Draghi's "Promise" Sends Hope Off The Charts

Tyler Durden's picture

Between the thinness of European bond markets during the summer doldrums and the hair-trigger momo-monkeys, it would appear that all the hopes and prayers of the Draghi "promise" have been more than priced into the Spanish bond curve already. Of course, short-dated yields could drop further on ECB buying; but where exactly 'should' that risk premia be? Of course, longer-dated yields could compress but does anyone really see a solution here, as opposed to short-term support to get through some debt maturities and avoid a catastrophic contagion? The critical point being - for all the anticipation of Draghi's bond-buying plan and its implicit conditionality, the Spanish yield curve has priced it all in and more - as the 2s10s curve is now at all-time (pre- and post- Euro-era) record steeps. We have seen this pattern before - into and during LTRO - that did not end well; and the crowd is getting larger and doors smaller in this one (and don't forget Corzine won't be your fall-guy this time)...


Spain 2s10s yield curve differential (black) vs EURUSD...


It seems the Big 3 Questions are solved...

Chart: Bloomberg

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LawsofPhysics's picture

"the crowd is getting larger "


Wouldn't an increasing yield suggest that the crowd is actually getting smaller, as these bonds are no longer catching a bid?  What am I missing here?  Bullish for tuesday's market open?

takeaction's picture

Gold and Silver just took off...and the dollar just took a dive.  What happened?



spastic_colon's picture

everyone realized that tomorrow is the first day of the USSA trading after a holiday and are frontrunning it in the european markets only to hand the baton to the USSA markets in the morning.....sending ES up 1% Tuesday, the futures are trying to keep the secret for now.

Dr. Engali's picture

That certainly looks sustainable. If I were a contrarian I'd see a trade in there.

This is the end's picture

As the chart above shows, the Europeans are going the way of Japan and the US. THey will print and print and print. There is no other option. Do you think that Merkel is going to opt out now?!!! The time to do that was 2 years ago when the pain could have been scape-goated and the economy given time to recover for her re-election. Now after putting trillions of German money into the pot (achieving nothing of course) she is not going to plunge the world and Germany into the Great Depression II. She is going to let them print like crazy all while talking tough. Greece is already printing their Euros. This could be the start of the Big Inflation we have all been waiting for now that Europe is ready to set their printers to hyper-drive. Look at gold, silver, gasoline and grains recently. The chart above just shows you that the market believes (correctly in my view) that Europe is about to paper over all of the PIIGS problems. 

LawsofPhysics's picture

Let's see, what hapened the last time Europe experienced hyperinflation when unemployment was already high....

Hulk's picture

History continues to repeat itself, the nature of man unchanged. Precious life wasted and the living live's ruined...

This is the end's picture

A perfect New Normal holiday trading day.....

Bad economic data out of China and Australia....

Stock markets and commodities sell off....

Market realizes bad is good, printers to the rescue....

Stocks and commodities retrace their losses....

Merkel talks tough...

Market realizes this is just more of the same and "reads between the lines" that she is onboard with the "Full Bernanke"

Stocks, commodities soar!!!!

Was there some bad data about actual economic activity earlier today?


Boilermaker's picture

It's all scripted.

There's a playbook.  We just don't have access to it.

magpie's picture

Three hoorays for Monetization Mario's level up

Boilermaker's picture

Time to ramp the shit out of the equities markets!!!!!

Yep, there goes the ES.  Sky rockets in flight!  Afternoon Delight!

Remember, if it doesn't work, simply try harder.  Get a bigger fucking hammer.  It just HAS TO work eventually!

Thought criminal's picture

There's so much hopium in the EUR and so much undervaluation in the USD now, that it's a crime not to short that pair.

falak pema's picture

Merkel is Cassandra and Draghi is Moses; to the promised land he points! 

They make a nice punch and judy show! 

lesterbegood's picture

Is there a chart for the HOPIUM market?

Dareconomics's picture

Merkel and Schaeuble are preparing the German voters for additional ECB financing of sovereign debt. Today, she told crowds that "bailouts are here to stay" and that Greece deserves the support of the German people as long as the Greeks keep reforming their economy.

Her Finance Minster, Wolfgang Schaeuble, is preparing the German electorate for these bond purchases. He claims that the ESM is constitutional under German law. I am not sure whether or not the ESM is constitutional, but I do know that the German constitutional court will not rule against the ESM:


Schaeuble also claims that the ECB will only act within its mandate. The ECB's old mandate was a 2% inflation target. The ECB's new mandate apparently includes stimulating credit creation in the Eurozone. At least, that is the excuse that Draghi is using to fire up the printing press:


Merkel's politicking does not stop at preparing the German voters for the inevitable monetization of PIIGs debt. She also places the blame for the Eurocrisis at the feet of the "markets." From the article,

Markets can’t be allowed to destroy the fruits of people’s labor and governments can’t be put at their mercy through excess debt, the chancellor said.

Markets do not destroy the fruits of people's labors; in this case, governments do. Excessive government spending distorts the economy in so many different ways, but its most pernicious effects are the destruction of labor markets and the eventual devaluation of the currency. Greece and Spain both have unemployment rates over 20% and that number skyrockets into the 50's for those under 25.

In conclusion, this is Merkel's political strategy to keep the Eurozone on the rails until she wins German elections in the autumn of 2013. First, keep the PIIGs barely alive by trickling money through their feeding tubes in exchange for harsh economic reforms that show the German voters that she is being "tough."

Second, allow the ECB to finance sovereign markets under the ruse that this action is within its mandate as long as the PIIGs continue to be humiliated to appease German voters.

Third, the blame for the Eurocrisis must be shifted to those evil speculators rather than the politicians who spent too much money when times were good and who refuse to do the responsible thing now.

As long as nothing unexpected happens, this plan should work. Good luck, Frau Merkel. 


Howdan's picture

Bad Data? Who said Bad Data? I didn't see anything, did you see anything? Nothing to see here folks, move along, move along (While smoke and flames are billowing in the background). Nope, all's fine here everyone. Nuuuuuuuthin' to see here. Move along.

Is that the sound of a printer I can hear?

WALLST8MY8BALL's picture

Gogol Bordello's "Oh No"

Sometimes when facing common trouble
When whole town is screwed
We become actually human
Act like Prometheus would
Suddenly there is more humor
And a party tabor style
People ringing one another
"Yo man, how was your blackout?"
Suddenly there is more music
Made with the buckets in the park
Girls are dancing with the flashlights
I got only one guitar!
And you see brothers and sisters
All engaged in sport of help
Making merry out of nothing
Like in refugee camp
Oh yeah Oh no, it doesn't have to be so
It is possible any time anywhere
Even without any dough
Oh yeah Oh no, it doesn't have to be so
Forces of the creative mind are unstoppable!
And you think, All right, now people
They have finally woked up
But as soon as the trouble over
Watch them take another nap
Nobody is making merry
Only trotting scared of boss
Everybody's making hurry
For some old forgotten cause
But one thing is surely eternal
It's condition of a man
Who don't know where he is going
Who don't know where does he stand
Who's dream power is corked bottle
Put away in dry dark place
Who's youth power is well buried
Under propaganda waves
Who's dream life is in opposition
With the life he leads today
Who's beaten down in believing
It just kinda goes this way!
Oh no, it doesn't have to be so
Forces of the creative mind are unstoppable!


yogibear's picture

Hperinflation is ensured by the central banksters end-game plan. 

wonderatitall's picture

how can you be sure that corzine wont be in it? the criminal enterpriase known as the democrat/nazi party knows no bounds.