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Spain Back Over 7%

Tyler Durden's picture




 

What goes down, must shoot right back up. In this case we are talking about Spanish bond yields of course, which have yoyoed from a record 7.3% two weeks ago, back down to 6.3% last week, and right back up over 7% as of this morning. While the hope last week was that since the ECB is expanding its collateral it means an LTRO3 is on the way, the market promptly realized (even before LTRO3 was launched), that such a step means that Europe has run out of actual assets, and at this point is merely diluting the taxpayer collateral base. The result is that Spain is right back in purgatory where talk is cheap and unless Europe comes up with something concrete, purgatory will promptly be upgraded to the 8th circle of hell.

Elsewhere Italy was on the verge of joining Spain too after both its 5 and 10 Year bonds were trading above 6% minutes before a major 5 and 10 Year bond auction. However, the fact that the bond auction was not an outright failure managed to get yields down to a more modest reading.

Italy paid 5.84% to borrow €2.5 billion (same as the target) for five years, compared with 5.66% at a late-May sale and a 4.58 percent average for this year. The yield at auction on the 10-year bond rose to 6.19%, compared to 6.03% a month ago, and a 2012 average of 5.66 percent. Italy raised €2.92 billion in 10 Year paper just shy of the €3 billion expected.  The five-year BTC was 1.54, above this year's average of 1.46. However, the BTC for the 10-year bond was 1.28, well lower than the 2012 average of 1.65.

In other words, while the kneejerk reaction has been one of brief relief, expect Italian yields to all balloon well north of 6% in the coming hours as the Eurozone summit starting in hours is a complete disappointment.

Some perspectives on the bond auction:

NICK STAMENKOVIC, BOND STRATEGIST, RIA CAPITAL MARKETS, EDINBURGH

"The auction was slightly disappointing. They failed to reach the
(maximum) target, demand was reasonable, probably driven by domestic
investors. The key thing is that yields continue to rise, which shows
the hurdle that funding is moving into ever higher territory,
compounding the fiscal problems facing Italy.

"It is unlikely to help confidence as investors nervously await the outcome of the EU summit."

BIAGIO LAPOLLA, STRATEGIST, RBS, LONDON

"All in all the auctions went quite well, particularly for the five-year bond, which has seen a more solid demand that was confirmed by post-auction market trades. Certainly the 'concession' we have seen pre-auction helped support demand for both bonds. Clearly uncertainty remains as we wait for what happens at the EU summit"

LUCA JELLINEK, HEAD, EUROPEAN RATES STRATEGY, CREDIT AGRICOLE, LONDON

"Today's auction has certainly been a good placement. The five-year BTP and in part also the 10-year BTP have been placed above market levels. After some sale orders on these securities at the start of the session, we have seen consistent orders just before the closure of the auction."

ALESSANDRO GIANSANTI, RATE STRATEGIST, ING, AMSTERDAM

"The two bonds have been placed at better levels than the market, both in terms of yield and price. Demand was good, particularly for the five-year BTP, which went very well. Prices fell down over the last few weeks, consequently the bonds have become attractive from a speculative point of view. In any case, despite rates above 6 percent, Italy is still able to place its bonds"

MATTEO REGESTA, RATE STRATEGIST, BNP PARIBAS, LONDON

"It's not impressive but it does not deliver any particular message to the market. It's broadly in line with what we were expecting. The market was pricing in a concession versus the previous auction but given market levels we can see there was demand evidenced by some overbidding."

LYN GRAHAM-TAYLOR, STRATEGIST, RABOBANK, LONDON

"Given the support given to the auctions by 18.1 billion euros of redemptions and coupons that are due on Monday the bid/cover on the 10-year bond in particular is quite low. If the result of the EU summit is viewed negatively by the market then it is likely that the Spain-Italy spread will narrow due to the political pressure that Monti is under at home to return with at least some concession. However, if there is any signal from the summit that the ESM will start to be used imminently to purchase Italian and Spanish sovereign debt then this could also see the spread narrow as Spain is likely to benefit from such purchases more than Italy as euro zone yields may start to converge."

 

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Thu, 06/28/2012 - 07:02 | 2567644 financial apoca...
financial apocalyptic contagion's picture

and this is before the summit....

Thu, 06/28/2012 - 07:13 | 2567666 economics9698
economics9698's picture

What fuckign difference does it make, we all see the fucking trend line.

Thu, 06/28/2012 - 07:35 | 2567714 GetZeeGold
GetZeeGold's picture

 

 

Ummmm.......the trend is your friend?

 

Thu, 06/28/2012 - 07:04 | 2567647 bigwavedave
bigwavedave's picture

looks like Monti has blown his load. more quit rumours. 

Thu, 06/28/2012 - 07:11 | 2567657 bank guy in Brussels
bank guy in Brussels's picture

The big surprise might indeed be that Italy leaves the euro first, before anybody.

As a big exporter they have a lot to gain ... Italy's current squeeze is as much from the euro shackles as anything.

As ZH has been saying, He who defects first, defects best.

Thu, 06/28/2012 - 07:20 | 2567679 EscapeKey
EscapeKey's picture

So? Just means we'll get another technocrat in charge of Italy rather than this one.

Thu, 06/28/2012 - 07:39 | 2567725 GetZeeGold
GetZeeGold's picture

 

 

Do I sense a tad bit of skepticism here?

 

Thu, 06/28/2012 - 07:06 | 2567649 cossack55
cossack55's picture

"Eighth Circle of Hell". Isn't that where banksters end up?

Thu, 06/28/2012 - 07:14 | 2567667 economics9698
economics9698's picture

I prefer on the end of a rope.

Thu, 06/28/2012 - 07:53 | 2567762 Wakanda
Wakanda's picture

Eighth circle is fraud.

Thu, 06/28/2012 - 07:12 | 2567656 Martin W
Martin W's picture

We have two German-Italian summits tonight: one in Brussels and one in Warsaw. Poor Germans play again against another PIG. And if they win with Italians they will meet Spaniards on Sunday.

 

It looks like Germans are eliminating PIIGS one by one in the real economy and on football.

 

Have a nice day!

Thu, 06/28/2012 - 07:21 | 2567683 EscapeKey
EscapeKey's picture

After the incredibly poor showing by Spain yesterday (the Portuguese should have won, at least they tried to win the match, Spain just sat on the ball doing nothing with it), I really do hope Germany win this tournament.

Thu, 06/28/2012 - 07:12 | 2567660 distopiandreamboy
distopiandreamboy's picture

The crater Avernus, northwest of Naples, was thought by the ancient Romans to be the entrance to the underworld.

Thu, 06/28/2012 - 07:12 | 2567662 cnx
cnx's picture

"What goes down, must shoot right back up"- and goes down again- the law of gravity.

The Spanish yields have never stayed long above 7% in the past. Any reason to believe they will do this time (absent ECB intervention)?

Thu, 06/28/2012 - 07:22 | 2567688 EscapeKey
EscapeKey's picture

Well if you that strongly believe past behaviour is an indicator of the future in this instance, you should put your money on it.

Pennies, steamroller.

Fri, 06/29/2012 - 09:12 | 2572900 cnx
cnx's picture

As we are speaking, the Spanish yields have again fallen under 7% right now.

Thu, 06/28/2012 - 07:20 | 2567681 Itch
Itch's picture

Germans willing to "talk" !!!

Thu, 06/28/2012 - 07:36 | 2567720 GetZeeGold
GetZeeGold's picture

 

 

...and hopefully schedule another press conference....oh good....it's finally fixed.

Thu, 06/28/2012 - 08:01 | 2567771 Itch
Itch's picture

Every Eurocrat on the wires this morning has been downbeat on this summit, its not like them...

Thu, 06/28/2012 - 07:22 | 2567687 No Euros please...
No Euros please we're British's picture

I don't understand why they're above 7%. It's not as if Spain needs bailing out. They said so several times.

Thu, 06/28/2012 - 07:24 | 2567693 EscapeKey
EscapeKey's picture

Yes, and after all they only asked for 5bn... 19bn... 45bn... 65bn... the MAX of 100bn Euro.

And that is totally believable, they will never ask for another bailout.

Thu, 06/28/2012 - 07:36 | 2567718 Alejandrito
Alejandrito's picture

before the meeting, you must demonstrate your strength

Thu, 06/28/2012 - 07:40 | 2567730 youngman
youngman's picture

The comments are quite funny...always positive even though if you go back every sale they keep ticking up and up and up....unsustainable we used to say...so when they are at 25.214% and sell for 25.343%..they will still be saying it was a good auction...They are talking today about the NEW bonds being backed by tax revenues....OK...good idea...that will cover about 50 billion...where are they going to get the next 3 trillion??????

Thu, 06/28/2012 - 07:40 | 2567734 Offthebeach
Offthebeach's picture

( MrPanosBlog voice ) " And whys is Spain broke? Chii...nneees peoples!"

Thu, 06/28/2012 - 07:47 | 2567750 chinaguy
chinaguy's picture

Italy took one in the bollocks last night on long bond sales - playing "catch up" w/ Spain, back to Dec yields

Thu, 06/28/2012 - 08:14 | 2567808 orangedrinkandchips
orangedrinkandchips's picture

RISK v. RETURN.....

 

simply shit.

Thu, 06/28/2012 - 11:22 | 2568983 DutchR
DutchR's picture

7% is not enough to get drunk fast, please get the good stuff.....

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