Europe Turning Ugly

Tyler Durden's picture

In the past 30 minutes, Europe has turned downright ugly, with short-term Bunds soaring to a record 140.64, and weakness creeping across the peripherals, as the realization that not only was the Spanish bond auction unsustainable, but also a French downgrade rumor once again making its way (the source of this is a Citi note by Michael Saunders who said that it is likely that Moody's will follow S&P, and put the French Aaa rating on review for possible downgrade by the autumn, after the country's supplementary budget is formalized). The result is a sudden and swift slide in the EURUSD to 1.3070 or the LOD. Here are some of the other recent surprising developments in the aftermath of what the propaganda machine wants to spin as a "successful" Spanish bond auction.

Some of the other developments in the past 30 or so minutes, via BBG:

  • German Bund June Contract Rises 0.2 Percent to Record 140.64
  • French-German 10-Yr Yield Spread Widens to Most Since Jan. 10
  • Italian 10-Yr Bonds Extend Decline; Yield Up 11bps at 5.59%
  • Spanish Stocks Slump to Day’s Low; Oil, Gold, Bond Yields Drop
  • Spanish 10-Yr Bonds Extend Drop; Yields 8bps Higher at 5.90%
  • Spanish 2-Yr Notes Extend Decline; Yields Rise 4bps to 3.46%
  • Spanish Stocks Slump to Day’s Low; Oil, Gold, Bond Yields Drop

Reality is slowly starting to come back. Remember: Europe needs Spanish bond yields at 7.0% or higher, because that is the only catalyst to activate LTRO 3 and to get the ECB back in the game, which all banks in the world desperately need now that the IMF is woefully incapable of securing the funding needed for the "giant firewall".

European sovereign spreads look very reminiscent of last week, rally on a 'simple' bill auction then sell-off on reality...