 percent, down from 4.62 percent in a June 21 auction, PDMA said

And for Spain: the 12-month priced at 3.702% vs a 2.695% average, the bid/cover 2.18 vs 2.85; the 18-month priced at 3.912% vs 3.260%, the bid/cover 5.5 vs 3.91.

Disagreement among European policymakers on Greece and the handling of the euro zone's debt crisis helped push 18-month Spanish Treasury-bill yields to nine-year highs in an auction on Tuesday.

The Spanish T-bill auction was the latest litmus test for investors' appetite for debt from vulnerable euro zone economies.

Spain sold 4.4 billion euros ($6.2 billion) of 12- and 18-month T-bills, at the top end of the targeted range of 3.5 billion to 4.5 billion euros with demand highest for the long-dated paper.

"Spain is hanging on by a whisker at the moment. The euro zone debt crisis has developed into a crisis of confidence and dilly-dallying by euro zone officials is not helping matters," economist at 4Cast Jo Tomkins said.

Concerns that little progress would be made at a euro zone meeting on Thursday has spooked fixed-income investors, sending debt costs for large peripheral economies Spain and Italy to euro-era highs on Monday.

Spain will face a still tougher test of investor appetite when it seeks to borrow over a much longer term on Thursday, issuing up to 2.75 billion euros in 10- and 15-year bonds at around 0840 GMT.

"This is ill timed ahead of the summit but even if they find a solution on Greece it doesn't answer the question of Spain and Italy, which are too big to fail. It's raising questions about the future of the euro," Tomkins said.

Ten-year bond yields in Spain fell back slightly on the secondary market Tuesday, though held near the peak of 6.3 percent, with a move above 7 percent considered unsustainable for the euro zone's fourth largest economy.

The rest is history, and another European rout has been prevented courtesy of a gentle tug in the bond market just when it was needed. Thank you China. 

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Debt Rolling's picture

Trichet intervened this morning (europ. time) at the opening.

That will be confirmed in the week course. He always targets the sole countries whose yields have not yet spiralled out of control, which makes some amusing decouplings. 

There was a directed buying, that's for sure. The China hypothesis could be valid, but the ECB could also use indirect ways to do the bidding, as it has already exceeded the promised amount of SMP purchases (credibility to maintain, and all that).

Dick Darlington's picture

These erratic moves in Italian and Spanish gubbermint bonds are mostly a sideproduct of the chaotic situation in eurozone. Liquidity is VERY VERY bad and markets can move 15-20 bps just like that. But that's irrelevant as has been proved by the other insolvent countries. Despite these back and forth moves the ultimate direction is clear and no, it's not the banker's spread tightening mantra that's gonna win the jackpot.

ZeroPower's picture

Everybodys doing the betting on those countries via CDS. If you have bbg check out the amount of desks recently sending their prices. Decent spreads too.

equity_momo's picture

And all those long CDS expecting to get paid out once these PIIGs default is smoking crack.

The only way to hedge sov risk exposure is to sell it. If you want to profit from the BK of these nations , fking around in CDS is not the way to do it.

ZeroPower's picture

I think only HFs have their risk dept (if any) cracked out enough to allow them to take on CDS with no underlying bond hedge.

However, selling those ITA names against long german banks cds (besides commerzbank today - have you seen that!) has been quite a pair trade.

chump666's picture

The china bulls must be sh*ting in their panties.  EZ yields will still climb and china will be left junk.  china will offically be 'bad' bank with slew of depreciating assets.  so i dunno if they will buy up en masse...the cartels have lost their minds

depression's picture

Marx just rolled over in his grave

Vampyroteuthis infernalis's picture

This crash is being planned to unfold slowly to allow the banksters to profit. One day panic, next solitude. Once the robbing is done, the plug will then finally be pulled on the patient.

misterc's picture

Gold coins getting scarce in Berlin / Germany. One cannot go out and buy 15 Oz right away.

Bard's picture

In Poland many dealers are selling with 45 day delivery (business day) which means more than two months :D.

AUD's picture

Yeah but the speculators are still happy to pick up the extra pennies that the central banks throw in front of the steamroller of bad debt.

Bard's picture

I sold all my stocks today - im going to buy more gold. Im wondering if they could reverse the market sentiment completly. Do you think that after thursday EU meeting and debt ceiling rise markets will go crazy UP UP UP ?

btw. greetings from Poland, im new here.

Quintus's picture

Absolutely.  IF (Big if) anything concrete and meaningful is achieved on Thursday, we can expect the Eurogroup leaders to spin it as though the Angels had come down from heaven and made all the problems of the world disappear.

Meanwhile when the Kabuki show in Washington ends with the inevitable debt ceiling agreement, Obama will likewise be announcing that the world has been saved. 

Couple this will the long expected, traditional, takedown of Gold into the Options Expiry next Tuesday and I think you would wise to hold off putting any money into Gold for a few days.

This reprieve for the equity and bond markets will be brief, I should think, but the bounce could be substantial nevertheless.

Roger Knights's picture

"... china will be left junk."

Not if the eurocrats have secretly pledged European gold as collateral.

Internet Tough Guy's picture

Anyone who has euros has access to gold through official channels. No pledge necessary.

AnAnonymous's picture

Why would the Chinese accept this kind of deal as they know that the Europeans will not hold to it?

The Chinese have dealt over something they are sure to be delivered and I only see junk at this day and hour, with Europeans involved at the other side of the deal.

disabledvet's picture

The Japanese did complain about "excessive buying of their debt" by Chinese authorities prior to Fukushima. This could far more easily be explained in my view simply by calling it "reactions to irrational policy decisions" by the ECB. In other words "if the sovereigns are no good to the ECB then i should start buying the banks" because that is as we all know what the ECB is charged with protecting and in actuality is bailing out and not the individual nations at all. Of course "what to do when the Greek banks no longer buy Greek debt?" Hmmmmm. Sounds expensive. And working at cross purposes. And not going to work. And "TIME TO BLAME EVIL SPECULATORS"..."like all those evil Zero Hedge people."

scary how a cartoon can say so much. i think economic policy better improve.

Silverhog's picture

Waiting for the Feds to announce their bogus compromise like it's a fresh breeze blowing in over the country. Metals will get beaten down for their insolence. Of course, next week we stand on the edge of the same cliff again.

Internet Tough Guy's picture

The euro isn't going away.

6/14/98 ANOTHER

ANOTHER: Your question of Euro gold backing? The Euro will not be backed or fixed in gold. It will be the first "modern currency" to hold true "exchange reserves" in gold. It is important to understand that "exchange reserves" of gold are much more powerful a tool for currency defense than gold backing!

midnight's picture

A quick question: is anyone here butthurt because China is cooperating with Europe?

Internet Tough Guy's picture

Everyone who hopes that Europe will implode.

Josephine29's picture

Some care is needed Tyler as we are not yet sure that the ECB did not intervene in these markets as pointed out here.

Either the ECB genuinely didnt buy any Italian or Spanish govt bonds last week or it dealt for forward settlement. @notayesmansecon
They might have dealt for forward settlement in which case we will find out next week.
razorthin's picture

What the fuck is wrong with the Chinese?  Why they need to expose themselves to the ponzi is beyond me.  When you are solvent, as only they are, it seems a hell of a lot more prudent to stay the fuck out, let everything the fuck fall, and then buy real assets free and clear with cash (gold).

AnAnonymous's picture

What the fuck is wrong with the Chinese? Why they need to expose themselves to the ponzi is beyond me.


Europe, the US and Japan are too big to fail. Do you really think that part of the world will take due pain as a consequence of their actions because they deserve it or will it try to look for a scapegoat to take the pain instead?

Volunteering for the job as the Chinese do is a kind of way to keep control on the process.

The Chinese are perfectly aware that in this US driven world, people are not for taking responsibility for the mess they made, they support looking for people to clean the mess for them.

If at this point, the Chinese do not play ball, the West is going to destroy them. Simple as coercion.


Highrev's picture

Two sides to every trade.

Someone sees nice yields and someone else the end of the world.

Which do you think is the more probable?

That having been said, from a purely technical point of view, I don't think we've got our intermediate term bottom yet.

lookma's picture

Unlike Tyler (, China doesn't seem too concerned about the "limited" amount of gold held by the ECB. 

I wonder why? Made its the eurosystem ( that counts? (

Maybe its not about a return to a classic gold standard, so CB reserves aren't the important part? (  Myabe its, as Mises would put it, about the development of a stable secondary media of exchange? 


Tyler, you are way too smart to confine youself to the self imposed intellectual prison of the FAIL WHALE that is Team GATA.  Wake UP!

Peter K's picture

So a sovereign is buying his own debt. Can we now say that Euroland is in the QE mode?

milanitaly's picture

China buy our bonds for a simple reason. They want to go on exporting goods in Europe.

Higher Euro more Chinese exports. Italians think that saving Euro we save ourself but we can't grow up without a depreciation of Euro.

We are playing a game that can be sustainable only by German corporates. The other European Countries shall face a real bad future, paying more taxes for nothing.


snowball777's picture

Exactly. No one complained when they were buying USTs against all reason to keep the host's blood moving, but they may find out that saving a drowning man can require some mad swimming skills in short order.


DrunkenMonkey's picture

It's funny how the (corporate shill) media goes insane about European debt issues at the same time as the US needs people to look in a different direction, while the kleptocrats try and kick the can a little further along ..