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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.

ELISABETH AFSETH, FIXED INCOME ANALYST, INVESTEC, LONDON

"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."

ACHILLEAS GEORGOLOPOULOS, STRATEGIST, LLOYDS, LONDON

"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."

MICHAEL LEISTER, STRATEGIST, DZ BANK, FRANKFURT

"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."

PETER CHATWELL, RATE STRATEGIST, CREDIT AGRICOLE, LONDON

"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."

NEWEDGE STRATEGY, LONDON

"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."

LYN GRAHAM-TAYLOR, RATE STRATEGIST, RABOBANK

"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."

NICK STAMENKOVIC, RATE STRATEGIST, RIA CAPITAL MARKETS, EDINBURGH

"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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Thu, 06/21/2012 - 07:05 | 2546272 phungus_mungus
phungus_mungus's picture

Whats the CDS now?

Thu, 06/21/2012 - 07:23 | 2546301 GetZeeGold
GetZeeGold's picture

 

 

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

 

Thu, 06/21/2012 - 07:26 | 2546308 economics9698
economics9698's picture

When I read the WSJ Tuesday everything was fixed.

Thu, 06/21/2012 - 07:53 | 2546360 ndotken
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 

Thu, 06/21/2012 - 08:15 | 2546424 Stock Tips Inve...
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.

Thu, 06/21/2012 - 07:55 | 2546371 Peter Pan
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.

 

 

Thu, 06/21/2012 - 08:13 | 2546416 smb12321
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.

Thu, 06/21/2012 - 07:24 | 2546302 economics9698
economics9698's picture

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

Thu, 06/21/2012 - 08:40 | 2546481 GMadScientist
GMadScientist's picture

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

Thu, 06/21/2012 - 07:08 | 2546276 Ivanovich
Ivanovich's picture

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

Thu, 06/21/2012 - 07:12 | 2546283 fonzannoon
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....

Thu, 06/21/2012 - 07:24 | 2546299 Boilermaker
Boilermaker's picture

It is crashing!!!

ES now down almost a full handle!

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

Thu, 06/21/2012 - 07:31 | 2546324 LongSoupLine
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.

Thu, 06/21/2012 - 07:46 | 2546341 Boilermaker
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.

Thu, 06/21/2012 - 07:34 | 2546326 GetZeeGold
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 up.....gold down......POO slashed......almost like magic.

 

Thu, 06/21/2012 - 07:08 | 2546277 battle axe
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. 

Thu, 06/21/2012 - 08:45 | 2546498 GMadScientist
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. Well...at least all the check-out stands were converted to self-serve.

Mmmmm...."austerity loaf".

Thu, 06/21/2012 - 07:08 | 2546278 bigwavedave
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.

Thu, 06/21/2012 - 07:35 | 2546327 GetZeeGold
GetZeeGold's picture

 

 

Oh good.....another press conference.

 

Thu, 06/21/2012 - 07:47 | 2546344 phungus_mungus
phungus_mungus's picture

Yes!

But this time they mean it...

Thu, 06/21/2012 - 07:52 | 2546356 GetZeeGold
GetZeeGold's picture

 

 

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

 

Thu, 06/21/2012 - 07:42 | 2546336 EscapeKey
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.

Thu, 06/21/2012 - 07:10 | 2546280 fonzannoon
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.

Thu, 06/21/2012 - 07:16 | 2546289 bdc63
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.

Thu, 06/21/2012 - 07:13 | 2546284 Sudden Debt
Sudden Debt's picture

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

 

Thu, 06/21/2012 - 08:49 | 2546515 dbomb12
dbomb12's picture

And there is your joke of the day

Thu, 06/21/2012 - 07:14 | 2546285 bdc63
bdc63's picture

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

Thu, 06/21/2012 - 07:27 | 2546311 Satan
Satan's picture

Spanish banks.

I wish I was joking.

Thu, 06/21/2012 - 08:46 | 2546508 GMadScientist
GMadScientist's picture

BYOB...bring your own bailout?!

Nice bootstraps!

Thu, 06/21/2012 - 07:29 | 2546316 economics9698
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.

Thu, 06/21/2012 - 08:49 | 2546516 GMadScientist
GMadScientist's picture

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

Apparently the ungovernable Belgians!

Thu, 06/21/2012 - 07:15 | 2546287 Dick Darlington
Dick Darlington's picture

DEXIA RED ALERT!!! --> FRANCE and BELGIUM RED ALERT

http://www.reuters.com/article/2012/06/21/dexia-idUSL5E8HJEU020120621

Thu, 06/21/2012 - 07:20 | 2546296 hugovanderbubble
hugovanderbubble's picture

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

Societe Generale red Alert - Geniki Greek bank

Thu, 06/21/2012 - 07:28 | 2546314 Dick Darlington
Dick Darlington's picture

Ah, the good old french zombies!

Thu, 06/21/2012 - 08:51 | 2546534 GMadScientist
GMadScientist's picture

Ragin Belgian Contagion

Thu, 06/21/2012 - 07:16 | 2546288 hugovanderbubble
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)

http://www.rankia.com/respuestas/894840/fotos/51900 

(specially Generali,Axa,Allianz and Reinsurers)

 

and the most important thing.

 

SPAIN NEEDS URGENTLY a PRIVATE AND PUBLIC DEBT HAIRCUT FROM 5-35% NOW

 

 

http://www.rankia.com/respuestas/1334910/fotos/72417

 

 

Thu, 06/21/2012 - 08:53 | 2546540 GMadScientist
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.

Thu, 06/21/2012 - 07:16 | 2546290 sangell
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.

http://ineteconomics.org/blog/244

Thu, 06/21/2012 - 07:25 | 2546303 Catullus
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. 

Thu, 06/21/2012 - 07:26 | 2546309 fonzannoon
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?

Thu, 06/21/2012 - 07:28 | 2546313 Marco
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.

Thu, 06/21/2012 - 07:49 | 2546348 The Age of Usef...
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:

 

http://www.bloomberg.com/news/2012-05-23/merkel-should-know-her-country-...

 

Thu, 06/21/2012 - 08:10 | 2546409 mjk0259
mjk0259's picture

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

Thu, 06/21/2012 - 08:55 | 2546558 GMadScientist
GMadScientist's picture

So-fist-icated Investurs

Thu, 06/21/2012 - 09:05 | 2546597 steve from virginia
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.

 

 

 

Thu, 06/21/2012 - 07:31 | 2546320 jubber
jubber's picture

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

Thu, 06/21/2012 - 07:30 | 2546322 Boilermaker
Boilermaker's picture

Looky at the futures.

Man, this is well beyond god damn ridiculous.

Thu, 06/21/2012 - 07:32 | 2546325 lailapa
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?

http://eamb-ydrohoos.blogspot.gr/2012/01/global-debt-crisis.html

Thu, 06/21/2012 - 07:46 | 2546340 overmedicatedun...
overmedicatedundersexed's picture

obuma; i could do nothing the problems in EU were much worse than I was led to believe..bush did not tell me how bad it was..damn bush

Thu, 06/21/2012 - 07:48 | 2546343 caimen garou
caimen garou's picture

all we need is a little more bad news and es will hit 1500 by next month,market gone full retard!

Thu, 06/21/2012 - 07:54 | 2546364 orangegeek
orangegeek's picture

Primary wave 3 down pending for the SP500.

 

http://bullandbearmash.com/index/sp-500/daily/

Thu, 06/21/2012 - 07:57 | 2546373 Silberadler
Silberadler's picture

Some simple maths:

Spain bonds sold today:

Spain bonds sold 21.06.2012

Bond                             Expiry      Interest      Interest payable
700 million 2-year bond, April 2014 4.706% ->  67.434.250 EUR
918 million 3-year bond   July 2015 5.457% -> 158.636.050 EUR
602 million 5-year bond   July 2017 6.072% -> 206.351.560 EUR

Interest total over 5 years 432.421.860 EUR

Now - looking at the bailouts already on the sheet *plus* the billions to expect, knowing that this is not charity per se but *loans* - the goverment budget balance sheet must be a 'world of shit' if they have problems financing at these rates...

Oh my - get your popcorn ready and your HP12C calc...

 

Thu, 06/21/2012 - 08:02 | 2546386 caimen garou
caimen garou's picture

yea, popcorn check, beer, check,caculator,check,vomit bag,check! im ready now!

Thu, 06/21/2012 - 08:29 | 2546465 The worst trader
The worst trader's picture

Bullish!

Thu, 06/21/2012 - 08:51 | 2546535 Oldwood
Oldwood's picture

When the gambler is down, he either leaves the table, which rarely happens unless forced, or he increases the bet. They really have no choice as they will either get lucky or end up dead in the ditch. We can't apply rational thought to people driven by emotion and addiction. They must place their bets. There are self destructive people at the highest levels and they have no problem with destroying the rest of us in their compulsions. The simple truth that productive work has lost out to placing the bet as the most obvious means to prosperity, has doomed us all. We might as well be watching alcohol or cocaine sales as an indicator of economic health as the stock and bond markets. It would probably be better in that at least someone might have a job growing or producing those commodities even though they all take us ultimately to the same place.

Thu, 06/21/2012 - 11:00 | 2547190 KandiRaverHipster
KandiRaverHipster's picture

honestly who is lending these countries money at these "risk" premiums?  i really need to finish my masters thesis on why risk premiums should be inversely proportional to risk.  do bond holders really expect to get their money back?  can they really count on the ECB/germany backstoppping them?  talk about risk.

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