Spain Sells 1 Year Bills At Record Post-Euro Yield, ING Says Spain To Need €250 Billion More; German ZEW Implodes

Tyler Durden's picture

In a meaningless "test" of investor appetite for Spain's Thursday issuance of 2, 3 and 5 years bonds, Spain today sold €3.04 billion in 12 and 18 month bills, well inside the LTRO maturity, and completely meaningless from a risk perspective - after all even Greece is issuing Bills. Yet for some reason the market which continues to be dumber by the day, somehow took the "successful" auction as an indication that there is actual demand for standalone Spanish subordinated debt. And what a 'success' it was: €2.4 billion in 12 month Bills were sold at 5.074%, the highest since at least 2003 and possibly on record. This is more than 2% greater than the same such auction at the end of May. In other words, Spain just locked in absolutely unsustainable 1 year rates. It also sold €639 million of 18 month paper at 5.107% compared to 3.302% less than a month ago. The good news: bids to cover for the two maturities, from 1.8 and 3.2, to 2.2 and 4.4 respectively. And of course they would: Spanish banks found what little LTRO cash they had lying around and in act of total desperation tried to do a carry trade whereby 3 year paper priced at 1% is used to buy 1 year paper yielding 5%.

So while Bill issuance is in no way a test for real Bond issues, here is a full list of upcoming Spanish bond auctions: good luck with them all. Should be rather interesting watching as each of these auctions prices at all time high yields:

  • 21 June: Spain auction. Bonds.
  • 26 June: Spain auction. Bills.
  • 5 July: Spain auction. Bonds.
  • 17 July: Spain auction. Bills.
  • 24 July: Spain auction. Bills.

Reuters with a brief summary:

Spain's short-term borrowing costs rose to their highest level since 1997 in a debt sale on Tuesday as investors worried the country will soon be forced to ask for international aid.


The euro zone's fourth-largest economy has become the focus of the regional debt crisis, with the country struggling to overcome recession and a costly banking sector restructure.


Yields on Spanish 10-year bonds have been trading above 7 percent, a level seen as too pricey for shaky public finances in the medium term by creating a self-full filling spiral like ones that have forced other euro governments to seek help.


The rise in Spain's longer-term interest rates put the sale of 3 billion euros ($3.77 billion) of bills in the spotlight ahead of a bond auction on Thursday.


There was good demand and the government met its target amount but the yield on the 18-month paper was the highest since November while the 12-month bill sold with the highest rate since before the birth of the euro.


"The yields are over 5 percent in both lines which is back at the levels we saw in November 2011 when the market was in huge distress and the ECB was forced to intervene," Credit Agricole rate strategist Peter Chatwell said.


Borrowing costs fell sharply after the European Central Bank flooded the market with around 1 trillion euros in cheap credit through two long-term refinancing operations (LTROs), in December and February, but they have since leapt back up.


Spain is hoping the ECB will ride to its rescue again. Officials have repeatedly said the central bank needs to take action to stop the euro zone debt crisis from getting worse.

Also putting things into perspective was ING, which said that Spain may end up needing another €250 billion bailout when all is said and done. From BBG:

  • A 3-yr bailout for Spain may be “too large” for the EFSF at €250b on top of €100b already pledged for banking system, ING strategist Alessandro Giansanti says in client note.
  • EFSF has free lending capacity of EU251b; ESM will need to be activated
  • Says Spanish government likely to need a bailout program to cover redemptions, budget deficit
  • Sees continuing flattening of Spanish curve, with inversion in 10/30 spread
  • SMP program may be restarted if Spanish 10-yr yields reach 7.50%;  Sees only “short-term relief” and an increase in subordination risk
  • BNP says impact of ECB on Spain could be “very material”

Finally, in what may be the most important news, the German ZER Survey of economic sentiment literally imploded, printing at -16.9 on expectations of a +2.3 print, and down from 10.8 previously. This was the fastest rate of collapse since 1998. From Reuters:

German analyst and investor sentiment fell in June at its fastest rate since October 1998, with the worsening of Spanish banking sector and uncertainty over Greek election outcome likely to blame for the drop, a survey showed on Tuesday. The Mannheim-based ZEW economic think tank's monthly poll of economic sentiment fell to -16.9 from 10.8 in May, way below the forecast in a Reuters poll of 42 analysts for a drop to 4.0. The euro slid against the dollar and European stocks also dropped after the much weaker-than-expected survey. "The financial market experts' expectations are a strong warning against a too optimistic assessment of Germany's economic perspectives in the remainder of this year," said ZEW President Wolfgang Franz. "The risks of a pronounced decline in economic activity in countries with close trade ties to Germany are very clear," said Franz. "In addition, there is a situation in the euro zone which continues to be precarious." "The outcome of the Greek vote is a short breathing space - just that, nothing more and nothing less," he added. The index was based on a survey of 274 analysts and investors and conducted between May 29 and June 18, ZEW said.

Well, at least Germany is Chile...

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smlbizman's picture

if roger clemens is not guilty, does that mean everybody else involved is?

Colombian Gringo's picture

Looks like the hedge fund hyenas are targeting spain to pay off their new super yachts and russian mistresses.

SmoothCoolSmoke's picture

/ES pops 7 points from 4 am.   Somebody knows something....or else this thing is going straight down the toliet Wednsday afternoon.  

Boilermaker's picture

10 handles, and climbing.

Same as it ever was.  This is a daily fucking joke.

rufusbird's picture

The pain in Spain is mostly felt in interest rate gain.

Colombian Gringo's picture

Hey that was pretty good. Nobel literature prize for you.


IBelieveInMagic's picture

Spanish banks found what little LTRO cash they had lying around and in act of total desperation tried to do a carry trade whereby 3 year paper priced at 1% is used to buy 1 year paper yielding 5%

This is the kind of financial madness that we have grown to expect and love! Thank you Tyler!

Alejandrito's picture

Spanish debt issues are collapsing, as they did in the Greek, Portuguese, Irish ...

Spain refinance this year total 150 billion, at actual cost turns into unaffordable.

It only remains to know the official date of redemption to the country, because time is running out.

Stock Tips Investment's picture

The crisis worsens each day Spain more. But do not forget that Spain is no exception. All European countries have the same problem. What happens is that the crisis does not manifest at the same time. Goes missing money in the world to rescue Europe. We have the obligation to prepare for the crisis and take advantage of it.

GMadScientist's picture

Wait..what? You expect this to be paid back?!

Peter Pan's picture

What we are witnessing is plain nauseating. As Chris Powell has said, there are no more markets....just manipulations. The rest of us should be grateful for the extend and pretend phase as it affords us with some extra time to prepare for the inevitable.

docj's picture

Germans would be crazy not to be printing DM's like mad and prepping for a quiet, and sudden, exit from the Euro.

Then again, maybe they all have "hold hands and jump off the Euro cliff together" sickness.

bdc63's picture

The Euro is dead as a doornail.  They will get around to telling the public as soon as the insider rich & powerful have positioned themselves accordingly.  Make sure you have plenty of Vasoline on hand for the screw job that is coming our way ...

TrainWreck1's picture

These Euronalysis numbers are indic(k)ative of a deeper problem.

GeneMarchbanks's picture


Just keep telling yourself that.

Stock Tips Investment's picture

The crisis in Europe is growing each week. At some point, Germany will have to evaluate the cost / benefit of staying in the Eurozone. Hopefully not too late.

disabledvet's picture

As Larry Kudlow famously said in 2009 about the US collapse "I guess an inverted yield curve really is a sign of a total melt down." of course our's was inverted "with malice a forethought" for over two and a half years before the Fed could unfurl their "Mission Accomplished" banner. I give Spain six weeks should it happen there.

Nachdenken's picture

The German Constitutional Court has just handed down a decision that limits the freedom of decision the German government has so far enjoyed in matters relating to the ESM ("Bailout") mechanism

It is useful to remember that France and the UK are most exposed to Spain, - with Germany.

We are a step closer to France getting under the heavy roller

chinaguy's picture

(Reuters) - Germany's top court said on Tuesday Angela Merkel's government did not adequately consult parliament on setting up the euro zone's permanent bailout scheme, though the ruling is not expected to delay its ratification by Germany.

guiriduro's picture

Hang on ... since when are we paying banks  (who get their license from the state) for the priviliege of using "their" LTRO money (which comes from the ECB) at exorbitant and unsustainable usurious rates?

Are we at the mad-hatter's tea party ?  The ECB has a printing press, just like the Fed.  Time to cut out the needless middlemen and fund the states directly from that press.  Not saying budget efficiency is a bad thing,  would have thought a bit of conditionality on the printing-press money would achieve some of the same aims as austerity, albeit slower, and without a collapsing economy starved of money supply.  Don't even need joint guarantees or much fiscal consolidation, just money in the hands of those who will spend it wisely (e.g. small business.)

Germanys stance against printing is looking increasingly unsustainable - either it changes its stance, or leaves, or the whole eurozone will collapse around it.

sumo's picture

"The whole eurozone wil collapse around it"

Point of order Mr Speaker. Point of order.

From an econo-tard's perspective, there is no problem. The 99% will be improverished further, the 1% will be enriched. Since it nets out to zero, give or take, there is no problem. Q.E.D. as your typical Wall Street skank, sorry, economist, would say. A simple transfer of wealth, that's all, a bit boring, really.

From the 1%'s perspective, there are assets to picked up on the cheap, at firesale (literally) prices, if all goes well. And think of the burgeoning buyers' market for cheap domestic servants. Unemployment solved. #winning

Economists, financial lobbyists, politicians - the usual skanks - can relax a bit now. It's all in motion. Well done, thy good and faithful servants. Wall Street and the City thank you for services rendered.



sudzee's picture

I think we are due for a massive smackdowm of PM's in 3-2-1.

chinaguy's picture

The good news just keeps rolling out of Spain.


A detailed audit of Spain's stricken banks, which is to follow a first examination due by Thursday, has been delayed from the end of July to September, a financial source said.

It is the second of two audits ordered for the banks, many of them struggling with balance sheets heavily exposed to a property bubble that collapsed in 2008.

Mad Mad Woman's picture

What Spain needs is probably closer to $2 trillion. There is not enough money in the world to keep "bailing out" these banks, er, countries. To bail every body in the EU would probably take on the order of $100 trillion. We are at END GAME. This is going to be a very, very ugly world-wide crash.

pamriallc's picture

Germany does to the Eurozone as the USA did to the emerging markets some 30 years ago. No problem. Just history.

Rip van Wrinkle's picture

I'm a dunce. An idiot. Can someone please let me know the followiing: -


How is it that stock markets all over the world continue the 'rally' day after day after day and yet the entire western world, starting with Europe, is in the process of completely imploding?

hugovanderbubble's picture

DRV long...

IYR short

RWR short

NEOSERF's picture

Completely right...To "ringfence" Greece, Ireland, Cyprus, Portugal, Spain and a bit of Italy, the only short term can kicking that can do that is to announce about $1.5T in new printing and bond buying...that would settle things down for about 4 months which presumably would be used to figure a way out to retire the euro...nothing else would be a good use of time at that point...