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Futures Tumble, Spreads At Record, Euro Drops On Another Awful Spanish Auction; More LCH Margin Hike Rumors
Today is a rerun of Tuesday when it was all about the horrible Spanish auction. Well, let's use a different adjective for what came out of Spain today: dreadful, atrocious, awful: all words used not by us but by Wall Street experts to describe what just happened (see below). To summarize: Spain sold €3.56 billion euros of a new ten-year benchmark bond, well below the €4 billion targeted. The average yield on the bond was 6.975 percent, the highest paid since 1997, and almost 2% higher compared to the 5.433% paid on October 20. The highest paid for a ten-year bond this year was on July 21 when it paid 5.986 percent. The bid-to-cover ratio, an indicator of investor demand, was 1.5: this compares to 1.76 a month ago, and 1.95 average of the last 6 10 year auctions. The result: Spain Bund spreads are at a record 499 and about to pass 500 bps: the level at which LCH hiked Italian bond margins, and is resulting in another round of rumor of an imminent Spanish bond margin hiked which in turn would lead to more selling of sovereign bonds both in Spain and everywhere else. The Spanish 2s10s has collapsed and is under triple digits for the first time in years: at this rate it may well invert in days. And speaking of everywhere else, French Bund spreads hit a record 202 earlier, a level which will be promptly taken out; Italian spread tightened modestly after the ECB stepped in with another brief intervention which will be promptly steamrolled. It has gotten so bad, the EFSF spread to Bunds also just hit an all time record - kiss the EFSF goodbye. Lastly, futures are at overnight lows or just over 1220. Looks like we will have another Risk Off day at least until Europe close.
Spanish Bund spread
Spanish 2s10s spread
French Bund spread
Italian Bund spread
EFSF Bund spread
Overnight stock futures:
Knee jerk reaction to overnight auctions via Reuters:
NICK STAMENKOVIC, BOND STRATEGIST, RIA CAPITAL MARKETS, EDINBURGH
(On France):
"It is slightly disappointing but not as bad as Spain. They didn't manage to get the maximum amount they wanted and yields are obviously higher than last month, but remember maturities are much lower and investors are taking much less duration risk."
"It keeps contagion intact not just for the peripherals but also for the core countries and increases the pressure on the ECB to do something. Clearly at the moment the ECB is reluctant to do anything ... but if contagion seems to mount and we see a fully-fledged credit crunch in the euro land and a deep recession then I think the ECB needs to do something, even if it means just backstopping the EFSF, which seems a non-starter at the moment."
ALESSANDRO GIANSANTI, RATE STRATEGIST, ING, AMSTERDAM
(On France):
"It wasn't such a bad auction, close to the maximum amount they wanted to do and bid/cover was OK. It was a good auction compared with what we saw in Spain and should offer some support for the short-end."
RICHARD MCGUIRE, STRATEGIST, RABOBANK, LONDON
(On Spain):
"Very poor Spanish auction which will heighten concerns the door to Spain being able to sustainably finance itself is closing. This, in turn, stands to further expedite the convergence of Spanish yields with those of Italy as the country plays catch-up with its more troubled peer. Most troublesome, though, is the hugely elevated yield necessary to ensure even this lacklustre outcome."
ALESSANDRO GIANSANTI, RATE STRATEGIST, ING, AMSTERDAM
"It's been a very weak auction... bid/cover was very low and even the tail was around 11 basis points between the average yield and the stop-out yield.
"It's the same situation as Italy where when you start to move above 7 percent you start to get to dangerous levels. But Spain, in terms of supply profile versus Italy, looks better because they don't have big redemptions until April."
MARC OSTWALD, STRATEGIST, MONUMENT SECURITIES, LONDON
"The bad part of it is that it's got a very big tail to it. The average yield is 6.975 but the stop rate is 7.088, that's an 11 bps tail ... that is not good.
"I appreciate markets are extraordinarily volatile so market makers will be putting in a lot of cheeky bids but they've got problems. I suppose the other aspect is who was buying other than domestic institutions -- be they banks, be they pension funds, be they insurance companies.
"It really just underscores what everyone has seen in the last couple of days. The euro zone has got to deliver something which is going to calm markets down and at the moment markets feel like they are being given no comfort whatsoever and this is symptomatic of that."
NICK STAMENKOVIC, BOND STRATEGIST, RIA CAPITAL MARKETS, EDINBURGH
"It's a pretty awful auction. They didn't manage to sell the maximum target which shows lack of demand, yields are significantly higher than a month ago and the bid/cover ratio is weaker. It is a sign of the underlying negative sentiment towards the Spanish bonds. As a result, bond yields are rising towards new highs and it doesn't look like it is going to stop any time soon."
"It means investors in general are very cautious towards the peripheral countries. The widening trend persists in the peripheral and seems to be spreading towards the core countries."
ACHILLEAS GEORGOLOPOULOS, RATES STRATEGIST, LLOYDS BANKING GROUP, LONDON
"The result was dreadful. They didn't manage to raise the full amount and the bid/cover is really poor. The fiscal profiles of Spain and Italy are different but their yields seem to be aligning now. If the French auction today is poor we will really go into risk-off mode."
And some more commentary from Reuters:
Spain and France struggled with government bond auctions on Thursday, throwing into sharp relief the threat of larger euro zone economies succumbing to the debt crisis that began in Greece and is already lapping at Italy's shores.
Madrid was forced to pay the highest borrowing costs since 1997 at a sale of 10-year bonds, with yields a steepling 1.5 points above the average paid at similar tenders this year. The euro fell on the foreign exchanges in response.
Paris fared a little better, but again had to pay markedly more to shift nearly 7 billion euros of government paper. Fears that the euro zone's second largest economy is getting sucked into the maelstrom have taken the two-year debt crisis to a new level this week.
"The euro zone has got to deliver something which is going to calm markets down and at the moment markets feel like they are being given no comfort whatsoever," said Marc Ostwald, strategist at Monument Securities.
It is all up to the ECB once again:
France and Germany have stepped up their war of words over whether the ECB should intervene more forcefully to halt the euro zone's debt crisis after modest bond purchases have failed to calm markets.
Facing rising borrowing costs as its 'AAA' credit rating comes under threat, France has urged stronger ECB action but Berlin continues to resist, saying European Union rules prohibit such action.
"If politicians think the ECB can solve the euro crisis, then they are mistaken," German Chancellor Angela Merkel said, adding that even if the ECB assumed a role as a lender of last resort, it would not solve the crisis.
Investors and euro zone officials hope that if Merkel and others find themselves staring into the abyss, the unthinkable will rapidly become thinkable.
"The Germans have made some remarkable changes to their position over the past few months, you have to give them credit for that, it just takes rather a long time. It's Chinese torture," one euro zone central banker told Reuters. "They are not drawing lines in the sand as clearly as they were."
"Clearly at the moment the ECB is reluctant to do anything."
And in the meantime, the world is burning.
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Tylers, no OWS cam this morning?
That has been replaced with the 24-hour showing of the yule log in the fireplace. It is more peaceful for people to see the yule log. Beginning December 1st we will be showing A Christmas Story around the clock.
A live feed out of Italy might be a lot more entertaining than anything taking place at Zuccotti Park. Every time I've been over there it is about as boring as a Knicks game.
Yule log goes against the bankers wish to ban christmas
The auctions are stuck in a bog
The future is shrouded in fog
For Christmas this year
Some old Bankster cheer
The sheeple get rammed with their log.
Hello? Santa?
Are you gonna bring us a rally in december?
I am beginning to doubt.
A crashtastic dec is very unusual to say the least.
I'm more inclined to think sideways into the new year then SPLAT.
And gold and silver are being raided....my Econ 101 studies have just become meaningless....nothing matters anymore...nothing works anymore...strange days indeed...
Germany standing firm = no printing = defaults = deflation in Europe = gold down to 1400
Germany relenting= printing = hyperinflation = gold up 500 to 2250 ( in 1 day)
Some people hate cash. Some people hate gold. This is why the following equation seems to make sense to me.
Cash + gold = maximum protection
100% of either item may make for some very scary periods, not that this isn't getting scary either way.
You missed the bit about EZ banks blowing up.
Both UST's & Bunds are up (in price), speculators are just riding easy profits, selling down their gold to ride it.
Gold is down in Euro's, which means the Euro is NOT about to fail.
Gold is down in EVERY currency, DoD, dork. MoM, it is up the most in EUR and CHF.
Just one moment please...I'm sorry for the delay, my voice recognition circuits are not completely restored, though as you can see they are improving. All systems are functional. There is a small pressure leak in the aft heating unit. It is nothing serious, I can compensate for it by using the redundant units.
Well, now that the ISDA has killed CDS one would expect investors to require greater yield to cover default risk.
No?
Yes
And that greater yield would in itself increase the chances of default, increasing the yield investors demand to hold that debt.
Vicious circles FTW.
Well yes.
Now that the CDS rug has been pulled from under the sovereign bond market yields should revert to pre CDS "innovation".
Add to this the fact the the Euro politicians have made a dogs breakfast of handling the debt crisis and yields must go up further.
I agree. Unintended consequences.
Had they let Greece fail properly and allowed calls on CDS two years ago we would already be coming out the other side as markets would have adjusted to reality rather than relying on the next rumour of a rumour of an intervention.
And also greater economic growth, which we know full well is nowhere to be found, again increasing the chances of default and increasing the yield and so on. Nice system we've got here. So hard to predict the outcome.
No and yes. By banning the CDS that's less money that has to be paid out for the contract as I imagine "the contract isn't free either." on the other hand...yes you should have to pay more since you are losing an insurance option on the debt. I think what matters most is in the words of Jerry Sandusky "what constitutes intent." is the point to save or to default? When dealing with sovereigns the theory is "there's always another lender." just look at Argentina. Of course there was a theory that real estate prices only went in one direction...and in an age when banks only take...and give government credits obviously the "pool of capital available" can be so vastly overstated as to be considered a joke.
Are you implying unintended consequences? Nahhh. That would never happen. I can't see how something like not honoring contracts could ever have any blowback. Investors will be just fine accepting shitty returns and no safeguards. Who needs the rule of law?
Europe's face doesn't need a nose anyway.
Well, I think we can all find comfort in the fact that Michael Jackson was spared from all this insanity....
You just know he's being forced to fondle hot women in purgatory and hating every moment of it.
Walmart better buy dollar tree
Financial institutions keep taking on water. I hope lch raises margin soon. When they do, banks go boom and stocks will swoon.
What will Ben do?
He can't have sheeple sad on thanksgiving.
"The result was dreadful. They didn't manage to raise the full amount and the bid/cover is really poor."
Quick, someone at the ECB call Jon Corzine. He'll know what to do.
the ship is going down slowly and everybody is watching, because noone can do anything anymore. Euro was a good experiment, but in the end it failed. well, so what, who cares...
Not so slow anymore.
lol you're right
Angry Germans should care, specially if their EUR denominated debt will be replaced with new GOLDmark.
That will save the German banks by making domestic debt assets more valuable to offset PIIGS losses.
Governments may freely intervene in any private contract, that is why we call it free market.
Spain debt exposition...
Germany : 178B
France : 146B
UK : 101B
Netherlands : 76B
US : 58B
Italy : 32B
This is gonna be UGLY... I doubt those banks have the money to cover their margin hikes.
Fed's Bullard says US banks do not have great exposure to Europe
Is this guy fucking high?
If he means on-balance sheet exposure and assuming perfect netting, no counter-party risk, as in the Valley of the Federal Reserve Barbie Dolls, yeah, sure *cough*
He gets high with a little help from his Wall St friends.
Hey guess who else won't be able to pay their bills soon?
Syria Runs Short of Cash on Assad Spending"President Bashar al-Assad is paying Syrians, via subsidies and higher government salaries, to stay loyal to his government as it clamps down on an eight-month uprising. He may not be able to afford that policy for long.
The government’s worsening finances, with the increase in subsidies and salaries coupled with a 40 percent drop in tax revenue, will make it hard to maintain the stability of the pound, according to two Syrian bankers, who spoke on condition of anonymity out of fear of reprisal.
That would amount to a vicious circle for Assad, said Joshua Landis, a Syria specialist who heads the Center for Middle East Studies at the University of Oklahoma in Norman.
“The failure of the Assad regime to provide for its people was a major spark for this revolution to begin with,” he said. “Now it’s only going to become worse.”"
http://www.bloomberg.com/news/2011-11-16/assad-using-checkbook-to-buy-lo...
White rice in 20L tins, bitchez!
Really funny thing is that dollar strenghtens, and PM get cheaper, one day after US debt going above 15 trillion. and PM get cheaper even in Euros. Deleveraging, liquidity are usual explanations, but it shows how inefficient at pricing these markets really are.
You are assuming the "PM markets" are free ...the markets now have Central Banks and Governments involved....HFT computers...Chinese government hackers....and so on....todays drop was not a Market move....its someone or something raiding it somehow....probably a Congressman...insider information....lol
I believe they are rather "freedom ain't free markets". It looks like another great oportunity to exchange FRN for something more traditional.
I disagree. As the dollar has strenghten lately, PMs have gone sideways. I know, I tried a FX play (on which I am unknowledable) on IAU, selling when gold spiked in USD on temporary EUR strength. I intended to get back in when the EURUSD reversed, which it has. But gold did not drop back down (dang it). I still have my buy order in place, should there be a temporary dip in USD gold prices.
You have a point about long term trend of USD losing its value. Today the markets arre it seems pricing in deflation, and defaults by Euro contries, and maybe some forced selling of liquid assets. I don't know really, but in my opinion PM, and especially Ag, should be bought on a dip, rather than sold on a spike, if you are going to gamble.
Another day where U.S. "Paper" rules vs. "Hard Assets"
Huge scramble into U.S. Fiat Dollars and Uncle Gorilla Notes.
Ken Prewitt has already passed out in horror watching the 10-yr. yields sink.
Tom Keene has already lost his voice from screeching about ZIRP over and over again.
Times will come when heavily armed police squads will go from door to door and exchange this Uncle Gorilla Notes for some Hard Assets.
Citizens unhappy with the yield will be sent to FEMA re-socialization camps.
Attn. Tyler -- TYPO?:
Shouldn't the 2% be 20% in:
"The average yield on the bond was 6.975 percent, the highest paid since 1997, and almost 2% higher compared to the 5.433% paid on October 20."
from Urban Dictionary:
walking spanish
taking the last march to the death penalty, ie. Hanging, Electric chair. "Even Jesus want a little mo' timeWhen He's walkin' Spanish down the hall" ... Tom Waits
Here it comes. The speculation about "what if ....." is over. These bond auctions are starting badly. There is no reason to expect that they will finish better. Governments are in no position to work the Shell Game, buying up their own bods and putting them in the other pocket. We can watch the markets react, but we can't expect too much.
http://georgesblogforum.wordpress.com/2011/11/02/the-daily-climb-2/