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As Spain Closes Very Weak 12-18 Month Bill Auction, Iberia No Longer Sneaks Between The Cracks

Tyler Durden's picture





 

As part of the broadly bipolar risk [ON|OFF] market stampede, Spain probably could have picked a better day to attempt to sell €4.7 billion in bills than just after the weekend when the market realized there is no way out for Greece than default. Alas, it did not, and the result was not pretty. Per Reuters: "Spain paid substantially more to issue 12- and 18-month Treasury bills on Monday compared with last month as uncertainty hovered over a Portuguese bailout and speculation intensified about Greek debt restructuring. The sale was at the low end of the Treasury's target range of 4.5 billion to 5.5 billion euros ($6.51 billion-$7.95 billion) and comes ahead of a closely watched long-term debt auction on Wednesday of bonds maturing in 2021 and 2024." Specifically, the Spanish Treasury was forced to pay 2.77% for its €3.5 billion 12 month Bill, 64 bps more than the 2.128% paid in a comparable auction in March, and making matters worse was a tumble in the bid to cover from 2.4 to 1.6. The weakness was mirrored in the auction of €1.2 billion in 18 month notes, which priced at 3.364%, up 93 bps from last month, with the BTC tumbling from 3.5 to 2.0. And one can wonder what the outcome would have been had the Fed or other central banks not been selling puts on the Spanish curve (because if he is doing it off the balance sheet in the US, there is nothing really preventing Bernanke from taking his curve manipulation tour global). And yes: Spain is next. "Investors are turning their attention to Spain as the next weakest link in the euro zone chain after Portugal said it would seek aid from the European Union and the International Monetary Fund, the third to fall after Ireland and Greece."

From Reuters:

 "Everyone was very quick to say that there were no contagion risks bubbling out of Lisbon, but people were very rash in those original assumptions," economist at 4Cast Jo Tomkins said.

"Liquidity is definitely dropping back due to the Easter effect on participation in the T-bill auction. The vultures are circling over Madrid, but I think the lions share of the market thinks Spain will be okay."

The difference between 10-year Spanish bonos and the German Bund stood at around 226 basis points on Monday after the auction, up from 214 bps before the sale.

That still reflects vastly lower risk priced in than for Greece and Portugal. The Greek/German 10-year government bond yield spread was last 11 basis points up on the day at 1,079 bps while the equivalent Portuguese/German spread neared 600 bps.

Many economists say Spain has distinguished itself from Portugal, Greece and Ireland after a slew of austerity measures and structural reforms but contagion fears remain and the T-bill auction results suggests a sharp rise in bond yields at Wednesday's auctions.

The yield on the benchmark Spanish 10-year bond with a 5.5 percent coupon, to be auctioned on Wednesday, rose to 5.6 percent on Monday in the secondary market compared to an average yield of 5.162 percent at the last time it was auctioned in March.

What Europe understands all too well is that if and when Spain goes, Italy is next. And then it is all over. Which is why the vigilante fight over this last European domino will be a fantastically engaging one. With the Fed and China all in on the bet as well, look for some serious fireworks.

 


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Mon, 04/18/2011 - 07:45 | Link to Comment celticgold
celticgold's picture

the chinese are learning Spanish

Mon, 04/18/2011 - 08:11 | Link to Comment topcallingtroll
topcallingtroll's picture

The chinese smell an opportunity.

Mon, 04/18/2011 - 08:10 | Link to Comment topcallingtroll
topcallingtroll's picture

The chinese smell an opportunity.

Mon, 04/18/2011 - 08:00 | Link to Comment topcallingtroll
topcallingtroll's picture

Nobody wants to work in spain because socialists have provided virtually unlimited welfare for the able bodied unemployed.

Hopefully socialists have wised up and people are cut off after a time limit, but it is too late to head off an unpleasant day of fiscal reckoning.

The lazy quit looking for work a long time ago because the available jobs were undignified and only fit for north africans.

Now the few john galts are giving up. This will be fun to watch as the socialist experiment in europe implodes.

Mon, 04/18/2011 - 08:19 | Link to Comment Loose-Tools
Loose-Tools's picture

Is that "Socialist" or "Corporate Socialist". You need to be more specific.

Mon, 04/18/2011 - 10:39 | Link to Comment Treason Season
Treason Season's picture

Actaully, Generalisimo Franco initiated the policy.

Mon, 04/18/2011 - 07:56 | Link to Comment writingsonthewall
writingsonthewall's picture

 "Everyone was very quick to say that there were no contagion risks bubbling out of Lisbon, but people were very rash in those original assumptions," economist at 4Cast Jo Tomkins said.

 

Everyone? - who is everyone?

People? - what people?

Economist? - what economist?

You fugging mug - the rest of the world has realised for a long, long, long time that the contagion could not be stopped (without a collapse of the Euro) - only idiot economists believed any different.

Many economists say Spain has distinguished itself from Portugal, Greece and Ireland after a slew of austerity measures and structural reforms but contagion fears remain and the T-bill auction results suggests a sharp rise in bond yields at Wednesday's auctions.

 

....well then 'many economists' are fugging idiots then. What is this? a reverse meritocracy where the stupid and loudest make it to the top?

 

When we burn the bankers we should throw in all the economists too - they really have no shame - they are taking the piss.

Mon, 04/18/2011 - 08:06 | Link to Comment topcallingtroll
topcallingtroll's picture

Not everyone believed it was contained, but people who are in denial or believe in magical thinking or who look for scapegoats did not want to see the evidence.

If you looked at the evidence the conclusions drawn were extremely painful and pessimistic. A way of life known for two generations has to go, to be replaced by austerity and insecurity.

There are none so blind as he who will not see or as yogi berra put it......you can see a lot by just looking.

Mon, 04/18/2011 - 10:44 | Link to Comment Treason Season
Treason Season's picture

"A way of life known for two generations has to go, to be replaced by austerity and insecurity."

You first topcallingworm.

Mon, 04/18/2011 - 08:01 | Link to Comment Dick Darlington
Dick Darlington's picture

Big crunch on the SPGB curve continuing today. Interesting to see how the other spanish govt entities' bonds will fare since they're even more illiquid (FROB, FADE and ICO). And of course the spanish covered bonds, esp those issued by the cajas, which have gained big during the recent "Spain is solvent" -bonanza.

Mon, 04/18/2011 - 08:10 | Link to Comment topcallingtroll
topcallingtroll's picture

Is there a free place to quickly find the spread between spanish and german bonds. A widening spread will need to be watched closely even by people who dont trade international bonds. This spread is the canary in the coal mine.

Mon, 04/18/2011 - 08:24 | Link to Comment Horatio Beanblower
Horatio Beanblower's picture

TCT,

 

http://markets.ft.com/markets/bonds.asp

 

Captcha - (-33) minus ??? equals -33

Mon, 04/18/2011 - 08:25 | Link to Comment milanitaly
milanitaly's picture

What Europe understands all too well is that if and when Spain goes, Italy is next. And then it is all over.

It will be enough Spain. You have not to wait for Italy for the Euro game over

Mon, 04/18/2011 - 09:31 | Link to Comment Bubbles the cat (not verified)
Mon, 04/18/2011 - 10:47 | Link to Comment Treason Season
Treason Season's picture

40 years ago!? I saw burros on Gran Via in Madrid in 1988.

Mon, 04/18/2011 - 11:47 | Link to Comment Bubbles the cat (not verified)
Do NOT follow this link or you will be banned from the site!