Contagion Shakes The Euro Core As 10 Year German Bund Auction A "Complete And Utter Disaster"

Tyler Durden's picture

Earlier today Germany tried to sell €6 billion of 10 Year bunds. It "sold" €3.644 at a 1.98% yield. Which meant the German debt agency had to retain, i.e., not sell,  the 39% balance, or €2.356 billion. Said otherwise the offering was a complete disaster and as Reuters points out, one of Germany's worst bond sales since the launch of the euro, and that much higher Bund yields are coming very soon to a neighborhood near you. The sale "prompted concerns the debt crisis was even beginning to threaten Berlin on Wednesday, with the Bundesbank forced to buy large amounts of the bonds to ensure the auction did not fail. The low yields offered on the 10-year paper deterred investors from the auction, especially because of growing concerns over the cost to Germany of the escalating crisis." So what was otherwise formerly sacrosanct has just become reviled: welcome to fiat's greatest hits. The resulting 10 Year yield chart should surprise nobody. As for next steps: first the UK, then Japan, and finally the US...


That meant the central bank had to pick up 39 percent of the 6 billion euros of debt Germany had hoped to sell to investors after banks bought just 3.644 billion euros of the issue.


"It is a complete and utter disaster," said Marc Ostwald, strategist at Monument Securities in London.


"This does not bode well, it is the worst of uncovered auctions that we've had this year and little wonder that the Bund sold off on the back of it."


German Bund futures, the euro and European stocks fell after the announcement of the auction results.


The country's debt agency said the shortfall in the sale reflected worsening market nerves on European debt markets but added it would sell back the retained amount to investors on secondary debt markets and that Germany would not face a funding bottleneck.


The results compared with an average retention by the central bank of 17.83 percent at 10-year bond auctions in 2011. Data from IFR, a Thomson Reuters service, showed this to be the highest Bundesbank retention since at least July 1999.

And the experts' opinion:


"Without the massive Buba retention the auction would have been heavily undersubscribed. The paper was priced at an average 100.15 and low price was 100.01. The auction tail was a large 14 cents after the already large 10 cents at the previous auction.

"The auction was extremely poor. Despite the new paper looking attractive versus previous rolls in the grey market, the extreme richness of the German debt weighed on today's demand for the new line."


"It is a complete and utter disaster. If Germany can only manage an 0.65 cover in actual terms for what is going to be their next benchmark then what hope for everybody else?"

"It really tells you that the Bund yields are at the completely wrong level ... never mind that they are a safe haven. This does not bode well, it is the worst of uncovered auctions that we've had this year and little wonder that the Bund sold off on the back of it."

"A lot of it relates to very low yields. The other part is that market makers don't want to have a position because of the very distressed nature of financial markets as a whole. There's certainly a partial element of 'they would rather not have euros' in there."


"The tail is moving exponentially higher and they failed to get bids for 35 percent of the auction so it's a miserable looking sale and even worse than what we saw at the Schatz auction last week.

"It perhaps goes to show the uncertainty surrounding the euro zone crisis has escalated in terms of the overall outlook to incorporate even Germany."


"It's really bad. The Bundesbank had to retain 39 percent of the issue. Bunds are starting to lose their appeal because markets have to believe the euro bonds story and Germany is very close to start, essentially, to guarantee the debt of other countries. The real bid/cover was 0.65, not 1.1."

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slaughterer's picture

ECB printing is only solution to this mess at this point.  Got that through your head now Germans?

jcaz's picture

LOL- yeah, cause that went so well for them back in the '20's......

Comay Mierda's picture

printing is like putting out a house fire with a flame thrower

worldwide debt write-offs are the only way out

youngman's picture

If the Germans are smart...they will require all of the gold held buy the central banks and soverigns that need the ECB bailouts beforehand to be delivered to Germany for safe keeping....Gold was a good investment in the Hyperinflation Wienmar Republic days...or at least a "bestest" one...nothing was good...

Comay Mierda's picture

the best investment was food.  doctors, lawyers, and other highly payed professionals were sifting through trash just like the poor people trying to find food.

start growing your own food, and have a nice reserve stock on hand.  unless you want to wait in soup/bread lines when the shit hits the fan

EscapeKey's picture

Not all food types can be stored indefinitely. And you'll still need some method of exchange. Gold/silver are far more liquid instruments than kgs of rice.

He_Who Carried The Sun's picture

And this is a blog providing background...? For headlines I have Bloomberg!

This is about a power-struggle between Barroso who made his case for Eurobonds today and Merkel who says: NO WAY!

We have no reason to believe that parrot Barroso will win this fight as Merkel continues to call the shots, but they try to raise the pressure on that brave woman - in the meantime prepare for some bumpy ride...


el Gallinazo's picture

Too late.  Possession is 9/10 of the "law."  Anyone know how Chavez is doing as to getting his gold back?

Esso's picture

That would probably be true IF they were looking for a solution rather than just trying to extend the Ponzi until there's nothing left to loot.

Quintus's picture

I can see how ECB printing might delay the inevitable, but how, exactly, is it a 'Solution' to the fundamental structural imbalances that are pulling the Eurozone apart?

Has the Fed's massive printing of dollars fixed the US economy yet?

Ethics Gradient's picture

Agreed. The Euro dream has been shown to be a sham. The markets don't want to know and are selling European bonds to the ECB as fast as they are willing to buy. With printing will come a flood of monetization and inflation. It's not like the US/UK or Japan; their behaviour still has some credibility and free market participation (beyond selling). The results in Europe would compound impending disaster with an avoidable catastrophe.

I try not to swear on ZH out of respect for the intelligence of readers and contributors, but I can think of no other way of saying this. Europe is fucked.

TruthInSunshine's picture

The Bernank will be pushing hard to the hoop to stealthily use American green & white toilet paper to bail out nations using € toilet paper if Germany fails in its current primary directive of getting any of the EU Member States' debt sold, and we can see now that there's a major crack forming inasmuch as Germany appears (at least at an early juncture) to be having difficulty getting its own debt sold, and if Germany is the EU strong man, well then....

I expect that the Fed & Treasury have been very hard at work on a variety of urgent tasks, not the least of which is how to as sneakily as possibly become buyers of last resort for EU debt, with a major emphasis on not tipping off the muckrackers as to what they're up to.

How they would accomplish this is not at all clear to me, but I'm am confident that there are devices, procedures and processes that can all be very opaquely named/described (maybe even having a name that is indicative of a process at odds with the mechanics of what's being done) to allow The Fed and/or Treasury to engage in a massive EU bailout should Germany fail (for political/social or economic reasons) to keep the pieces of the perpetual debt piling-up process in play for some time longer.

What I'm most interested in, however, and what's fascinated me for some time, is how the technicians at the Fed are capping inflation where it currently resides (at what I believe is an honest 8%+ per annum going on at least 12 months now, and an honest 5% the prior 12 months, which is 2.3x to 4x the official BLS figure), and whether they're going to successfully stop what I see as an inevitable march towards an honest 10%+ (at around which point, they lose control, due to psychological reasons, and 15% and then 20% is here in shorter a period of time than it took inflation to march from 5% to 8%).

I suspect that inflation is as low as it is (even though its multiples higher than the official, tortured statistics) because the staggering growth in the money supply exists in bank excess reserve accounts, which have been stuffed full of fiat by The Fed, with said banks clutching those excess reserves with white knuckles, deathly afraid to loan it out in a manner that would be remotely approximating what would happen in a non-broken market economy (since The Bernank has created an environment whereby demand for loans from credit worthy borrowers is anemic and appears to be growing even more so, and since banks are rationally holding on to as much reserves as possible giving their black hole balance sheets, in an attempt to provision for further losses).

God only knows that if the banks were lending in any manner approaching the levels we see in non-broken (aka non-Bernank'd) markets, inflation would be TO ZE MOON.

So, I suspect The Bernank believes markets will be sufficiently broken for some time so as to allow him to swallow up a larger portion of EU debt without creating incrementally larger inflationary pressures, and he may even be desirous of breaking market mechanisms further to allow him to do so, which if he would be successful in doing, would inevitably result in probably the longest real period of economic contraction we Americans will have seen since the 1930s, whether we're technically defined as being in a depression or not.

The irony is that The Bernank has created enough inflation to allow him to report GDP growth, even though it's phantom growth, resulting from a relatively high and accelerating rise in prices which more than offsets a very steep decline in consumption (of even relatively inflexible goods/services; e.g. if gasoline prices rise by 58% or so, which they now have since early 2009, and consumers cut gasoline purchases by 9% - and again, gasoline is more a necessity than not for many - and this same phenomena is applicable across most goods - The Bernank's ruse can continue on).

My final point is that I do not understand the dogmatic resistance to allow for modest deflation in the economy given the fundamentals (wherbey deflation would increase purchasing power and spur consumption), and given that whatever The Fed claims about inflation (i.e. they can keep it moderate and sustained over a long term horizon) can also be claimed about deflation (not to mention that deflation has been falsely portrayed as economic boogey man, IMO, but that's a discussion for another time)....

...unless of course The Fed's true goals (based on fractional reserve practices/modern money mechanics) are as malicious as many of us suspect they are.

twotraps's picture

Truth, good morning, totally agree, a little deflation lets them say that the mkts still work and are pricing in uncertainty and allows an increase in purchasing power.  Maybe what they rail against the most, deflation, might unfold anyway.

TheRagingTory's picture

50% Wage inflation in Germany

20% Wage inflation in Greece

Structural imbalances are closed

Sudden Debt's picture



Gütenberg was a German

Heidelbergs are the best presses in the world and... are German.


They know my friend....

They know it better than we do....


DutchDude's picture

That'll work for a couple of years, but then it'll come back and bite you in the ass, bigtime...

Everybody is getting out of EZ bonds and i can't blame them.

It's a complete mess and the Euro will fall over it, one way or another, sooner of later. Best is sooner so the European people don't get screwed over tenfold, trying to fix this mess.

Esso's picture

What's "best for the European people" don't enter into it. Quite the opposite, in fact.

AbelCatalyst's picture

This is the catalyst that will send Germany to the Mark... Maybe not today or tomorrow but fairly soon... This failure is a serious threat and it will only get worse as the PIIGS slide deeper into the darkness.... Germany, like any country, will play nice until their back is against a wall.

Germany is about to fire up their own printing presses!!!

Buy EUO....

slaughterer's picture

Switzerland looks incredibly smart in their refusal of the Euro, but even that is being turned against them with the flight to CHF as safe haven.  

Coldfire's picture

Auf wiedersehen, Euro.

Paul Thomason's picture

It's the bloggers fault.  And those scumbag protesters - they should all be rounded up and shot.  The US and Germany should get Syria to do the slaughtering without fear of retribution because they dont have any oil, right?

GeneMarchbanks's picture

"The tail is moving exponentially higher and they failed to get bids for 35 percent of the auction so it's a miserable looking sale and even worse than what we saw at the Schatz auction last week.

Then he goes on:

"It perhaps goes to show the uncertainty surrounding the euro zone crisis has escalated in terms of the overall outlook to incorporate even Germany."

Bravo sir. I can see you are not a waste of space at Westlb.

XRAYD's picture

As The Bernank does the "twist" his pants will fall off and expose the truth.


Ther is no bazooka!

Carlyle Groupie's picture

Easy. Raise interest rate dramatically on the long end.

EscapeKey's picture

That would be totally awesome for the housing bubbles in Spain, Italy, France, and Ireland.

Carlyle Groupie's picture

To hell with your little ticky tack boxes.

Ignore my advice at your own peril.

RoadKill's picture

The easy solution is to spend only what you collect in taxes. Then you don't need to borrow money. Sure you still have to refinance, but if the market gives you too much shit you tell them you'll forcibly refinance them into new 10 year notes at 0%.

This has always been the "easy" solution for everyone. If Greece introduced REAL an immediate austerity that balanced the budget tomorrow, then they could handle the refi risk the same way. But their dumb ass commie voters don't like it.

And if someone DARES to say the Greeks are suffering enough austerity - tell me what is the retirement age right now? What is the average public sector union wage + benefits vs private sector?

We could do the same thing in the US if Congress and Prez had a set of balls between them.

Make SS it's own set of books. No more counting it's surplus as offset to general deficit. Of course with the Obama tax cuts it's no longer in surplus, so you'd have to undo those. And you'd have to raise retirement age starting in 2012 not 2026. Same thing with Medicare. Own set of books. Force it to cut benefits until it is properly funded on an accrual basis. Stop playing games.

Then you keep doing that with the Post Office (raise stamp prices and cut services/wages till you are making a profit) Highway Trust Fund and Amtrack.

Once you get to the general budget it's harder. Mandatory 10% workforce reduction. For those that keep their jobs, 10% paycut and massive changes to benefits.

Cut defense spending 50% by consolidating all foreign bases to 5 regional fast response bases and bringing home 50%+ of the troops.

Finally eliminate all spending in every department that isn't strictly Constitutional. Federal Gvnt has 0 business in Education/Health Care/Welfare. Send it to the states. Cut foreign aid to 0. Get rid of every single grant to every arts / culture / social research program. No Farm aid. Just gut everything,

If you cut spending to less then tax collections - NO EXCuSES - refinancing becomes easy. You control the terms.

Sure it will suck for awhile, but you are paying a long over due bill. And once the public sector is on the same footing as the private sector (9% unemployment, wages haven't risen since 2000, benefits are 90% employee funded), we can talk about raising taxes.

i-dog's picture

Excellent summary of what is needed (though I'd cut defense even more...the US already has enough nukes to deter any aggresssors). I'd vote for you!

However....those in charge have other objectives, and those objectives do not include fixing anything until after the middle class has been totally destroyed.

Carlyle Groupie's picture

Vote for that proposal and you'll be living in the dog house with Snoopy.

I say raise rates. Develop some sexy tee-vee commercials about personal bond ownership and open up the gates to retail.

Sell more bonds! Spend more .gov! Ever increasing GDP is the only American Dream that I want to know!

Rynak's picture

And if someone DARES to say the Greeks are suffering enough austerity - tell me what is the retirement age right now?

It WAS 61, BEFORE it was raised recently. Now it is approximatelly similarily ridicuosly high, as in germany... and among the highest in europe.


NONE of your mentioned solutions... as reasonable as they may sound... will work on their own - because you're forgetting something very simple: Greece is still in the EMU, and as long as they're in it, they can attempt to balance the budget as much as they want, they will not be able to do so.

Why not? Because the by you oh so hated "social programmes", are a COMPENSATION. A compensation for what? Well, lack of balanced economy, and thus lack of buying power and employment.

I know, a lot of retards on ZH like to think, that if one only axed the symptoms of systematic issues, the systematic issues will as by magic go away - unforunatelly, it doesn't work that way. But that line of thinking requires motivations that go beyond knee-jerk reactions and sadistic envy.

Ya dislike the way overbloated costs of social programmes in nations? Well, then how about you come up with a way to remove the NEED for them, by removing the systematic inbalances and defects of the system? Or is that too much "work" for you, slacker?

Things that go bump's picture

Euthanasia rather than retirement?  Isn't that what they used to do to slaves who had outlived their usefulness.

EscapeKey's picture

Euro -> Pound -> Yen -> Dollar?

Personally, I think the Yen looks more vulnerable than the Pound, but once the Euro goes I think all bets are off.

Quintus's picture

Certainly, the fundamentals of the JPY are worse, but the UK, with it's much larger financial services sector and massive exposure to the Eurozone banking system is much more likely to be dealt a devastating blow if the Euro starts to break up.

EscapeKey's picture

That's true, but Japan is largely an export economy, so once we head back into the depression, their finances will implode.

Sudden Debt's picture

Out of your list, I think Clamps are the savest bet ESC ;)

Temporalist's picture

It's wheelbarrow time in Weimar land.

Sudden Debt's picture



we have dumptrucks now :)


midgetrannyporn's picture

Merkel will fold like a cheap tent.

JOYFUL's picture

Why all the down votes? He\She jus tellin it like it is!....

oh, I get didn't realize this is Angelas' Avatar!

rough trade{in} snitchez!

Rich V's picture

Is that the 1812 overture I hear playing in the background?

sharkbait's picture

"Failed auction" coming soon to a bond market near you!  Don't go see it alone!!!!

GerritB's picture

Lights out! It's over!! Uncle Ben is coming to town!

slaughterer's picture

Panzerfaust sofort, bitte!  Dummköpfe!

magpie's picture

Es kommt direkt auf uns zu !

Es ist aus mit uns !


(taken from Close Combat 3)


TheSheepWolf's picture

wrong direction..... 1.3190 :-)

jm's picture

Swedish 10 looked a little shaky but it's back in stride now.