European Bond Bloodbath - Worst January On Record Exposes Political Panic Across EU

Tyler Durden's picture

With general elections scheduled in France, Germany and the Netherlands this year amid an increase in support for anti-euro rhetoric, European bonds from Germany to Greece saw yields surge in January. In fact, as Bloomberg notes, euro-region bonds handed investors the worst start to a year on record.

Worst. January. Ever. for European bonds...

 

Amid heightened political risk across the currency bloc and speculation the European Central Bank may bring its asset-purchase program to an abrupt halt in 2018, yields on French and Italian bonds climbed this week to their highest level relative to benchmark German debt since 2014. As Bloomberg reports, rising populism in the region’s biggest economies and speculation that the ECB’s stimulus plan may be nearing its endgame have clouded the horizon for bond investors, who have grown used to the central bank insulating euro-area securities from political tension. That’s seen yield spreads expand to levels unseen since quantitative easing began in 2015, and left analysts forecasting more pain if electoral risks materialize, particularly in light of the extreme market reactions seen in the wake of Donald Trump’s victory in the US.

The market’s move suggests Draghi’s insistence last year that policy makers weren’t considering scaling down stimulus and caution in January that underlying inflation showed “no convincing signs” of picking up is falling on deaf ears.

 

“The market is obviously seeing through this,” said Mark Nash, the head of global bonds at Old Mutual Global Investors, which oversees about $37 billion. It’s “seeing that quantitative easing has to come to an end soon.”

 

Peripheral bonds may come under further pressure should “markets continue to worry about the integrity of the euro zone,” London-based Nash said. Italy’s “banking system is obviously still impaired. Also, likely elections and political risks” may hurt the nation’s bonds. Nash said he shifted short positions to Italy and Spain from Germany.

 

The market’s “been raising the potential for a hard stop to quantitative easing at the end of this year if we do continue to get these rises in inflation and growth,” Nash said.

Perhaps even more concerning for the sustainability of the EU experiment is the soaring divergence between the two nations at the core of Europe...

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selfhacker's picture

What goes up, must come down

New_Meat's picture

new label, same old stale vinegar

Catalonia's picture

Spain 10y will reach 4% by July. 

jus_lite_reading's picture

Wake me up when it hits 6%.

I was just reading an article on my phone about how Germany is benefiting EXPONENTIALLY at the grave cost of Spain, Greece and Italy.

Spain's economy would finally get moving if they return to their OWN currency which they can value accordinly to the economy! That's the point!

But of course Germany cares more about their own economy and gloablization!

south40_dreams's picture

I love the smell of Xanax in the morning....
Smells like......surrender

Ghordius's picture

it's the Year of the Lord 2017 and we still have national sovereign bonds in Europe

this even though London's (and other) megabanks pushed hard for such a thing to exist

well... huzza!

now, if you say national bonds, you say spreads. a natural thing

what is a bit unnatural is that ECB/6NationalBanks buying off whatever is not bolted down

but hey, China and the US are still way ahead in this "game" of currency wars (and no, Japan is way further, and no, hedgefunds were wrong so far on that call, remember?)

NoDebt's picture

Yes, national sovereign bonds denominated in the extra-national Euro currency.  That's where the mistake was.  Don't borrow in another country's (or union's) currency- it always ends badly.  Places like Greece, Italy and Spain need to devalue but can't.

 

Haus-Targaryen's picture

But but but, how will various countries show the world how unified Europe finally is?  After 2,500 years of war ... finally the Europeans have risen above violence and war, HARKETH!  

 

UnschooledAustrianEconomist's picture

Europe had some longer episodes of peace before. Never lasted longer than 50-100 years. Here we go again, nothing new under the sun.

JackMeOff's picture

We are watching the beginning of the end of the EU and it will get worse before it gets better.  Hope we aren't dragged into another war but afraid it's inevitable and the front will start in the Baltics

aliens is here's picture

Germany needs to burn to the ground again if you want any hope for the European nations.

BarkingCat's picture

wake me when they are paying 25% in interest

silverer's picture

Go back to sleep.  Someone should have awakened you last year.  If you had been in the Russian stock market, you would have experienced 40% returns.  That's of course if you didn't take Obama's advice, to "get out of Russian equities".

Ghordius's picture

+1 for the gentleman speaking truth

the Russian stock market soared. so much for Obama as stock expert

BarkingCat's picture

so the article talks about EU bonds and you redirect to the Russian stock market??

What the fuck is wrong with you???

UnschooledAustrianEconomist's picture

Maybe Obama could team up with Gartman. He should have plenty of time now.

And we had the perfect contrarian indicator.

silverer's picture

No doubt due to experienced and strong leadership from Brussels, all due to expert planning and clear, consistent goals for the people's financial and cultural future in Europe.  What an astoundingly great idea forming the EU turned out to be!  Success after success.   lol

Ghordius's picture

thank you very much, but I do not want a strong leadership in Brussels

we might debate how much strong leadership is needed in the Nation States that are member

but Brussels has only to be expert, not strong

meanwhile, note that it was disputes among national leaders that prevented a common response to certain things, including how to cope with Turkey opening it's borders a flood of refugees

the EU is a "success" where members pull together. otherwise, it can't, and it should not

shovelhead's picture

Because mixing maple syrup, mayonnaise and chile powder together just seems like a naturally good idea.

Probably could use a little vinegar or something.

Umh's picture

Experts? Having to work with bureaucrats for decades I learned that they are not experts and they ignore the expert advise they get when it is contrary to their beliefs and wants.

It is like believing that store bought items are better than making something yourself. It depends on many things, your skills, the amount of time available, the tools you have. I have a friend that will always buy something instead of making it. I tend to err on the side of making things myself and try to avoid the ridiculous extreme.

Jtrillian's picture

Loss of faith?  Are bond yields the canary int he coalmine?  We will probably see a bitcoin surge before PM's do due to the paper manipulation.  Then stay clear of the exits or you are sure to get squashed. 

all-priced-in's picture

What will the interest rate on Euro denominated German & French bonds be - when the Euro no longer exists?

 

 

 

 

 

 

Ghordius's picture

well, that would depend more on the FX rates between the French Franc and the German Mark

whereas both currencies would be smaller then the EUR, and so more volatile, particularly if the whole world could buy or sell them

and if you think the re-born national currencies would be less political...

... how so? Mr. Trump is already setting monetary policy. China and Japan, too

currency wars. not the nicest environment for small currencies

all-priced-in's picture

How would the exchange rate between a German Mark or a French Franc and a Euro that doesn't exist be calculated?

 

Don't over think simple things.

 

 

 

 

 

 

 

 

 

Sick Underbelly's picture

So, like all good unicorn-land, imaginary, speculative instruments, the ponzi "accrual of interest with no work" scheme appears to predict troublesome times...a threat they might actually begin to LOSE.

Bond prices go down as interest rates and inflation expectations increase.

The question is:   how many of these folk who bought  multiple-year bonds years ago will be able to stomach and handle it as their "safe haven bonds" prices go down, and their incomes decrease?

I gather the unicorn-land freakoids are really getting into deep levels of "hopey changey"/"think positive, happy thoughts" like Unikitty did in the Lego Movie, as she's walking through Cloud Cuckoo Land.

Paul Morphy's picture

I've been watching Eurozone yields closely in the past few months and while Germany yields gained about 60 basis points, all other Eurozone yields have increased by at least 100 basis points in the same time period.

There are far too many bonds in circulation, to prevent panic if it sets in.

 

JohnGaltUk's picture

They know they will be paid out in DM

supermaxedout's picture

Euro = DM; ECB is in Frankfurt, home also to the Bundesbank.

unplugged's picture

i don't get it - why is this even news?  it doesnt matter - the CABAL will break whatever laws are necessary to keep it all afloat for themselves - hasn't anyone learned that by now?  wake up people and smell the CABAL stench right under your noses

BANKERS-WE ARE COMING FOR YOU's picture

They just monkey fucked gold and silver down again. It will end when they want it to end. Nothing can take it down. I think they will push dow 30,000. If silver hits 15 I'm buying again. There is no market.

 
JohnGaltUk's picture

I think it will go closer to 40 DOW when the panic sets in the bond market they will all jump into shares

JohnGaltUk's picture

Those who bought those 50 - 100 year bonds are going to get a nose bleed.

angry_dad's picture

at least they have millions of arab immigrants floating around their cities

they must be worth something as they keep bringing them in by the train load every day

do they know something we don't?

supermaxedout's picture

the left pocket is selling to the right pocket in order to bring the price down (or up) while ownership in principle does not change. They are selling bonds they do not even have in their possesion. Its just a show but this show is moving the prices. That is always their game to manipulate the price level.  Wonder how long this fraud continues.

Bringing the price down is harming the balance sheet of the ECB and of institutional holders holding these papers. Plus it harms the countries issuing these bonds.

And till now poor Mario does not even have a chance to stop these manipulations. Euroland should introduce a bill introducing the right of first refusal for the ECB when somebody sell bonds from Euroland member countries. That would stop it immediately.