As Spanish, Italian Treasury Auctions Come In Weaker Than Expected, Nerves Return

Tyler Durden's picture

While pundits are still contemplating yesterday's CME move to hike collateral haircuts on US Treasurys (absolutely nothing more then merely more posturing) today's European auction results indicate that the time to expand the EFSF to the €1.5 trillion threshold may be approaching faster than anyone expected. In Spain, the Treasury sold 750 million euros of 3-month bills at an average yield of 1.899 percent compared to 1.568 percent at the previous auction and at a bid-to-cover ratio of 6.3 after 9.5 in June. Spain also sold 2.14 billion euros of 6-month bills, with the average yield rising to 2.519 percent, the highest since Dec. 2010, from 1.776 percent in June, while the offer was 2.2 times subscribed after 3.8 times at the last auction. In other words: far higher interest and far lower demand than the last such sale in June. As Reuters cites, "The most important point again is the fact that relative to the last auction yields are much, much higher ... It's not a good situation to be in," strategist at Monument Securities Marc Ostwald said. "It shows we may have had some relief last week but that relief has proven to be rather short-lived." We wonder just how much of these auctions were allocated to the EFSF monetization mechanism and/or Asian proxies that know they can promptly use it for precisely such purposes. Elsewhere Italy sold €10 billion in 6 month Bills and 2 year notes, and just like in Spain, both saw their respective yields rising and investor demand falling: 6-mo auc avg yld 2.269% vs 1.988%, bid/cover 1.56 vs 1.72, 2-yr auc avg yld 4.038% vs 3.219%, bid/cover 1.66 vs 1.87. End result of today's auctions: both Spanish and Italian Bund spreads jump to day wides as the IBEX is now underperforming on concerns Europe's second bailout bought less than a week of calm.

More from Reuters:

Spain paid euro-era record high rates to sell two long-term bonds on Thursday before EU leaders met on Greece last week.


Economists say Spain is unlikely to meet its growth forecast of 1.3 percent in 2011, casting doubt over the ruling Socialists' ability to cut the deficit to a planned 6 percent of gross domestic product before the end of the year.


The premium investors demand to hold Spanish over German debt stood at 316 basis points on Tuesday before the auction, though this rose to around 329 bps shortly after. The Spanish-German spread hit euro-era high of around 370 bps on July 18.


One rate strategist said yields would eventually fall back as the Greek plan and changes to the European Union rescue fund are implemented.


"It takes time to implement (the Greek bailout plan), and within this period the market will try to collect some extra basis points, but as we approach the operative phase, these rates will have to decrease," rate strategist at BNP Paribas, Matteo Regesta said.

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Dr. Engali's picture

I thought the Eurocrats fixed this problem in all their great wisdom.

Quintus's picture

Nah.  What they actually did was have a meeting, produce a 1,400 word document, and then go on 2 month vacation without working out any of the details or getting the proposals ratified by their national parliaments so that they could actually be implemented.

Typical Eurocrat thinking.  "The problem has been fixed because we produced a document saying that it is.  Nothing further need be done."

The Axe's picture

The euro continues its rise.....confused i be...

Quintus's picture

No, it's just that the dollar is falling.

Popo's picture

Only because our date with the woodshed is closer.  

saulysw's picture

Which comes first - the euro crisis or the us crisis? Chicken? Egg?

wandstrasse's picture

Which comes first...?

none, because both crises started already. The question is where the mainstream's delusion collapses first.

qussl3's picture

Stocks still whistling past the graveyard.

Bulletproof like 2008.

HelluvaEngineer's picture

Nah, we still had humans trading stocks in 2008.  That glitch has been fixed.

chump666's picture

nah they had their day, just a strange flight to safty from the crap usd and eur.  it will be gold on the mega bid once yields blow out more, gonna be facinating if obama forces the debt ceiling, should see the 10yr spike. 

oogs66's picture

the analyst is wrong, it takes time to realize that it can't be implemented and won't work

wombats's picture

Dump the Euro and the VAT.  Bring back the Peseta!

Dismal Scientist's picture

The market is testing German resolve. What for, I don't know, they've already agreed to backstop the rest of Europe in exchange for being in control. Its just that the population have not risen up in protest yet, since they're laying claim to Europe's beaches in the traditional manner.

Jayda1850's picture

It seems that eventually the European Union will go full socialist, with every country receiving all financing through the ever expanding EFSF due to being locked out of credit markets, while the Germans are left continuously bailing out a ship with a massive hole in the bottom. The Failed Euro experiment ends when Germany throws up their hands and walks, their banks be damned.

Dismal Scientist's picture

I think its more complex. The EFSF is essentially a private bank, headed by a German. Now that they have changed the rules to allow all states to access capital at cheap rates for very long maturities, the Germans have essentially said 'OK, we'll bail you out, in exchange for control over how you manage your economies'. Clearly a far less bloody solution than that tried in the 20th century, and this time with a successful result. Never forget that the Germans have been huge winners out of the creation of the Euro in the first place, now they get to lead from the front on the world stage. I am not betting against them succeeding.

The French on the other hand, are now panicking. This is their worst nightmare, a Germany in control and unrestrainable.

Jayda1850's picture

Agreed that Germany has benefited from the creation of the euro, but when the euro was created it was the currency of a much more homogenous group of countries with very similiar characteristics of output and debt ratios. With the addition of peripheral countries with hardly any form of self reliant industry and cradle to the grave benefits with no way to pay for them, how long, or should I say after how many bailouts, before the benefits of the Euro and the European union are outweighed by the exponetially growing costs. Yes the Germans have control of the management of these economies because they hold the purse strings, but, as Greece has shown with continually missing EU and IMF debt and budget requirements, just because you tell these countries how to run their governments doesnt really mean its successful.



Sudden Debt's picture

I did notice the Spanish 10yr to go over 6,016% and thought: yep , they're fucked.

And then it dropped 2% in a few minutes and thought: A Sugardady  is doing a booty call.

Miles Kendig's picture

And his weekender liked the tennis bracelet, even if it cubic z

Silverhog's picture

Euphoria is scarcer than Silver. Watch how fast it evaporates after this debt ceiling debacle is swept under the rug.   

disabledvet's picture

that's two hundred billion once the "problem is fixed" that needs to be "swept under the rug." we've known for two years it's been the public money tht keeps drying up producing "sub-par growth." how does having less government mean getting more growth again? of course we can always balance the budget on the back of the entire military. when we did that in 1948 we had the worst recession since the Great Depression. not saying it won't happen of course--but add fiddle-faddling around with the tax code and Washington DC might end up looking like Pagan, Burma.

papaswamp's picture

So in 3-6 months we will see if they can pay…..better turn the Euro printer on.

Miles Kendig's picture

It takes time to implement (the Greek bailout plan), and within this period the market will try to collect some extra basis points, but as we approach the operative phase, these rates will have to decrease," rate strategist at BNP Paribas, Matteo Regesta said.

Poor Matteo, doesn't he realize that by the time this latest plan for "Peace in our Time" gets implemented it will be far past the time for a new bail-out?  Clueless, dragon chasing, hopium smoking, over paid, stupid, fuckin' fucked up motherfucker!  If the folks that really care about a unified structure in Europe would get their thumbs out and take the FULL hit there may yet be near-medium term hope for a European project that can actually provide stability.  However, as long as jackasses like Matteo are driving the narrative then all he and his associates are doing is providing fuel, gasoline, an O2 tank and a spark for all the euro skeptics and the people of Europe and indeed the world to sit back and make smores.

spankfish's picture

"It takes time to implement (the Greek bailout plan), and within this period the market will try to collect some extra basis points, but as we approach the operative phase, these rates will have to decrease," rate strategist at BNP Paribas, Matteo Regesta said.

BNP Paibas needs to have all strategist sent out for urinalysis... they all must be stoned to the bejesus

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