Peripheral Sovereign Yields Spike On Spain 'Junk' Rumors

Tyler Durden's picture

Spanish 10Y spreads are now over 50bps wider on the week and the yield pushing back over 6.8% as its spread spikes 10-15bps on rumors of a Moody's downgrade to 'Junk'. The IBEX dropped 0.5% rapidly, now down almost 5% on the week. Italy is catching the cold and is blowing wider in credit and lower in stocks as financials are leading the plunge in both nations.

Italian and Spanish (and Portuguese) bond spreads cracking...


Spain's IBEX dropping fast...


and Italian banks are leading the plunge...

Charts: Bloomberg

Comment viewing options

Select your preferred way to display the comments and click "Save settings" to activate your changes.
kito's picture

quick, somebody bring me a volcanologist!!!!!!!!!!!!

No Euros please we're British's picture

Maybe the EU should run a sovereign bond scrappage scheme for junk bonds. It seemed to work for cars.

Stock Tips Investment's picture

I think the situation is deteriorating in Europe each week. A small additional contraction in economic activity, would generate large losses for banks, reviving the need for a (new?) Rescue. From my point of view, in the remainder of the year, the crisis could worsen significantly. So what we do is a contingency plan for each of us. That is, a plan to help us overcome the crisis if it is worse in Europe. If this happens, the more likely the U.S. economy and around the world are affected. I personally am doing my plan and I'm looking (although this seems very hard) and could benefit from the crisis. I have a portfolio of stocks that I think could make profitable if the market is clearly down. I think the most important thing now is to be ready in case the crisis worsens.

ghostzapper's picture

But, but, but . . . . but it was just last week when people on the comedy channel were all squiggly in the groin area about yields in Spain and Italy falling. 

MoreNails's picture

1. Go short.
2. Start the "rumor".
3. ?????
4. Profit !!!

bigwavedave's picture

Any excuse not mention the Silver market. LOL

mark7's picture

US debt as percent of GDP: over 100.

Spain debt: 70.

UK debt: 83.

Moody is full of shit.

Mister Ponzi's picture

But in the UK and US debt levels the costs of recapitalizing the banking systems are already included. Spain hasn't done anything in this direction and the banking sector is in extremely bad shape. So, just looking at debt-to-GDP numbers doesn't really tell the whole story. If Spain recapitalized the banks on their own (which they can't), the debt ratio would be worse than the US or UK levels. Moreover, Spain does not have control over monetary policy (contrary to the US and the UK). Therefore, default probabilities in EMU are higher and ratings therefore worse.

mark7's picture

JP Morgan is saying mere 50 billion dollar losses could "theoretically" bankrupt them. Major British banks have each balance sheets about or over the GDP of UK. And you are telling me somehow UK and USA are better off with these Godzilla monsters inside their houses?!

Mister Ponzi's picture

No. All I'm saying is that if Spain did the same as the US and the UK and recapitalized its banking system to the same level as the UK and the US, the Spanish debt-to-GDP ratio would be considerably worse than the levels in the UK and the US. So, by comparing the Spanish debt level prior to bank recapitalization with the UK and US levels after the bank recap, you are basically comparing apples and oranges while blaming Moody's for their rating action.

LawsofPhysics's picture

Bullshit.  How in the hell do anyone know what the true value of the collateral assets that are on anyone's balance sheet (and backing the debt) with mark to fantasy accounting?  FYI- I'd put the collateral and physical assets of the U.S. up against the UK and Spain anyday especially with nationalization coming.  How much, coal, natural gas, and oil in the U.K. and Spain again?

mark7's picture

You might have some more (very difficult to get, expensive and polluting) oil and gas available in theory but you guys also burn energy at least twice as much as average Europeans. If you really are looking for energy independent nation, that would be the nuclear powered France.

LawsofPhysics's picture

Precisely why American consumption has been declining for the last eight quarters and several new reactors are being built.  Sorry, did you have a point?  My point would be to speak more to world demand and the BRICs have been buying.  If your point was that American demand for oil is becoming less relevant, then I agree.

Chump's picture

You have a good point about France's energy production...currently...but what happens when the SHTF and no one is being paid to operate those reactors?  I'm no expert, but I'm pretty sure nuclear reactors require quite a bit of daily maintenance.

ghostzapper's picture

Who gives a shit what someone says the debt/GDP ratio is.  We all know everyone that publishes these things has some sort of agenda.  I just assume it is much worse than reported.  All that matters is what the market thinks and does.  Yields in the U.S. could go much lower as crazy as that seems.  Without the ECB yields in Spain and Italy would be well into the double digits on longer dated paper.  Hell short dated paper could be soon. 

EscapeKey's picture

Those are (acknowledged) public sector debts. A small fraction of the total picture.

nobusiness's picture

Don't worry there is a mystery buyer in the SPY everytime it drops

asteroids's picture

We've seen this story before folks with Greece. Yields blow out, some asshole goes to bail them out but at a price. The price requires a vote and a bagman. Markets dive as uncertainty rises. Rinse and repeat until they are broke or something blows up.

Snakeeyes's picture

Investors are starting to realize that Germany is serious and their Sociailists don't want to bail out the vacation-area Socialists.

vote_libertarian_party's picture

Since our stocks are up now the take away is:


Complete collapse in Europe = BUY BUY BUY

TahoeBilly2012's picture

Give the bankers what they want (profits from non productive "investments") and give the people what they want (social welfare without taxing them) and now we reap the fruits of this "system"!