Global Recession Accelerates As Spain Continues To Fund Itself At Record Unsustainable Yields

Tyler Durden's picture


Hours before Spain is expected to present the bank "assessment" from Roland Berger and Oliver Wyman on its comprehensive bank insolvency status, the country sold €2.22 billion of two-, three- and five-year government bonds, in a sale which saw solid demand but yields that are simply laughable and are completely unsustainable, culminating with a record yield on 5 year paper. Per Reuters, the Treasury sold 700 million euros worth of a 2-year bond, 918 million euros worth of a 3-year bond and 602 million euros of a 5-year bond, beating a target to issue up to 2 billion euros of the debt. Demand was high, with bid-to-cover ratios rising on all three maturities from the last time each of the bonds was sold in a primary auction. The Treasury sold the April 2014 bond at an average yield of 4.706%, more than double that paid at the last primary auction of the paper in March of 2.069%. The bond due in July 2015 had a yield of 5.457% compared to 4.876% in May, while the longer dated July 2017 bond sold for 6.072%, compared to 4.960% last month. This was a record high yield. In a nutshell: big demand for paper that will leave Spain pennyless. Not very surprising, and as Elisabeth Afseth from Investec summarized, "They got it away, it's about the most positive thing you can say about it."

Elsewhere, in the aftermath of the disappointing China PMI update,  there was nothing to smile about the German economy either whichcontinues to deteriorate from carrying the weight of the PIIGS on its shoulders, as the Mfg and Services PMI both missed estimates of 45.2 and 51.5, and printing at 44.7 and 50.3, respectively. This was a 3 year low for German PMI and now all but confirms that the economy will enter a recession at the next GDP update.

The PMI-implied European GDP is a disaster and getting worse.

But all this pales in comparison with the latest update of the Greek comedy where we learn that the three parties forming Greece's new coalition government have agreed to ask lenders for two more years to meet fiscal targets under an international bailout that is keeping the country from bankruptcy, a party official said on Thursday. This came a few hours after a German parliamentary group officially spoke against a time trade-off for Greece. Which means that beggas will not be choosers after all.

Some sell side views on the latest Spanish auction. If you don't read these don't worry. There will be many, many more to come.


"They got it away, it's about the most positive thing you can say about it. Also it's above the modest target they have set for themselves, but the yields are not anything to be too pleased about it. These are high levels."


"I don't think it's such a surprise. I think the market, especially based on the 2 billion target, thought that it would be easily absorbed but of course there was always some fear.

"The first worry is can they fund from the markets? So they raised 2.2 billion versus a 2 billion target, so they can raise the money. Then the (question is), are the yields threatening for the medium term? And yes, clearly they are much higher than the previous auction, which was widely expected. But still they can continue for a few months to fund at these levels."


"The figures look really strong by all means. They overshot the maximum target range but also the pricing looks really strong. All the bonds were issued at more than 20 cents above secondary market levels.

"Although here the negative is the heavy tail on all three lines that indicates quite a dispersion of bids.

"To be fair, this is not really a huge surprise for the market with this latest turn in sentiment and the heavy cheapening we've seen over the last weeks. It was always to be expected that at least today they would print numbers along these lines."


"The auctions have all been well bid, particularly the 2014s which came through the market and was also very well covered. The rally over the past three days will have helped garner this strong bidding, seemingly with the market not wanting to be short given the pending talks regarding the EFSF/ESM."


"All lines were well received, with a total bid/cover of 3.5 times. Not surprising given the small size on offer...Talks that the EMU governments might use the EFSF/ESM funds to buy periphery bonds on the secondary market might have been a supportive factor at today's action.

"Details of today's auction show rising yields versus the previous taps, due to the massive uptrend in yields that was only partially offset in the past three days. Current yields are - in our view - a sign that the market is still pricing in risks of a euro break-up."


"These are a strong set of bid covers although obviously yields are at extremely elevated levels (with the five-year above the psychologically significant 6 percent level). The strong set of bid/covers is likely to have been driven by the hope that some form of secondary market purchase scheme will soon be implemented and that this will see a rapid reduction in yields. All in all a result that was largely expected, albeit with a higher than anticipated set of bid/covers."


"Peripheral markets relieved that Spain managed to raise...a tad above the upper end of the target. Demand was decent for all three auctions, probably driven by domestic investors, but yields significantly higher than previously, indicative of the rising risk premium demanded for purchasing Spanish government bonds. Against this backdrop short-dated yields should rally further near-term as shorts are covered amid rising hopes of policy action at next week's key EU summit, steepening the yield curve."

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GetZeeGold's picture



Crap.....I thought they'd have this stuff fixed this morning.


economics9698's picture

When I read the WSJ Tuesday everything was fixed.

ndotken's picture

Tyler ... get it right ... stop calling this a Global Recession like the MSM ... and start calling it what it is ... a Global DEPRESSION 

Stock Tips Investment's picture

In fact, I think that this crisis is deepening rapidly. The situation in Spain is beginning to be desperate. But do not forget that this is not an isolated case. All Europe is in crisis and for the same reasons. It is only a matter of time and see how the other members of the Eurozone and UK are beginning to show the same problems as Spain.

Peter Pan's picture

Can anyone of the political and banking clowns tell me honestly where the improvements in their economies are going to come from when virtually all indicators are softening?

And if economies are softening where the hell will the impetus for jobs growth come from?

And if economies are softening how does that enable the generation of higher income for debt reduction?

These idiots are on track for hell but they wear the contented smile of a Cheshire Cat simply because they are on track.



smb12321's picture

Of course not. They can't tell you because "growth" to them consists of more debt. Asthe world's economy becomes more and more politicized (where economic actions are politically motivated) globale onomics has devolved into sloshing debt while manipulating value. I have no idea how Spain could pay back bonds with zeo interest except wi Monopoly money.

economics9698's picture

I just love it when the Greeks still think their opinion counts. 

GMadScientist's picture

I just love it when people holding a piece of paper think they're going to be paid.

Ivanovich's picture

Sooo...why isn't everything crashing in lieu of all this bad news?

fonzannoon's picture

Because nobody knows where to run. It's funny when I started buying metals I did not care whether inflation or deflation slammed me. I just figured it was safer than all the alternatives no matter what the scenario. I need to get back to that thinking....

Boilermaker's picture

It is crashing!!!

ES now down almost a full handle!

Wait.....OK, nevermind that thought.  It's green.

LongSoupLine's picture

Beat me to it Boilermaker...

Bad China PMI, Spain implosion and futures about to go green. However, whe there's only 5-10 traders in the game and all of them have the first name of "algo", this is what you get.

Boilermaker's picture

Well, it's obviously artificial and contrived.  It's actually getting worse every day which, to be honest, I didn't think it could get.  However, I should adhere to the age old thought that IT CAN ALWAYS GET WORSE!

This is just horse shit now.  Simple, pathetic, and blatant horse shit.

GetZeeGold's picture



Sooo...why isn't everything crashing in lieu of all this bad news?


It's amazing what you can do with a couple trillion in hot QE cash thrown up in the air......


Equities down......POO slashed......almost like magic.


battle axe's picture

Wait until the German economy really stalls, then, Merkel gone, and Germany saying adios to the Euro. Only thing that has kept Merkel in power is the German economy doing fairly well. 

GMadScientist's picture

Germany is like the Home Depot that was doing well while contractors were gorging themselves, but moving to a cash only policy, and layoffs in town, have left the aisles empty. least all the check-out stands were converted to self-serve.

Mmmmm...."austerity loaf".

bigwavedave's picture

from Grauniad

The Spanish government will hold a press conference at 4.30pm BST to present the results of the Spanish bank stress tests. Economy minister Fernando Jiménez Latorre and deputy governor of Banco de España, Fernando Restoy, will appear together.

GetZeeGold's picture



Oh good.....another press conference.


phungus_mungus's picture


But this time they mean it...

GetZeeGold's picture



Rumors are flying they will indeed invoke the "double-dog" clause.


EscapeKey's picture

That's great, I can't wait for our daily comedy.

They should publish those numbers in Mad Magazine for extra credibility.

fonzannoon's picture

The Krugman camp is going  to start really hitting Bernak hard. Especially when the July NFP report is negative and GDP comes in at -0.2% and everything else is revised down. By this time oil will be comfortable below $80 and maybe August amidst a total meltdown happening in Europe Ben comes in with a huge QE. Thats my guess anyway.

bdc63's picture

That's what Bernanke is waiting for ... the begging.  Once you see Cramer on CNBC with his "THEY KNOW NOTHING" part deux rant, you'll know the time grows near.

Sudden Debt's picture

and yet our media calls the auction  "sucessfull"....


dbomb12's picture

And there is your joke of the day

bdc63's picture

who in their right mind would loan Spain money for 5 years at 6.072%?

Satan's picture

Spanish banks.

I wish I was joking.

GMadScientist's picture

BYOB...bring your own bailout?!

Nice bootstraps!

economics9698's picture

When you can print money it makes a lot of sense to loan Spain money ay 6%.  Even if you get 50 cents on the dollar it cost you 1 cent on the dollar to print.  The magic of fiat.

GMadScientist's picture

"Dexia has 35 bln euro Italy exposure, 18 bln euros for Spain"

Apparently the ungovernable Belgians!

hugovanderbubble's picture

CREDIT AGRICOLE red Alert -Emporiki Greek bank 33.000 Mn Loans -80% Losses

Societe Generale red Alert - Geniki Greek bank

hugovanderbubble's picture

Irish Stress Test 2010 passed then -50%

Portuguese Stress Test 2011 passed then -45%

Italian Stress Test 2011 passed.....then -40%


Spanish Stress test ----passed then....? Yes Santander 2.7 euros per share 0.15x Price to book value ALL BANKS

Dividend Cut*

Raising LCH Bond Margins* next 21 *

Nationalizations coming not just in Spain...Credit Agricole is the next one in Europe...(oh la la France)


-Insurance Sector is a mess (Liabilities Mismatch) 

(specially Generali,Axa,Allianz and Reinsurers)


and the most important thing.





GMadScientist's picture

We regret that our models did not include a "Complete and Utter Shitshow" scenario.

Scream with a megaphone that 35% now is better than 80% later, but they'll never hear ya.

sangell's picture

Perry Mehrling demonstrates that all that is needed is to create a gigantic SPV out of the ESM to relieve the Euro banking system of their exposure to sovereign risk and the sovereign to the banking system.

Catullus's picture

I can own Spanish 5-years at +6% or 10-years at 7%?  Interesting.  I think I'll need to get paid more for those additional 5 years. 

fonzannoon's picture

Hey whatever happened to the downgrade of the spanish banks that was supposed to immediately follow the soveriegn downgrade? Speaking of that whatever happened to the downgrade of the US banks?

Marco's picture

How the hell do you blame PIIGS support for poor PMI in Germany? As if cutting them lose now would change anything about it, if anything it would make them worse in the short term. A strong Euro (from deflation) together with the collapse of their main trading partners, yeah ... that's really going to get the orders rolling in for their goods and services!

Their PMI is fucked not because they are supporting the PIIGS now, there is NOTHING they can do to stop their economy from sinking NOW ... there is a massive misallocation of capital inside Germany aimed at exports in trade for debt, which will have to be painfully readjusted. Far less painful than the readjustment necessary for the PIIGS, but painful nonetheless.

To pretend forcing more austerity on the PIIGS could somehow allow Germany to avoid a recession is naive at best ... or worse disingenuous. They should never have allowed the cumulative trade imbalances and corresponding debt to build up in the first place if they wanted a stable economy.

Long running trade imbalances cause chaos, as Keynes so aptly noted.

The Age of Useful Idiots's picture

Oops, you used the bad "K" word. Never, ever do that here.

Btw, Germany's financial and political elite is screwed. The childish morality bedtime story portaying Germany as the "responsible" party worked for a couple of years, but as the truth is coming out the backlash gets stronger and stronger. You can't bailout your banks stealthily using European taxpayer money and then demand that everybody else sacrifice their economies, only to then insult them too. The B.I.S. money-flow figures have been circulating in a lot of European capitals lately, they were also one of the reasons why the G20 were able to paint Merkel into a corner, and the German taxpayer is also slowly finding out what really happened. If the contagion spreads to Italy, it's going to get really ugly. It's one thing to scapegoat Greece, quite another to try to pull this off with Italy.

For anyone interested, here is how exactly the "bailouts" were used to save the German banking sector by offloading all the losses and risk on European taxpayers, made crystal clear by Bank of International Settlements data. And keep in mind that with every bailout, it is German (and French banks to a lesser extent) getting bailed out, not the sinners of the periphery:


mjk0259's picture

They needed to get bailed out  because they bought lots of US mortgages.

steve from virginia's picture


Germany is as dependent upon external credit as Spain. Germany is more dependent upon exports than any of the other euro-states.




jubber's picture

meanwhile the market reverses all this mornings losses and goes positive as usual, total utter manipulation

Boilermaker's picture

Looky at the futures.

Man, this is well beyond god damn ridiculous.

lailapa's picture

Global Debt Crisis - The greatest private fraud of human history

Who are the great fraudsters who are becoming the murderers of the human kind?

How does the economy "illness" threaten Democracy and the freedom of people?