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LTRO Failure Full Frontal As Spain 10 Year Approaches 6% Again

Tyler Durden's picture




 

US data this week is relatively sparse (as usual in a post payroll week) leaving little evidence over the next few days to progress the seasonality debate but after a long weekend of derisking in mind and now in reality, Europe is front-and-center once again. Spain (and less so Italy) has decompressed to its worst levels of the year (5.96% yield and 425bps spread on 10Y) has now lost all of the LTRO gains as the curves of these liquidity-fueled optical illusions of recovery bear-flatten (as front-running Sarkozy traders unwind into the sad reality - most specifically for Spain - that we described in glorious must read detail here). Divergence and decoupling remain sidelined also as Deutsche Banks' Jim Reid notes the 4-week rolling beat:miss ratio in the US macro data has fallen to 24%: 73% (3% in line) from a recent peak at a string 70%:30% on February 29th. His view is still that in a post crisis world, especially as severe as the one we've just been through, Western growth is going to continue to be well below trend for many years and with more regular cycles. With Spain teetering on the verge of a 6% yield once again, we are still off the record wides from late November but not by much as the vicious cycle of sovereign-stress-to-banking-stress-to-banking-stress re-emerges in style. The European situation is still incredibly political and while we'd expect much more intervention down the line, expect the discussions and rhetoric to be fairly tough. The ECB last week indicated that they felt the recent widening in Sovereign spreads was more due to sluggishness in the pace of reforms. They are therefore unlikely to intervene in a hurry. So if Europe does need further intervention it is likely to need to get far worse again first.

US macro data is missing expectations more and more as US decoupling myths get exposed as seasonal adjustment folly...

 

And Europe's vicious cycle re-emerges as Yields...

 

And Spreads break to near record wides once again...

 

As Spanish 2s10s bear flattens at its quickest pace since the rally began...

And Italy (while better than Spain recently) is also losing ground rapidly in yield and spread...

We are still around 1% off the highs of November last year but 90bps off the lows of just a month ago. CDS is now only 25bps off its highs and is fairing worse as this has been less distorted by both SMP and the LTROs. So worrying times again, especially as the LTROs were a huge move. We fully expected the Sovereign crisis to have more mileage as we moved through 2012 as the honeymoon period of the big events of late 2011 faded (new Governments in Spain and Italy, LTROs, and a new ECB governor) and growth remained weak in the peripherals.

 

Charts: Bloomberg

 

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Tue, 04/10/2012 - 09:01 | 2330737 GetZeeGold
GetZeeGold's picture

 

 

Failed again? Must be doing it wrong.

 

Oh crap.....forgot to carry the 1.......there, fixed it.

 

Tue, 04/10/2012 - 08:49 | 2330740 fonzannoon
fonzannoon's picture

I see 25 summits over the next 50 weeks and several 3am deadline announcements that are subsequently deemed a no go. That should fix it again.

Tue, 04/10/2012 - 09:37 | 2330871 i-dog
i-dog's picture

Spain has quite a few more problems to deal with over the next 50 weeks ... like raising €186 billion in 2012 -- with more [failed?] auctions every 2 weeks:

http://gonzalolira.blogspot.fr/2012/04/spain-will-exit-eurozone-firstthis-year.html

Tue, 04/10/2012 - 08:49 | 2330743 Ivanovich
Ivanovich's picture

I guess this explains why the Euro continues to be so resilient.  ...?

Tue, 04/10/2012 - 09:25 | 2330832 Nussi34
Nussi34's picture

Who is the Euro?

Tue, 04/10/2012 - 08:57 | 2330744 DormRoom
DormRoom's picture

What collaterals are going be used for LTRO4?  Monopoly money?

Tue, 04/10/2012 - 09:04 | 2330777 Thomas
Thomas's picture

The pink $500s are the only bills worth anything as the game comes to an end and everybody (well, almost everybody) becomes destitute.

Tue, 04/10/2012 - 10:01 | 2330948 gaoptimize
gaoptimize's picture

In my game, the pink bills are $5, and the golden bills are the $500 ($100 = yellow, $50=blue,  $20 = green, $10 = cannary, $1=white).  A glance at google's images confirms this is generally the case.

Tue, 04/10/2012 - 09:56 | 2330931 cnx
cnx's picture

Candy wrappers, old newspapers, genuine toilet papers(not those printed ones they used for the last 2 LTROS), ...

Tue, 04/10/2012 - 09:33 | 2330746 LawsofPhysics
LawsofPhysics's picture

The true cost of creating capital starting to rear it's ugly head again.  What the hell, I thought CBs could suspend gravity, this shouldn't be a problem < sarc off >.

People who junk without responding are cowards.  When a loan is made, or money is printed into existance, there is a very real cost associated with the creation of that capital, especially if no real fucking value was added to the system.  ZIRP implies that there is no cost for creating capital, so how has that worked out for Japan?  Now in year 25 of ZIRP.  Fucking morons, ZIRP is QE and the longer it continues, the more innovators and innovation will go elsewhere and the more people will slip into debt slavery.  Perhaps this has been the plan all along.  After spending Easter weekend with my two (venture captial) brother-in-laws, it would seem to be the case, although both admit that Bernanke is a massive failure.  Both are hedged for government collapse and making more than ever as one is in communication and tech VC, so all forms of information gathering by the government only benefit his companies.  Stupid is as stupid does I guess and the sheeple are indeed stupid.

Ownership people, the future is about ownership.  Here is a clue for you all, by the time a company goes public and you can actually trade the stock, the ownership has already been decided and the pounds of flesh have already been extracted by the real owners.

For the average Joe, if you can't put your hands on "it", you don't own it.

Tue, 04/10/2012 - 09:56 | 2330914 i-dog
i-dog's picture

 

"People who junk without responding are cowards."

I junked you for that comment! (yet I normally appreciate your comments and give many of them an uptick...without giving a reason).

There are already too many commenters typing meaningless drivel here, without encouraging even more!

The balance of your comment deserves many upticks.

Tue, 04/10/2012 - 13:18 | 2331742 ElvisDog
ElvisDog's picture

Here is a clue for you all, by the time a company goes public and you can actually trade the stock, the ownership has already been decided and the pounds of flesh have already been extracted by the real owners

And that's exactly why you never buy stock in a company like Facebook, because by the time the IPO comes out the money has already been made by the founders and insiders.

Tue, 04/10/2012 - 08:54 | 2330751 youngman
youngman's picture

Someone has to be losing a lot of money buying these LTRO bonds....at the lower rates....or they know someone at the Central Bank that has told them don´t worry...we will keep the rates at X......

Tue, 04/10/2012 - 08:55 | 2330755 fonzannoon
fonzannoon's picture

Thats a great question Youngman...I wonder when some bank chokes on a bunch of bonds they bought 3-4 months ago.

Tue, 04/10/2012 - 08:58 | 2330760 orangedrinkandchips
orangedrinkandchips's picture

RISK/RETURN.....

 

REPEAT THAT.....OK....NOW...WHO IT THE HELL IS SURPRISED PIIGS yields ARE NEAR WHERE THEY SHOULD BE.....

 

YOU HAVE TO BE JOKING IF YOU THINK ANYTHING UNDER 6% IS GIVING YOU RETURN FOR THE MASSIVE RISK YOU ARE TAKING?

 

As much as these cocksuckers who run the financial world like to believe they can mess with mother nature.....they are wrong.

 

You cant fix your way to non-stop prospertiy....6% IS STILL NOT FAIR...10% IS CLOSER!

Tue, 04/10/2012 - 09:11 | 2330789 LawsofPhysics
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Next up, U.S. bonds.  Fucking bring it!

Tue, 04/10/2012 - 08:59 | 2330761 youngman
youngman's picture

in two and half years it is going to be exciting to see this LTRO get paid back....

Tue, 04/10/2012 - 08:59 | 2330762 Negro Primero
Negro Primero's picture

"The European Central Bank is dead"

By Luis Arroyo, in Madrid | The ECB has lost all his monetary gunpowder, as this has become fragmented. Monetary aggregates M1 M2 and M3 have collapsed. Deposits are falling, like savings accounts and time deposits. However, the monetary base or the money issued by the ECB is the same for everyone.

What happens is that in normal countries the banking sector does not experience problems to expand its assets (loans), what results in an increase in deposits. The multiplier effect works. But what happens when the multiplier is different from one country to another? Shouldn’t the ECB be extremely careful to avoid this? This indicates that the money that banks absorb in these countries (Spain, for example) are not multiplied: it either goes to bank reserves, or it goes away.

The truth is that the normal circuit is broken. With those drops in liquidity, the economy must necessarily turn into depressed territory. It is a problem we cannot solve by cutting fiscal expenditure, as we seem to have promised. And this fragmentation is growing.

An ECB that can not determine the money supply according to the base and/or interest rates, is a dead ECB.

http://www.thecorner.eu/2012/04/european-central-bank-dead/

Tue, 04/10/2012 - 09:35 | 2330866 SayTabserb
SayTabserb's picture

On Mish's site yesterday, they were talking about how Spain's "pensions,  unemployment costs and interest expense" eat up 57% of the federal budget as an explanation for Spain's fiscal woes. So I looked at the most recent Treasury Monthly Statement to see how we were doing in similar categories. If you take the annual projection in tax revenues for the U.S. (I know, I know, make believe), which is $2.4 trillion or so, and compare it to the costs for Social Security and Health & Human Services and interest expense (these three together are $2.15 trillion), the U.S. spends about 7/8ths, or over 80%, of its actual taxes collected on the same items. I suppose the Krugmanites will remind us that this doesn't matter since we can borrow money so cheaply, especially since we borrow it from the Federal Reserve, which prints it to begin with. I think Spain nonetheless shows us the path we're on.

Tue, 04/10/2012 - 09:38 | 2330873 cnx
cnx's picture

Just a matter of time before the ECB steps in and buys all those lovely bonds. Then yields should go back to 5% again-for another week or so.

Tue, 04/10/2012 - 11:55 | 2331382 Nobody For President
Nobody For President's picture

I don't think so - Mario does not want to see Germany waving goodbye as they depart the Euro...

DIRECT purchase just ain't gonna happen, but there are a lot of ways to get around that corner, of course. (The 'facilities' - ESM, EFSF - sounds like the toilets...)

Tue, 04/10/2012 - 10:17 | 2331020 koperniuk666
koperniuk666's picture

Love the red arrow!

 

Is that to help Americans understand the graph??

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