Spanish €3.88 Billion T-Bill Auction Results: Weak Despite China Support

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One look at the overnight EURUSD chart shows a straight vertical line up earlier in the session (at least before an almost comparable and equal line straight down following the Portugal action by Moody's), which was driven by news that Chinese vice premier Wang Qishan expressed his support for EU efforts to ensure financial stability. Yet the biggest indicator of just how bad sentiment in Europe continues to be, China support or not, are the results from the Spanish T-Bill auction. And after auctioning €3.88 billion in 3 and 6 Month T-Bills off earlier today, the yields rose once again to record highs. The 3-month T-Bill auction for €3Bln came at a bid to cover 2.14 vs. Prev. 2.34, at a yield 1.804% vs. 1.743% previously. Just as disappointing the 6-month T-Bill for €0.88bln, came at a bid to cover of 5.15 vs. 2.65 previously, importantly at a yield of 2.597% vs. Prev. 2.111%. In other words, despite billions of ECB sovereign bond purchasing, and despite the recent shift in sentiment that Europe is not in free fall, arrested after Reuters spread false rumors that the IMF would bail out Europe, things are once again turning ugly for the continent, as there is no way that a country can sustain its funding needs when the 3 Month cost of credit is at such a huge differential over 3M Euribor, which today clocked at 1.022%. If not even the arbs, who are the only ones left active in this market, want to put the compression trade between unsecured and sovereign debt, then there is little reason to be optimistic.

Some more on the auction from Bloomberg:

Spain sold 3.88 billion euros ($5.1 billion) of three- and six-month Treasury bills, near the maximum target, as borrowing costs rose amid lingering concern the nation will struggle to fund its deficit.

The Treasury auctioned 3 billion euros of 84-day bills at an average yield of 1.804 percent, the Bank of Spain said today in Madrid. That compares with 1.743 percent when the securities were last issued on Nov. 23. The government sold 876.7 million euros of 175-day debt at 2.597 percent, up from 2.111 percent last month. It aimed to sell a maximum of 4 billion euros from the two sales.
The rising borrowing costs remain “in line” with what the Treasury estimated at the start of the year, Deputy Finance Minister Carlos Ocana said today as he released data showing the central government’s budget deficit narrowed 46 percent from a year earlier in the first 11 months of the year, to 3.68 percent of gross domestic product. The central government targeted a full-year shortfall of 6.7 percent.

The overall Spanish budget-deficit target of 9.3 percent will be met this year as the better-than-targeted central government result offsets possible slippage in local administrations or the social-security system, he told a news conference in Madrid.

The yield on Spanish 10-year bonds rose four basis points to 5.57 percent at 11:03 a.m. in London. The difference in yield, or spread, between the securities and benchmark German bunds rose four basis points to 257 basis points, compared with a euro-era high of 298 basis points on Nov. 30