Spain Election And Benchmark Switch Rouse Duds, As Country Pays Record Yield In Bill Auction

Tyler Durden's picture

It has been a busy morning for the ECB already, as the central banks has been buying up Spanish short-dated bonds following yet another disastrous auction out of Spain, this time a 3 and 6 month Bill auction. Reuters reports: "Spain's Treasury paid the highest yields recorded in 14 years to issue 3 billion euros ($4 billion)of short-term bills on Tuesday, a sign that a resounding election victory for the centre-right People's Party on Sunday has done little to soothe investor nerves. The average yield on the 3-month T-bill more than doubled to to 5.11 percent from 2.292 percent one month earlier, the highest level since the bill was re-introduced in 2003. It sold 2.01 billion euros and was 2.9 times subscribed, after 3.1 times at the October auction. The 6-month T-bill saw yields jump to 5.227 percent from 3.302 percent at the last auction, selling 0.97 billion euros at a bid-to-cover ratio of 4.9 after 2.6 in October" Ironically, yesterday's pathetic attempt to mask market weakness, when Spain forced data vendors to switch their benchmark bonds, as was reported by the FT first, has not fooled the market: "Just a day after borrowing costs soared in a lacklustre auction, the yield on 10-year Spanish debt, which moves inversely to prices, dropped by about 35 basis points on Friday, mystifying traders. However, it has emerged that Thomson Reuters and Bloomberg, the main providers of government bond price data, were asked by the Spanish Treasury to change the main quoted benchmark price, from the new 10-year bond launched on Thursday back to an older one." The result: once again pervasive credit market weakness, which has since spread ot Italy, and at last check forced Draghi to also start buying BTPs. One wonders just how quickly Europe would implode if the buyer of last resort was to actually take a 24 hour vacation.

More from Reuters on the auction:

"It doesn't look great, the continuing trend towards ever higher yields to get anything done, it has to be concerning," said Gary Jenkins, head of fixed income at Evolution Securities.


Spanish 10-year bond yields were up just 1.9 basis points on the day at 6.61 percent but five-year yields <ES5YT-TWEB> rose 7 bps to 6.02 percent.


The 10-year yield was just 13 bps from converging with that of Italy. Some strategists expect it to go back to trading at a premium over BTPs as investors wait for the new government's fiscal plans.


"Underlying sentiment remains negative for the periphery and positive for German Bunds because of the ongoing lack of a political solution to the problems in Europe," RIA Capital Markets strategist Nick Stamenkovic said.


Italian 10-year yields were up slightly on the day at 6.73 percent, with little scope seen for a sustainable fall in either Spanish or Italian yields given modest buying from the European Central Bank.


"The ECB doesn't want to be seen going soft on some of these countries by intervening unless they are going to put their fiscal house in order," Stamenkovic said.


"Ultimately the ECB will have to come in more size and more aggressively to draw a line in the sand. But it looks like any radical action is not going to be possible until next year."

And if not => the end of the world. Yes, yes. We know the script.

Comment viewing options

Select your preferred way to display the comments and click "Save settings" to activate your changes.
bank guy in Brussels's picture

« After ... kicking the can down the road for too long - policymakers have hit the proverbial wall. They have suddenly lost the wherewithal to connect foot to can. »

- Economic analyst Doug Noland, 'Euro exits beckon', Asia Times Online, 21 November 2011

NotApplicable's picture

The instant they can't kick the can, they'll start shooting it.

youngman's picture

And the USA bonds are still money market funds are selling their European bonds....and buying US of course gold and silver are down...if I wasn´t so hungover..I´d be drunk...this world is crazy

disabledvet's picture

obviously it doesn't matter what the "ten year does" if the ECB has lost control of the over night--let alone the three month. an inverted yield curve is a guarantee of a massive recession--which in Spain as additive to the 20 percent unemployment which for some reason isn't considered recessionary in the first place. so, sure "blame the media"--but obviously that's a symptom of the total loss of control of monetary policy and therefore only helps your case.

Carlyle Groupie's picture

Here comes the pain.

HD's picture

Come on global economic needs a new pair of shoes!

Curtis LeMay's picture

Anyone know if the ECB is still sterlizing these bond purchases? Or is that now over with, overwhelmed by events?

If it's not sterilizing, it's got to have at least a quarter trillion euros, on paper, in its safety deposit boxes...

Peter K's picture

Yea, can't find the info anywhere. ECB used to put it out Monday's. Last read was 194b EURO but as of the close of business Tuesday before last. Before the Eurogedon of 7.38 Italian 10yrs. Could it be that they are still counting:)

oogs66's picture

The old switch the ten year bond benchmark trick ? A very cunning plan

youngman's picture

When in trouble.....CUNN

TheLooza's picture

Nice move on the bond benchmark, El Spaniard.  Like my grandma always used to say, "if you ain't lying, you ain't tryin."  She also told me, "If you ain't cheatin', you already beaten."  God rest her soul.

Eurodollar's picture

Come on implosion! I want my mansion by the mediterrean sea close to for free. (No disrespect to all who bought in 2006-2007.)

GCT's picture

This is what happens to bonds when governments have a default but it is not a default.  You start paying real interest rates. I imagine the idiots running the EU are pissing in their pants over their decision right now about the Greece haircuts not being a default.

wagsthadog's picture

In other news...

"Spainish 'Space Conquistadores' gearing up to colonize otherworldly undeveloped planets to attempt to end crisis."

That's the only hope left!