A Long-Term View Of Spanish Bonds

Tyler Durden's picture

Just over three months ago, George Soros said the Eurozone has three months to come up with a master plan or else face disintegration. Two months into this countdown, Spanish bonds at both the long and short ends soared to record wide levels, approaching the predicted "game over" state as they nearly inverted, only to see the world's most powerful jawboning intervention by the ECB commence in late July when Draghi delivered his famous "believe me" speech. As of today, Spanish 2 and 10 years bonds have retraced a lot of the priced in doom, with the short end collapsing by a record 350 bps, leading to the steepness on the Spanish bond curve to hit unseen historical levels. However, as the chart below shows, this is not the first, nor even second time that the Spanish bond curve has reacted violently to promises (and even actions - something we have yet to see from the ECB for all its endless talk) that all shall be well, coupled with further promises that this time it's different. It isn't. But enjoy the euphoria while it lasts.

Finally, as pertains to central banks, the market now appears to have shift the paradigm from one of "sell the news" to "sell the action" - and it appears that both Draghi and Bernanke are aware of this, and are hoping to avoid having to intervene as long as possible. Alas, with Spain's cash level dwindling, and US bank reserves in dire need of repletion in order to send stocks higher on outright nominal, and not levered buying, the time for mere talk is ending.

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hugovanderbubble's picture


Then Spanish bonds = Junk Rated

Then Debt Haircuts in Spain and Italian Bonds

Then Equities -20%

Then US QE3...


fonzannoon's picture

Both guys seem to be leaning towards open ended type operations. I think that also helps them with the sell the news scenario. I think Bernanke does nothing next week but if he does something it will probably be the start of open ended QE. Then it's just a metter of how long the market plays along. My guess is years. You won't hear anything about the debt ceiling this year. It will be passed quietly by both sides.

DormRoom's picture

Open ended operation will sink the world into stagflation as everyone chases hard assets.    If that happens it's game over for Central Banks, since all the advanced economies will be stuck in liquidity traps, unable to get out without MAJOR social unrest.


Already, Europe & China are headed toward stagflation.  The US has a little bit more room to maneuver, but it too is headed towards stagflation, albeit slower, than the other economies.

fonzannoon's picture

Yup agreed...and yet i still think thats the plan. i dont pretend to think they give a shit about making things better

new game's picture

open ended as in bend over...

govttrader's picture

Come on people...who really trades spanish bonds anyway...just trade US teasuries and make it rain!!!


MillionDollarBogus_'s picture

Who, indeed........

Not me.....

No way...

No how...

disabledvet's picture

Must have been the Spanish Cucumber. At least that's what the Germans keep claiming...

falak pema's picture

unlimited liquidity with the ECB virtually joining the FED, BOJ, BOE QE club means there are now risks of hyperinflation and pumping the liquidity could hit very fast the asymptote of diminishing returns on each new QE bullet injected into the system.

On both sides of the pond! Tipping times if the velocity of funny money pumping thru system falls to ZERO! 

The Squid international finance system is dangerously close to saturation even if it seems to have convinced Germany to join the cabal; official acceptance or rejection of this process will become evident by October with the Karlsruhe and Greek decisions; as well the ability of Spain/Italy to meet "conditionality"; all the while the hot money runs away from Spanish banks. The banks know their time line is limited, but they cling to their last hopes in TBTF hubris tinged with fatal despair.

One big CB family all on the same page, BUT the systemic risk of non functional liquidity becomes an ever increasing nightmare. 

If hyper inflation comes in 2013 the WS levitation will lose its magical effect on Oligarchy morale, and the inevitable interest spike will kill their treasure trove, once the asset unwind cannot be stopped.

The harder the fall... the Titanic orchestra plays on in the meantime, basking in Draghi sleight of hand euphoria.

Nobody knows where the iceberg is positioned, nor when the boat becomes the Titanic or the Costa Concordia!

Thats the beauty of hopium. Even Cameron is applauding, smiling yellow-green around the gills at the Draghi caper.

Seorse Gorog from that Quantum Entanglement Fund. alright_.-'s picture

So based on my namesake's timeframe, is the Eurozone definitively finished? I can see it limping on though.

new game's picture

couldn't have said it better f p

a pink swan it must be...

youngman's picture

All bonds will be 2%.....with the Central Banks buying them all...they will set a % and that is what they will evolve to...I think its 2%.....

Dick Darlington's picture


That's all folks...

Zero Govt's picture

there's no stopping them...

RiskAverseAlertBlog's picture

Nice call on "sell the action." Couldn't agree more. The fascist pigs are trapped.

d edwards's picture

Re: Draghi-when a politico says "believe me" you shouldn't!

Dareconomics's picture
Actual Spanish Financing Needs

Spain Bond Yields Fall but Demand Is Sluggish – WSJ.com.

I was reading the article above from the Journal, and I came across a very interesting sentence:

"The auctions mean that Spain has now completed almost 77% of its borrowing needs for this year."

Like a lot of you, I have been following this Eurocrisis for quite some time, and I wondered if the various numbers being thrown around were accurate. In the Spanish case in particular, the mainstream media has been counting down remaining Spanish financing needs since the Spring. Every poor Spanish auction result contained the palliative, “…but Spain has now completed X% of its financing needs for the year. I wondered where this number came from, because the mainstream media neither showed its work or attributed this number to anyone. It seems to be conjured from thin air.

What piqued my interest this number is that it has been consistently rising as Spain auctions debt, but Spain’s budget deficit has worsened from 5.3% of GDP to 6.3% officially to 8.08% unofficially based on projections from the first half. I wanted to see if I could come to 77% by using all of the available Spanish financial information out there. I started by adding all Spanish debt sales year-to-date to see how they compared to the budget deficit plus the amount of old debt that needed to be rolled over.

Allow me to work through the math. (All figures rounded. Check out the chart for the exact numbers) I added up all of the bond sales for the year including the September 6 auction. Next, I subtracted the short-term bill sales that would mature by the end of the year, because those sales do not reduce the financing needs for 2012. I obtained €102bn.

This number is supposedly 77% of Spain’s financing needs for the year based on the sentence from the WSJ above. Dividing €102bn by 77% yields an implied figure of €133bn for the rest of the year meaning that Spain has to sell about €31bn in bonds for the rest of 2012.

My calculations show that this number is way off. Spain has €98bn in debt coming due in 2012. Adding the projected budget deficit of 6.3% of GDP, €74bn, gives us financing needs of €172bn. That means remaining financing needs from now until the end of the year are €70bn, and Spain is only 60% of the way there, not 77%.

The situation is actually much worse than this...

Read more here:



AynRandFan's picture

No kidding.  Spanish 10-yr yield is 5.749% this morning.  Euphoria or just a very thin, volatile market?