The Great Insanity In Context (200 Years Of European Bonds)

Tyler Durden's picture

We have had The Great Depression, The Great Moderation, and The Great Recession... but now, thanks to central banks around the world, we have The Great Insanity. Nowhere is the disconnect between market rates and fundamental realities more evident than in European peripheral bond yields. While it is easy to look at the last decade and wonder how it is possible that such heavily indebted (and increasingly indebted) nations could have seen bond yields collapse... but as Deutsche Bank's Jim Reid explains, a glance at France, Italy, and Spain bond yields over the last 200 years shows that this really is a unique time in history (and not in a good way).



As Deutsche's Jim Reid notes,

Draghi has certainly made a huge impact on financial markets as Friday saw some landmark levels hit across different assets.


Many European bond markets hit yield lows with quite a few hitting fresh multi-century all time lows and many others flirting close to them. 10 year French yields hit 1.654 intra-day which was the all-time low covering our entire data history back to 1746. 10 year Spanish yields also hit all time lows with our data going back to 1789. Italy has only been lower in yield for a few months in early 1945 (data back to 1808).

As we alluded to over the weekend, Bloomberg's Mark Gilbert notes,

European yields tell us bondholders have faith that European Central Bank President Mario Draghi will make good on his promise to do "whatever it takes" to defend the single-currency project. They arguably tell us nothing else.


Cheap money is a boon to European countries with debt burdens to refinance; Spain has another 102 billion euros of bonds maturing this year with 132 billion euros coming due next year, while Italy's payment schedule is 217 billion euros this year and 248 billion euros in 2015 (at 2.72 percent, Italian bonds now yield half what they did two years ago). The unintended consequence of Draghi's pledge, however, is to eliminate any Darwinistic pressure that investors might exert on euro-region governments to go on reforming their economies.

Be careful what you wish for...

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BullyBearish's picture

There is only one way to explain this...centralized global financial power...the NWO is here

Iocosus's picture

At Goldman Sachs, they teach their brokers to treat every client like a muppet. You think Draghi views the EU citizens any more or any less?

There's gotta be poor people if there is to be rich people and they're trying to keep it that way.

Clayton Bigsby's picture

Until they lose control. Methinks it's time to short this motherfucker into the dirt.

realWhiteNight123129's picture

It is tempting. Was short TSY in 2012. But Euro could behave like Japan until they print for Good. (right now we just have a rate play).

huggy_in_london's picture

Well the only explaination for the CB actions is that they clearly know that without long term bond yields at close to zero, places like spain etc will be bankrupted now ... as opposed to being bankrupted in 10 years which is most likely.  

I mean who is buying their bonds at these yields?

Rainman's picture

Moar better question is JGB10y @ .59

kaiserhoff's picture

If you like Fukushima, you can buy in for cheap.

One of the lesser noted points of insanity -

  The first blip up in rates puts all the worlds financial institutions upside down on rates.

S & L crisis on steroids.

ebworthen's picture

I would point out that the rates are really low, just like they were prior to WWI and WWII.

And that was when most currencies were tied to Gold not the printing press.  Ooops.

pashley1411's picture

Wonderful thing about interest rates; there is no place to hide from interest rate suppression and the resulting free money to the government (and its friends and associated financial hangers-on).

In the, in historical terms, 5 minutes between when a government decides to turn its currency from a unit of financial acounting, to when everyone catches on that the currency has become a mere tool of financial confiscation, what incredible havoc can occur.

what's that smell's picture

"If you want a vision of the future, imagine a boot stomping on the yield curve - forever." Alan 'Room 101' Greenspan

NOTaREALmerican's picture

Well,   of course, low yields will encourage the job-creators to take heroic risks and borrow more money to create lots of new jobs.

LawsofPhysics's picture

An entire planet of debt slaves, "mission accomplished..."



Gamma735's picture

Make sure you have your family and friends around when the party ends...  It won't be pretty and I am afraid the end of this Global Super Debt Cycle will start the final war.

mcgoverntm's picture

Re: "The unintended consequence of Draghi's pledge, however, is to eliminate
any Darwinistic pressure that investors might exert on euro-region
governments to go on reforming their economies."

How does the author, Mark Gilbert, know that the consequence is unintended or what Draghi's intentions are? Does the author take Draghi's statements at face value? Could it be that Draghi's wants the euro-region governments to dig themselves into a deeper hole from which they will not be able to escape? Cui bono? Those who want super-national government would profit at the expense of sovereign nations. Who are those people? Follow the money to the NWO.

lasvegaspersona's picture

Ultimately bonds are just a way to park money now. They are no longer the accumulated wealth of savers who give up wealth today for a promise of 'slightly more wealth' tomorrow. By NIRP Draghi's message is 'we don't want your money, find something else better to do with it. Invest in Italy if you want to or find a better way to store your productivity'...I have.

hairball48's picture

The Eurozone banks hold something like, what? 70% of the sovereign debt in the EZ? The banks have leveraged that between 25-50 times depending on who you believe. Debt that ain't worth shit in reality. I can't wait till "something" happens, like a butterfly farts in France...

And the whole sorry puss laden mess they call a banking system erupts like a giant boil.


Reaper's picture

The prodigal European sheeple are delighted that their shepherd feeds them. Draghi, their shepherd, is gathering them in for the slaughter. Like stupid animals they delight now in the bait. There is no low cost borrowing. Everything free has a cost, which the sheeple will pay dearly for in the end.
Anything the predator offers his prey is bait.

The Most Interesting Frog in the World's picture

"By my calculations for every $1 I put into a US Treasury right now at 2.5%, I should make a $1 when the rate goes to 1.25%. And another dollar when it drops to JGB levels.... not bad bitches.... [laughter]

Ben Bernanke
FOMC Private Transcript December, 2011

MaxThrust's picture

The real question is what another person posted. Who is buying bonds at these levels. I bet its the soverign banks of each country, politically pressured to do so. No one else in their right-mind would take such risks. Banks on the other hand have other peoples money to fuck-around with.

i_call_you_my_base's picture

It has to be their banks, there is no one else. And that's likely who's buying USTs, US banks through proxies.

IMO, the US government cares about equities, but the line is bonds. All of these governments can't let rates go up, they just can't. The fact that banks are piling in could be because they understand this fact, that the government will sink all other markets to keep rates low. Draghi was being honest for once, they actually will do anything.

Pairadimes's picture

Holy shit. This time really is different.

bilejones's picture

Except for the heydey of Mussilini in Italy, apparently

UggSmash's picture

"The Great Insanity" is a really great name for all of this.....

Trolling ZH, I sometimes really wonder what I, and many others, will think of this period of human history, say, 10 years down the road. 

Something like: "W....T....F were they THINKING?!??!!? REALLY?!!?!"

monad's picture

If you shift that chart +1 month, thats the guillotine sales/repair/replacement parts chart.