Italian Yields Back Over 7%, CDS Passes 600, Futures Tumble On Abymal Spanish Auction, Lack Of Monti Government Consensus

Tyler Durden's picture

It took Europe two days to go from fixed to fully broken all over again. Those curious why they are waking up to a see of red, Italian 10 Year yields back over 7%, stock futures tumbling, the EUR/$ sliding, Italian, French and Belgian CDS at fresh records, and a record scramble for Bund short-dated bonds (2 Year under 0.030%) is due to two main things: a failed Spanish auction now that contagion is back to sleepy Iberia, which sold €3.2 billion of bills, below the €3.5 billion target, with the yield soaring to 5.02% from 3.61% at Oct. auction leading to Spanish 2-, 10-yr yield spreads to Germany both significantly wider to records.  The second main factor is the realization that Mario Monti is not the second coming and will in fact face major resistance to form a government. Bloomberg reports: "Monti, a former European Union competition commissioner, struggled to get political parties to agree to participate in his so-called technical Cabinet during talks in Rome yesterday. A government lacking political representation will find it harder to muster support from the parties in parliament to pass unpopular laws. Monti said he’ll conclude his talks today." And if Monti can't do it, nobody can. Which explains why the fulcrum European security, the Italian 10 year BTPs, just fell off a cliff, and is now yielding back over 7% at a euro price of under 85 cents. This could well be crunch time: there are no more magic rabbits in the hat, or deus ex prime minister resignations in the hat for Italy.

More from Reuters on Spain's miserable auction:

Spain paid levels not seen since 1997 to sell 3.2 billion euros ($4.4 billion) of short-term debt on Tuesday as failing investor confidence in euro leaders' ability to handle the debt crisis forced up risk premiums.


Solid demand allowed Spain to sell at the high end of its target range of between 2.5 billion and 3.5 billion euros of 12- and 18-month bills. Debt-ridden Greece also sold 1.3 billion euros of a 3-month Treasury bill at 4.63 percent -- only two basis points up on the previous auction.


But the higher costs of borrowing on the Spanish issue reflected market moves that pushed 10-year bond yields to their highest since August, driven by concerns that Italy, the euro zone's third largest economy, will need a bailout.


A change of government in Italy gave markets barely a day of relief on Monday before investors went back into selling mode.


"The frightening part is just how much yields have risen since their last one. That is a colossal rise, it does really emphasise just how much anxiety there is," strategist at Monument Securities Marc Ostwald said.


"In terms of the actual yields, it doesn't bode well for Thursday's sale."

Instant reaction on the auction:


"In terms of allocation the auctions look rather poor, below the upper end of the targeted size range. The indicated 2.5-3.5 billion euro already represents a rather small size for a Spanish 12- and 18-month Letras auction but reflects th current market environment."

"(The rise in yields) certainly is a concern, but as long as the European Central Bank is providing unlimited liquidity, domestic banks have an incentive to acquire the bills and repo them right away with the ECB. That's also the reason why Greece can still issue bills."


"Quite contrasting, in the sense that the cover on the 18-month was that much better but on the other hand it was a much smaller size that they sold."

"The frightening part is just how much yields have risen since their last one. That is a colossal rise, it does really emphasise just how much anxiety there is."

"In terms of the actual yields, it doesn't bode well for Thursday's sale."


"The very high yields are proving very attractive for market participants who are bidding at the auction. On average, the T-Bill auction is a positive signal for the market that investors are still buying Spanish debt despite concerns as to what will happen after the Spanish elections with the budget consolidation programme."


"You can see a bit of relief that these bill auctions have gone through in a relatively sound manner... but yields are much higher than the previous sales and it shows that there isn't enough of a backstop from policymakers or the ECB to bring yields back down again."

The damage:

Obviously, there is a bubble in Spanish bond yields in November:

Italian 10 Year yield:

Italian BTPs price:

and ES:

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Matevski's picture

So much for Super Mario...

CosmicBuddha's picture

Time for Sonic the Hedgehog.

Oh regional Indian's picture

More like time for Super Mario, no? 

What I found a real tell in this GReece/Italy (and Libya too) is what they are calling these "mid-term" governments. What's the word... in Greece they called it the "Unity" government, before changing to transitional and then Coalition now.

Unity GOvernment with a TechnocRAT Prime Minister.

Damn NWO is swallowing at warp speed.

And why is broke, in tatters, shit for Prezo France such a big player anyways? Germany I can understand.

All rather stinky. Like shit.


Mandlebrot Magic

paarsons's picture

Just tell the fucking truth.

We need another guy like Ronald Reagan who is willing to install a man like Paul Volker as Chairman of the Fed.

We need higher interest rates and severe margin calls to solve this problem.

We aren't Japan.  Our economy is bigger.

Our next president should have the courage to strangle the speculators.

Maxwell Smart's picture

Ronald Reagan is my favorite U.S. President.

He brought down the Soviet Union and liberated a lot of countries.

Hopefully somebody will bring down the European Union and liberate a lot of countries. 

What a joyful day that will be!

Pegasus Muse's picture

Reaganomics .... Supply Side Economics .... the Laffer Curve .... 

those were the days my friend, we thought never end, we'd sing and dance forever and a day ...

The Myths of Reaganomics, Murray Rothbard: 

La Guillotine's picture

That's strange, a zero hedger believing the crap that comes out of Washington.  Reagan wasn't inclined to give the USSR a break but rest assured the USSR simply went broke after a decade or more of sliding commodity prices.

achmachat's picture

and... he's just getting started!
i wonder if watching this unfold is as interesting for the people in Italy...

paarsons's picture

You motherfuckers never learn.

Bond yields go up and bond yields go down.

You have no control.  The powers-that-be  and the specutlaters are in charge.

The cure?  Higher interest-rates and margin-calls.  Good luck with that.

We are just the serfs.

Tune in, turn on, and drop out.

ThatThatcher's picture

Can you just sod off please?

disabledvet's picture

Yeah, more like "Pooper Mario" now. I swaear to God these egos grow on trees in far greater numbers than common sense. The ecnomic equivalent of Patton taking Metz...from Mr. "bypass the cities" to "i like THAT one!" in a single promotion.

GeneMarchbanks's picture

"The frightening part is just how much yields have risen since their last one. That is a colossal rise, it does really emphasise just how much anxiety there is."

Ain't seen nothin' yet.

Pretorian's picture
  1. Hey Italians, don't fuck with Goldman employee , see how they can move your borrowing cost in second. Just accept consensual sex.


pendragon's picture

and yet moves in equity and currency mkts are still only incremental relative to the panic in sovereign bond mkts. when are the equities going to wake from their slumber?

trampstamp's picture

I guess when Congress is loaded up on puts. bastards!

entendance's picture

OWS NY Overrun! In Middle of the NIght

W.Pollock comments


Global Hunter's picture

Given how long Spain has been existence, it should be alarming to TPTB that interest rates rising to levels seen only 14 years ago blows threatens to blow the country up.  

Josephine29's picture

The Spanish situation is explained well here. Look at her latest retail sales and industrial production figures!

So as we wonder when we will hear a call of “Times Up!” for Spain’s banking system we can muse on the fact that her recent economic data has been weak. Her latest economic growth figures showed no growth at all which were an improvement on her retail sales figures which fell on a year on year basis in September by 5.8% and industrial production which fell by 1.8% on the same basis. So after a poor third quarter the fourth quarter has shown signs of further weakening and possible recession.


Investors in Spain’s government bonds have taken the hint and their prices have fallen heavily this week. Her ten-year bond yield which closed at 5.85% on Friday is 6.27% as I type this and is nearing its highs before the July 21st meeting.


Gandalf6900's picture

People in Italy are clueless...the only thing Monti will do is sell italy's sovereignty to his uber friends in the higher echelons, resolving nothing useful such as tax fraud and government spending...the system is broken, no man can fix it, only a coordinated effort from the whole country...GAME OVER BITCHEZ

spankfish's picture

Abymal = abysmal ... yes I know, spelling Nazi (Godwins Law)

New_Meat's picture

Hank Jr. doesn't think it funny at all ;-) - Ned

Little Red Rooter's picture

Bee hives and chicken wire, bitchez!

Sequitur's picture

Um, how much Botox did Becky Quick inject into her face? It's not even moving, look at that upper lip.

PontifexMaximus's picture

and again, the casta politica italiana will never learn it, never ever. They only understand one language: la frusta, hitting and beating  them up hard, rates above 8%. Funny that Sarko is not worried, he strongly should be....and better sooner than later.

GerritB's picture

Its getting harder and harder to produce a rumor....maybe its time to let the the PIGS out!!

upWising's picture

Anagram Time, boys and girls!!!  Get out your crayon (either end of the crayon will work), adjust your helmet, and get ready:

We already know about the PIGS.

Here is a NEW anagram for Smart Boys and Girls:::

So there is -->France<-- whose banks teeter on a tower of uncollectable debt.

Then there is the -->UK<-- which is up to its ears in debt (130%+ GDP) and mired in recession.

And -->Cypress<-- is just a little Greece Real Estate Bubble on steroids.


Now write down the letters that are in bold and rearrange them to form a word.  (HINT: Think about physical activity in a horizontal position - usually - between consenting adults.)

Raise your hand when you have the answer.  Don't fall out of your chair.

The Axe's picture

Just another day at the store: Open down 120 on Europe woes, markets close in Europe, and your rumor...mix...start algo computers, close them

Bangin7GramRocks's picture

Why worry! The U.S. or the EU will invent another 10 trillion and then poof, problem solved. Shit, 90% of the "wealth" created in the last 20 years has been miracled out of thin air, so what is the harm in inventing more? I have ceased waiting for reality. I am ready to accept the matrix and live a happy, fruitful life in ignorant bliss.

Frankie Cokeupthenozza's picture

Well put 7 grams. Correct, short and to the point.

Frankie Cokeupthenozza

Augustus's picture

Who or What bought the bonds?  MF Global is out of the market.  Euroland banks are doing the deleveraging.  It is not a market to be looking for the flip with all of that overhang,  It is somewhat wurprising that the Italians did as well as they did.  That is what PETER CHATWELL, RATE STRATEGIST, CREDIT AGRICOLE CIB, LONDON is dropping a clue about.  He can't figure it out either.

disabledvet's picture

Denial is NOT AN OPTION, bitchez.

rosethorn's picture

Where's that whiff of grapeshot?