Euro Declines After Bund Auction, Hungary CDS Soars To Record, Massive New Issue Discount In UniCredit Stock Sale

Tyler Durden's picture

All eyes were on Germany this morning, where up to €5 billion in new 10 Year Bunds would hit the market, with many dreading a repeat of November's failed auction. As it turns out, the auction was a success in relative terms, with the government getting bids of €5.14 billion or more than the desired maximum - something it could not do two months ago. At the end of the day, Germany sold €4.06 billion and the resulting bid/cover ratio of 1.3 was well higher than the failed auction of November which came at  1.1, when a large amount of paper was retained and bids were not enough to cover the amount of paper on offer. Wednesday's auction is still below the average of 1.54 seen at 10-year sales in 2011 and a 19 percent retention rate is also above the 2011 average. In other words, as we suggested, the November failure has nothing to do with the Buba pushing the ECB into auction and everything to do with prevailing rates: the average yield dropped to 1.93 percent from 1.98 percent but the dwindling returns on offer due to the sharp rally in safe-haven assets as the euro zone debt crisis has intensified have led to lower than average demand at recent German auctions. And while the auction was better than expected it was still quite weak, which explains why the EURUSD is trading at overnight lows, back at around 1.2980. Not helping things is Hungary, which had a failed bond auction last week, and whose IMF rescue package is now in tatters. As a result the CDS on the country just hit an all time record 688 bps and moving much wider, while the forint dropped to record lows. As everyone knows if Hungary falls, which is now operating in a bailoutless vacuum, Austria will tumble promptly next. Next, leading to a blow out in Spanish-Bund spreads is a report in Spanish Expansion which said that Spain may request EU, IMF loans to help banks. In other words - this morning's news shows a potential risk reflaring in the European core, periphery and deep periphery which was immune until now. And finally, a UniCredit €7.5 billion new stock issue pricing at a whopping 43% discount to market price shows that fair value of actual demand for European banks is about half of where the artificially propped up price is (recall Europe still has a short selling ban)

Market summary from Bloomberg:

  • S&P 500 futures down 0.26% to 1268.8
  • Stoxx 600 down 0.45% to 249.93
  • US 10Yr yield up 1bps to 1.95%
  • German 10Yr yield up 1bps to 1.91%
  • MSCI Asia Pacific up 0.97% to 116.49
  • Gold spot down 0.27% to $1599.18/oz
  • 9/10 sectors fall led by financials, consumer, utility stocks
  • French Nov. consumer spending -0.1% vs 0.3% est.
  • Eurozone final Dec. PMI composite 48.3 vs 47.9 est.
  • Eurozone Dec. CPI estimate 2.8% inline with ests.
  • Movers on earnings/statements: VESTAS WIND SYST -15.3% , DOMINO’S PIZZA +6.45% , NEXT PLC -3.47% , UNICREDIT SPA - 8.53%
  • Other gainers: MARINE HARVEST +4.84% , QIAGEN NV +4.74% , MICRO FOCUS INTL +4.13% , NATIXIS +3.27% , RENEWABLE ENERGY   +3.13% , PREMIER OIL PLC +3.07% , EFG EUROBANK ERG +2.88%, NATL BANK GREECE +2.05%
  • Other decliners: BANCO COM PORT-R -6% , BANCO ESPIRITO-R -4.99% , BANCO SANTANDER -4.73% , EDF -4.45% , GAMESA -4% , HOME RETAIL GROU -3.93% , BANCA MONTE DEI -3.87% , BANCA POP EMILIA -3.8%

Hungarian CDS:

Instant analyst reaction to Bund auction:



"It looks solid - there's nothing surprising. (The bid/cover ratio) was above one, which the market will see as a decent start for the year because the previous one in November was a shocking one. Good redemptions helped it despite a slight risk-on mood today."


"It's a lot better than last time but it's still not exactly overwhelming but that's not surprising given where yields are.

"We have to keep this in perspective. for all that Germany is actually issuing slightly less paper this year, for all that it is a safe-haven, the fact of the matter is inflation is in the high 2s still and a yield of 1.93 (percent) over 10 years doesn't get you anything in real terms."


"Much better than November's auction, but not particularly great either. Technically the auction was covered (5.14 bln euros for a 5 bln euro auction) but the average price of 100.62 in this morning's 100.58-101.08 range is not that great, coming in very close to the lows. The 5 cent tail is OK at best, but having said that, considerably better than the 14 cent tail at the previous auction."


"It doesn't look particularly well, just because we have just over 5 billion in bids, so nothing impressive."

"From a relative value perspective, the bond was expensive compared to the German curve. It's not a good auction, but it's not a surprise. For a good auction we need a pronounced flight to quality environment which we didn't get in the past couple of days."


"This time the auction went smoothly, supported by the fact that the street was short the bond that traded around -1 percent in repo ahead of the auction... Today's auction with a retention rate of 18.9 percent is very much back in line with 'more normal' auction results."


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Josephine29's picture

The news from Hungary seems to just get worse and worse and as pointed out below it has a lot of follow-on implications too.



I have discussed Hungary’s problems in relation to the issue of the large amount of borrowing that went on in Swiss Francs that took place there many times on here. Whilst the ceiling on the Swiss Franc provided some relief I see today that the Hungarian Forint has fallen to 319 versus the Euro this morning which is a new low. And of course the Swiss Franc is linked to the Euro right now…..


Indeed as I review the numbers it is plain that the gain from the ceiling put on the Swiss Franc has been completely lost for those who use the Hungarian Forint. The exchange rate did drop to 227 but last night closed back at 259.8.


Clam McCain's picture

good for another 2% in the S&P

ricksventures's picture

WHO CONTROLS the flow of news ???

overusing the "seems this and seems that" is lame, either say IS or IS NOT

at least mention that most borrowers who could pay the mortgage already repaid it in the last 3 months via 180forints to swiss franc government entforced rate

the rest was dumb to believe in santa claus and their properties will be taken over by hungarian banks and rented to them, hungary HAS THE HIGHEST HOME OWNERSHIP in EU and most homes are built or renovated in the last 10 years, everyone "owns" a home, or a flat or something so its not that bad

hungarianboy's picture

OR, refinanced at 180 rate. The odd here only is that the banks use the Hungarian intrest rate what is currently at 7%. Add something for the banks and 10% rate on the loans in HUF.

Either way, CHF, EUR or HUF loans are all fucked up.

ricksventures's picture

i am talking about people who paid off their loans at 180HUF to a 1 CHF, and there were many many, i know some personally


NOW, refinancing is different and probably less risky than leaving it at old Swiss Franc rate

WHO CONTROLS THE INTEREST RATE of HU central bank ? Its Orban now, since the jew with offshore Cyprus stolen money account named Simor is done, i mean not hanged yet....


living on credit has been in history of certain countries like Italy, Hungary for ever, Italy has been near default since 1800 and they always managed so i am not that worried

e_piigs's picture

Italy has managed debt since 1861 given that before did not exist. By the way republic of Florence is still triggering  (1345 is the year of the king of England default) CDS on Edward III , as florentine i hope to exchange some with the brits ..just in case 

cossack55's picture

"I am shocked, shocked I tell you, that there is any risk in the EuroscumZone."

                                                        Anyone with a Brain

youngman's picture

I think it is wrong to compare it with last years "failed" auction...there is 600 billion of newly printed euros out there for this purpose and this purpose give me a 600 billion and tell me to buy your bonds...or else.....I will buy your bonds and make it all look good...and now on to Hungary...or is it Greece....or California..Or Illinois..or Michigan

irishlink's picture

and do not forget that many people in Ireland with a brain are buying bunds as even if we are in euro failure mode and the deutchmark returns it will be the strongest currency in Europe. Many of the other weaker countries are propping up the German bond market t hus also.

boxxxer's picture

Hungary is toast.

I'm still wondering when France will get downgraded.

I didn't expect the Euro to last this long.  Yet on it chugs.

Good recipe for muffins.

ricksventures's picture

what does it even mean the "toast" stupid comment ??? on ZH people have been commenting on Italy, Portugal, Greece that they are all "toast" FOR YEARS NOW !!! and still no nuclear (or jew) holocaust so, i dont get it...few molotows in greece but that is not even a war... a day to day commerce goes on, cheap forint means also thousands of slovaks with euro crossing border to buy hungarians food products to buy cars whatever


Borat the Jew - Throw the Jew (the non-Austrian "Vienese" banksters) Down the Well!!

boxxxer's picture

Toast is an idiom.  It means something is headed for destruction.

For instance, Michelle Bachman's campaign is now toast.

It's not a reference to violence or war.

Good recipe for muffins.

ricksventures's picture

what are you talking about ??? Michelle Bachman made MILLIONS in deals, booksignings, speeches, consulting whatever, she could care less about her campaign

SHE is doing extremely well !!!! And she will continue for years and years, she has build a brand !!!!

ok, she is not the choosen dear leader but still 1000x better than the american next door


so using toast for years and life just goes on, maybe a little worst, little cheaper christmas but life goes on and to call that "toast" as a burned bread is lame

Blank Reg's picture

Same for Gingrich. Books and speaking engagements.

ricksventures's picture

EXACTLY AND THANK YOU !!!, this is what people dont get, this political-propaganda industry, you can actually be rich even when you are(pretend) to be a retard like Rick Perry, how many retards do you know that got rich from being retards ? not many i assume even the pimp Herman Cain and his whores did well indeed (money wise)


Herman reminds me of Huggy Bear from starsky and hutch

StychoKiller's picture

From pimp to political whore to pimp again -- some folks have no shame! :>D

bigkahuna's picture

They're not getting a red cent from me.

tim73's picture

Americans assume that the only way to eurozone to survive is to follow their model, USA, but the history of Europe is one of shapeshifters. It is so maddening series of constantly shifting alliances/enemies/neutral parties, one stops reading European history after browsing through a couple of centuries :)

Eurozone will evolve and probably some nations going out and some in all the time.

Dick Darlington's picture

Austria 10yr yield up almost 40bps since the start of the year. Not bad...

hugovanderbubble's picture

Austria will be downgraded tomorrow by SP

GeneMarchbanks's picture

Hungary CDS is fine...

'Hungary cannot default'-ISDA

hugovanderbubble's picture

Look this text guys...

 France is not AAA longer
UnderWeight French Austrian and German Bonds,
Long 2yrs and 5yrs France CDS
EFSF wont hold AAA
Portugal and Spain are in serious troubles to keep with budget deficits, hidden debt +140.000 Mn Euros in Subgovernment Entities.
Italian10yrs bond will hit 9-10% as nobody trust in its national accounts + austerity effects.
Market xtremly overbought in US equities in short term.
Golden Cross Trap in Dow Jones, as volume has been anemic last 10 days.
Oil threat will hurt emerging countries growth.
-Wait for 5-7% retracement in main equity indexes.
Risk on for Emerging EU 
Hungary *
Next release after French downgrade by Moodys and Standard and Poors expected to not be later than 15th  january.

youngman's picture

What is funny to me is with all the problems in the EU..and I mean all of them....and the big Summits they have they must discuss all of the problems they have...someone still buys their bonds....albiet with their own newly printed when they ...the bankers...take that newly printed money and start buying gold...that is when the

Dcheeth2's picture

So, what is the likely fall out going to be from the temporary suspension of Uni Credit's shares, after they plummeted 9.9%?

I know this is the fair attribute to a ponzi shceme in all but name, but what do people think the knock on effect will be across the Eurozone banks?

tim73's picture

Well, Eurozone will be similar to the Holy Roman Empire (962-1806). It was similar loose alliance based empire that just lasted and lasted despite countless wars and restructurings. That is the nature of Europeans, there are no United States of Europe, EU will always be shapeshifting. Some nations going away and at the same time some nations going in. UK now going away but maybe UK will collapse soon as one nation and Scotland/Wales going in. Then there is a bunch of Eastern European nations wanting in...

e_piigs's picture

comparing HolyRomanEmpire to USA, ehm ehm... I guess the four Corners region navajo-apache?  Or do you prefer the great plains sioux? Anyway the american indian wars get rid of any doubt.

Later Something "very very civil" happened, such a pity denominated it war again...I'm sure you have heard was europe usual...

hungarianboy's picture

This sucks here :-(

GMadScientist's picture

Fraulein, why are you hanging out with those bums?

We're worried about you.