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Pre-Auction Reminder: Spain's Running Out Of Ammo

Tyler Durden's picture


Ahead of the French and Spanish auctions this morning, which given their widespread discussion as catalyst numero-uno in the resurgence of systemic risk in Europe are likely to be pumped and presented in the best possible light for all to gorge their bullish eyes on, we thought it worth a quick reminder of just how awkward things might be getting in Spain. As the WSJ reports tonight, the main (and likely only outside of CDS-bond basis traders) buyer of Spanish bonds is the Spanish banks and they are running very dry of ECB-provided cash money to do their bidding. UBS estimates that there is a remaining EUR21bn of pocket-money with the banks to cover the EUR47bn that Spain needs to roll this year alone.

The simple sad fact is that finding buyers of last resort are dwindling as the banks lose their deposits to the core, cover their own significant redemption needs, and struggle to choke down more Sarkozy-inspired sovereign (carry) debt - all the while leaving an ECB unable to directly enter the primary market (hence Soros' recent SPV financial engineering workaround to enable this).


Besides this uncertainty there are four things are critical to remember before you go all-in on your Spanish 10Y bid (or judge the post-auction hysteria).

1) Bid-to-cover is a useless statistic in these cases as a plethora of bidders (e.g. basis traders - note the current basis is +19bps - which posits 'selling' bonds not 'buying' them - which means the auction would have to come dramatically cheap to secondaries to make it attractive for the hedgies) would be willing to pick these bonds up at extremely high yields should they trade there (e.g. how much would you bid at a 30% yield? 40% yield?) and in no way reflect real money's risk appetite;

2) Every time the ECB steps into the secondary Spanish bond market via its SMP program it subordinates your freshly minted bonds (via its Greek-related unwillingness to take a haircut);

3) It's all about the yield - if these bonds come cheap to secondaries and notably beyond the previous auction then that is the critical signal of what is being anticipated and given the rapidly diminishing bucket upon which the Spanish banks can draw to fund their domestic symbiotic partner, we suspect it will not be pretty; and

4) Given the EUR46bn that the Spanish banks themselves need to roll in the next three months, we suspect they will prefer to keep a little more dry powder than blow it all on their sovereign purchases today.


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Thu, 04/19/2012 - 03:28 | Link to Comment lolmao500
lolmao500's picture

Don't worry, the socialists in France are gonna solve everything. They gonna raise taxes, give a new bailout, and go for a new EU treaty where every economy in the EU is controlled by the ECB.

Thu, 04/19/2012 - 04:14 | Link to Comment AldousHuxley
AldousHuxley's picture

France is socialist as much as America is capitalist.

"Those who got bumper bonuses for seven years should have made losses in 2008 when things


Bush-Obama gave banksters everything.

Sarkozy at least had the balls to reign in banksters.


world is going to raise taxes to pay for bankster gambling debts.


politicians still care about citizens because they need the votes. banksters and top 0.1% don't give a shit where they crap.




Thu, 04/19/2012 - 04:35 | Link to Comment Nussi34
Nussi34's picture

I f France is not Socialist who is? Who infested the EU Bureaucrats with French Socialists? The French Socialists? thnks to them we now have this one size fits none shit "currency" called the EURO.

Thu, 04/19/2012 - 08:26 | Link to Comment economics9698
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America has been socialist since 1935.  Are you people morons?  45% of the GDP is government in America.  1935.  They do not refer to it as social security for nothing.

Thu, 04/19/2012 - 09:13 | Link to Comment SAT 800
SAT 800's picture

Precisiment, mon Cher.

Thu, 04/19/2012 - 09:23 | Link to Comment WhiteNight123129
WhiteNight123129's picture

The French (we) are the type of socialist like Jacques Cheminade who says breaks teh bank in two and let the investment bank who made bad decision go bust. He almost sounds like Jim Rogers.


Thu, 04/19/2012 - 05:47 | Link to Comment Optimusprime
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Thanks for the link, Point Counter-Point.  I had managed to miss that fracas.

Thu, 04/19/2012 - 09:14 | Link to Comment SAT 800
SAT 800's picture

"Spain is running out of Ammo"; don't worry, being good little Socialists, I'm sure they'll save the last round to shot themselves in the foot with.

Thu, 04/19/2012 - 03:36 | Link to Comment EconSammie
EconSammie's picture

I think there is also the question of how much ammunition Spain will have to back its banks as more of them report bad debts as shown below.

Spain’s banks are reporting more bad debts


The latest data from the Bank of Spain tells us that loans which it calls “doubtful” have risen to 143.8 billion Euros to 8.15% of Spanish banks loan books. This is a rise of 0.24% between January and February.


Those who have followed the debate on the Spanish housing sector will feel that this is a consequence of the way that Spain’s banks have carried housing debt in particular on their books rather than dealing with it. As time goes by more and more of this debt will have to be included as “doubtful” particularly as the outlook remains poor for her housing market. We are seeing the “kicking the can” into the future fail yet again as the can lands in a future which is no better and in fact in some respects worse.


I feel that some of the weaker institutions which are likely to be the savings banks called cajas will hit trouble and maybe fail. The problem with the past “kicking the can” strategy of merger weaker with stronger ones is that in a real crisis the weak ones may take down the strong ones too. Left on their own the stronger cajas may have survived.


So will Spain have to issue yet more bonds to bail out the banks so they can buy its bonds? It is starting to look quite a mess...

Thu, 04/19/2012 - 04:15 | Link to Comment Vic Vinegar
Vic Vinegar's picture

Good points, econsammie.  For some it's been uplifting.

Thu, 04/19/2012 - 03:37 | Link to Comment God Bless The V...
God Bless The Virtuous's picture

 Article is Spot on!

In this dreck, Bernanke dripped drool!

How else could this possibly end?

Is today the day?

I'd look out for Sunday night,myself! Out of Asia.

If you get a sucker punch, right to Bernanke's jaw, this market comes unglued.

The dollar surges, gold pulls back, even futher.

Stocks / risk asetts are shunned, everyone for the door!

We know how this turns out.

Be carefuld folks...


May the good lord watch over this fragile little experiment in freedom we call America


God   Bless    The   Virtuous

Thu, 04/19/2012 - 04:20 | Link to Comment Vic Vinegar
Vic Vinegar's picture

/where did Yen Cross go?


,I guess you be his cuckhold.  It's cool though.

/commenting <has> gotten so much worse here over the EARZ

Thu, 04/19/2012 - 03:41 | Link to Comment Peter K
Peter K's picture

Viva Espana :)


Thu, 04/19/2012 - 04:26 | Link to Comment Vic Vinegar
Vic Vinegar's picture

Totally Pete.  I'm sure it was uplifting for you to make this worthless comment, as all your worthless comments have been the same.

Just saying - Thursday nights are kinda slow.  The ZH community could use a self-decapitation for LOL purposes.  Why not do something with your life?

And yet the irony is that you won't yet the best thing you could ever do is chop off your dome on ZH.  

Thu, 04/19/2012 - 04:31 | Link to Comment theMAXILOPEZpsycho
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Viva Espana...Aye curumba!

Thu, 04/19/2012 - 04:46 | Link to Comment Vic Vinegar
Vic Vinegar's picture

Fair response, tMLp.  And let me give one to you and Pete, too.

Get over on other people.  Commenting on the internet is fuking weak.  

Plenty of people here surely know that already.  I'm just figuring that out.  Call it the Wonder Years.  LOL.

Thu, 04/19/2012 - 05:16 | Link to Comment Ar-Pharazôn
Ar-Pharazôn's picture

why dont you care on YOUR business IDIOT?

Thu, 04/19/2012 - 03:41 | Link to Comment GernB
GernB's picture

It must be nice to bowwor money at practically no interest and then use it to buy something that pays more interest. At least until the Eurocrats tell you you need a hair cut.

Thu, 04/19/2012 - 03:42 | Link to Comment lolmao500
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No problem, the ECB, FED and the JCB will buy Spanish bond through proxies.

Thu, 04/19/2012 - 03:42 | Link to Comment GernB
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Exactly when is the auction. It's not hard to figure out it's at 8:30, but 8:30 in which time zone is a little more difficult.

Thu, 04/19/2012 - 04:19 | Link to Comment FinalCollapse
FinalCollapse's picture

9:30 London time.

Thu, 04/19/2012 - 05:02 | Link to Comment Vic Vinegar
Vic Vinegar's picture

True, FC.  I guess it's 9:30.

One must totally have a half-smirk on their face when they log in with the userid of "FinalCollapse".  But I digress...

...the good guys lost.  It's still fun to see the good guys get on this site and get all pissy about things.  

Calling all silver-hoarding spacemonkeys: rock out to this.  I don't like it any more than you, but let's deal with reality.  Fuking "Final Collapse" and his crew are running the show on ZH these days.  Deal with it.  


Thu, 04/19/2012 - 05:24 | Link to Comment FinalCollapse
FinalCollapse's picture

Thanks for the link. I enjoyed listening to it.

Thu, 04/19/2012 - 04:15 | Link to Comment FinalCollapse
FinalCollapse's picture

The Spanish (and French too) auction no doubt will be pumped up. Steer attention toward one event and then manipulate it. Ignore all other bad news. Turn off the lights and put spotlight on one point on the stage and let the fools/muppets enjoy the play. 


Thu, 04/19/2012 - 04:45 | Link to Comment GernB
GernB's picture

Agreed. I saw a headline in Market Watch where Yahoo beating estimates was in big bold letters and Intel missing their estimate was in smaller letters farther down the page. Huh, yea, that makes sense because Yahoo would be the big headline with their market cap of 18B, while Intel's is a measly 240B.

Thu, 04/19/2012 - 04:16 | Link to Comment Dead Canary
Dead Canary's picture

Sooo... We're looking at higher yields tomorrow? 6.00 or more?

Thu, 04/19/2012 - 04:22 | Link to Comment FinalCollapse
FinalCollapse's picture

The banks will use free money to buy the bonds and then as a bonus will make money when the stock market explodes to the upside. You could see that the banks already positioned themselves on the long side even before the trading has begun.

Thu, 04/19/2012 - 04:26 | Link to Comment Dead Canary
Dead Canary's picture

How long can this go on? The well is running dry.

Thu, 04/19/2012 - 04:28 | Link to Comment FinalCollapse
FinalCollapse's picture

I know, I am sick and tired of this bullshit.

Thu, 04/19/2012 - 04:31 | Link to Comment whereisthefuture
whereisthefuture's picture

Everyone remember, these will be bought with bits of paper that are irrelevant. They make you focus on this 'significant' issue.

Thu, 04/19/2012 - 04:45 | Link to Comment maeg
maeg's picture



Thu, 04/19/2012 - 05:31 | Link to Comment FinalCollapse
FinalCollapse's picture

Great - we have unicorns roaming the meadows of Europe and shitting Euros. All is well.

Thu, 04/19/2012 - 06:21 | Link to Comment Sandmann
Sandmann's picture

I am happy for the Socialists to have a go - Sarkozy doesn't seem to have been much use even though he is well-connected in the CIA.  He was French Finance Minister in 2004 and President since 2007......fortunately French banks emerged unscathed from the Economic Collapse [ha ! ha !] and Lagarde did not need to lobby Paulson to rescue AIG to prevent a French banking collapse because of CDS

It is helpful of the ECB to provide the funds to Spanish Banks to facilitate Capital Flight - that is the purpose isn't it ? It helps recapitalise British Banks in Offshore Centres running Trusts to buy real estate in exciting jurisdictions like Florida, Canada, London and hide the missing funds.

In about 3 years time CNN or BBC will do a special on how the Banks were looted and needed ECB funds to keep afloat - it will be such a scandal ....and the cows watching the programmes will go to the salt-lick and moo when the politicians promise to deal with it.


Thu, 04/19/2012 - 06:21 | Link to Comment DavidC
DavidC's picture

I think I'm right in saying it's options expiry week in the US so I don't think we'll see much happening until that's out of the way (tomorrow).

Please correct me if I'm wrong on that info!


Thu, 04/19/2012 - 06:51 | Link to Comment eddiebe
eddiebe's picture

Now that Spain has accumulated all this debt that was so readily handed to them by the bankers, it's time to cough up that huge hoard of gold and silver. Who's laughing now?

Thu, 04/19/2012 - 07:46 | Link to Comment theprofromdover
theprofromdover's picture

(ECB) 'We aren't allowed to buy these bonds direct, but we need them bought by someone'

(Spanish Banks) 'we ain't got no moneeey'

(ECB) 'here's all you need; buy the bonds and give them to us as collateral'


WTFF (flyin')

Do these guys think this is just a temporary problem? Is there absolutely no-one in there who can understand facts?

Is there no-one who fancies their chances of promotion if they try to face up to the consequences of the road the Troika is on?


Thu, 04/19/2012 - 12:59 | Link to Comment Herdee
Herdee's picture

So what do the big corrupt forces do when the truth comes out on the giant PONZI?Of course,attack Egan Jones and destroy!

Do NOT follow this link or you will be banned from the site!