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European CDS Rerack - 5s10s Close To Inversion For All Core Countries
Belgium is the latest entrant to the fully inverted 5s10s club. Yet what is scary is that even Austria and France have just 14 bps to go before they also invert. And most worryingly, Germany is just 4 bps behind. Keep a close eye on the 5s10s. If it inverts for everyone in Europe, including the UK and German, it is game over.
5Y 10Y 5/10's
ITALY 536/546 +16 500.5/520.5 -40/-25
SPAIN 466/476 +12 434.5/454.5 -31/-16
PORTUGAL 1045/1085 +10 800/870 -260/-200
IRELAND 700/730 +10 530/600 -180/-120
GREECE 61/64 0 62/66 0/3
BELGIUM 332/342 +9 316.5/336.5 -18/-3
FRANCE 230/236 +11.5 246/256 14/18
AUSTRIA 213/219 +9 226.5/236.5 13/18
UK 91.5/94.5 +2 107/113 15/19
GERMANY 96/99 +2 114.5/120.5 17/21
XO 780/784 +23
MAIN 195.25/196.25 +7.5
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Euro Collapse Explained in 3 Minutes
Reflections on Europes financial woes. Special subject: the economies of the European Community. Which debt is owed by whom? Who will pay the bill?
http://www.mmnews.de/index.php/english-news/7683-euro-collapse-explained-in-3-minutes
Global Collapse explained in 1 sentence:
When perception meets reality, reality always wins.
ORI
final-cut-trailer-01/
There is no reality. Let that sink in for a bit. Now... when perception clashes with logic, you get an either/or. Either perception goes through a revolution or perception clings to the old, therefore being in denial.
logic is a subset of a perception. it is no more right than illusion. if my reality requires vast ignorance and illusion I will maintain that stance regardless of the consequences, those consequences will become part and parcel of my society and will actually be celebrated in that society as holy.
no other person views just as you. in ways both obvous and subtle this schism is present. This is not a simple place overall, but some of the concepts are simple.
everything is reality. everything is truth. the whole tapestry is everything. A separate item within the tapestry is "a part of the truth."
. _ O 369
If you stand on your head, it doesn't look so scary.
Quick! Time to float a rumor!!
The other article said that Reuters wasn't able to confirm the Moody's statement, only thing we need is for Moody's to come out and deny it to flip the market back around...at least for another 15 minutes
Any second now we'll hear that the Supercommittee is close to a deal. (Even though they aren't. Anything to keep the music playing for our last dance).
Classic Popo. In their strange world, I would not be surprised if things like Super Committes are set up ONLY for perception management/distraction, nothing else.
In a world driven by the insights of the likes of Bernays, I would not be surprised one bit.
ORI
Good, but too much, needs to be strung out. How about releasing a sentence every 2 hours today. "Supercommittee members were seen having lunch today together in the Senate dining hall, can a last minute deal be far behind?. Update, they had lunch at the same time, but at different tables. Update, they were at different tables, but they were close together, talking distance and were seen passing a note. Update, apparently it was a dropped napkin, but they did smile and talk, we are looking for confirmation that fingers touched which could be a positive sign!"
(Edit then cue the music http://www.youtube.com/watch?v=VcUDg0Olk8c&feature=related )
I heard they have a plan to fix this....
goober committee will save us.
CDS = phony insurance.
Tyler, why game over if inverted? Ie ECB may wait for inversion to bring bazooka
I don't know either, unless TD is saying that an inverted curve implies that there's a scramble for short-term cash (hence short-term borrowers are out-bidding long-term), which implies a deflationary cash crunch, which means that all these sovereign, bank, and alphabet-soup agencies that have to issue/rollover bonds will have no takers (besides the ones who can print money).
If that happens, something has to give: civil servants laid off, debts defaulted, and/or really in-your-face inflation in life's necessities.
The 'game' here has been to make first-world publics think that you can have big public sectors, handout programs of all sorts, easy credit, plus relatively stable currencies and tolerable taxes. Debt was taking up the slack, but the old formula is wheezing audibly, and everyone who has something that's not 'money' is pausing a little longer before parting with it.
When/if the game ends, it will likely stop nearly everywhere almost at once, the way that cash flowing into Lehman dried up in a few days. Those who aren't holding the Old Maid won't be rushing to pick up new cards.
Hi.
Freshman ZH reader here. Tried to find the meaning of what "5s10s" means? Why is an inversion so bad?
Thankful for answer.
BTW. Thank you ZH for free education.
http://www.investopedia.com/terms/i/invertedyieldcurve.asp#axzz1eLX0xi5j
5 Year + 10 Year Bond Yields
.... is what is being discussed.
While we're on the subject of learning . . .
I understand about inverted yields and such, but I'd like to know how to actually read a line like this:
ITALY 536/546 +16 500.5/520.5 -40/-25
I assume the first is the 5s, the third is the 10s, and the fourth is the difference, but I don't quite catch what each number is.
Probably the bid/ask.
e.g. 536 = selling price,546 = buying price in your example.
Thank you guys for the explanations!
That makes way too much sense. Thanks!
I assume the +16 is the increase in the asking price for the day?
it means that 10 year bonds yield less than 5 year bonds. In a "normal" curve the opposite is true. This normally occurs when people get nervous about risk of default and start focusing on price of a bond rather than yield of a bond.
When 1 or 2 year gets inverted to 5 year, the game is usually just about up for a credit
Look up "Inverted Yield Curve"
http://www.investopedia.com/articles/basics/06/invertedyieldcurve.asp#ax...
... Krauts look here
http://www.faz.net/aktuell/finanzen/anleihen-zinsen/hintergrund-was-eine...
from my understanding.. 5s10s describes the price-difference between the 5 and 10 year bonds. If they are inverted (negative), the price reflects that buyers think the country is rather going default within 5 then in 5-10 years.
Yes, but in this case, seeing the whole EU sov curve shift is something completely different. Before we were accustomed to the bond yield curve acting as an early indicator of a looming recession. While the same 'theory' can be applied to CDS, there are different mechanics at play here, mainly the basis and hedging of the curve done by dealers and HFs.
The front end in the CDS curve (not just 5yr, but anything across the board up to the 5yr mat) is being bid up because noone trusts ANYTHING coming out of the eurozone right now. Because doing a flat out long risk (short cash) is pitifully silly these days due to the whole GRE CDS situation, one would go out then and be short risk (long cash) on anything longer than 5yr as a hedge in case. So, the move is being exacerbated due to people jumping on this bandwagon of the 5s10s trade.
Thx, so the interesting part would be how much steeper 1s2s are - it's all so fucked up. Cant wait until next pay-check, just to bring it to the bullion-counter :)
Guess the NY Fed will be having a Black Friday deal on QE3.
Not an expert but I think it means short term money is more expensive than long term money, which is backwards, hence the term inversion, or inverted spread. It means bond markets are abnormal and indicates a short term funding squeeze.
More to the point there won't be any long term money or currency will exist in another form.
Next rumor is... aliens from MARS are buying bank stocks aggressively... so next point for SP is 1400 at least...;;;))))))
Maybe..because if the ECB only bought 8.8 billion last week...who bought the rest?????? There is a big gap in what was sold and what was bought.....????
I hate to say and think of it...but it probably was the FED somehow.....
Calling Dr. Paul Krugman...Calling Dr. Paul Krugman...
Yeah, but they still have the nuclear option to print money. Once they use that, the next crisis will be game over.
Indeed. I suppose that 'nuclear' has bad connotations, so it has been re-branded as 'bazooka'. And you are right that, like its atomic brother, the monetary bazooka can be used only once per generation.
If TPTB could guarantee that they would retain their old positions and lifestyle, I doubt they'd hesitate to use either one. That must be what holds them back.
Regarding a negative yield curve: On page 247 of the book, "Wall Street Words" by David L. Scott: "By its very existence, a negative yield curve should be viewed as a market consensus or prediction that interest rates are going to fall, because the market in general has commanded a higher yield for short maturity periods than it has required to attract investment dollars for longer maturity periods. A negative yield curve is usually followed by a flattening and then by a positive yield curve. When this happens, yields on short maturities would probably fall substantially. This shift could occur for various reasons, for example, as a result of the markets coming to expect an easing of inflation; thus, yields on longer maturities would also be expected to decline. The longer the maturity, the greater the profit potential for a given decline in yields." - Stephanie G. Bigwood, CFP, Assistant Vice President, Lombard Securities Inc., Baltimore, MD
I don't understand.
yet they (I suppose the Central Bankers) managed reverting the irish yield curve back to "normal" (or flat) from a very inverted and inflated shape a few months back
the last few days they also worked on the portugese yields, while everyone had their nose on surging italian and spanish yields...
Taleb nailed it a few weeks back on Bloomberg, when he said the banks are in the business of hiding risk, and I guess that includes central banks as well
Works like band-aid on a gangrened leg, looks good from close-by, until you step back for a panoramic
It doesnt mean much ,,, if anything the fact that they are not even more inverted is actually quite bullish .. If you look at upfront amounts 5s10s italy is around 8 points vs greece at around 2 .. so they re actually holding up pretty well
We are heading into the Mother of all Downward Defalitionary Death Spirals in History from what I see.
Unless the CBs print, an dprint fast unemployment will be 40% soon.
All fiat horses are being rounded up. Glue for everyone!