Wall Street's Response To Spanish And French Auctions, IBEX Slides

Tyler Durden's picture

Here is a recap of today's European bond issuance as well as the Wall Street "instaview" response to each

  • Spain sold 2.54 billion euros of government bonds on Thursday in an auction that met solid demand, though with 10-year borrowing costs rising as investors worried the country may miss budget deficit targets and over the health of its banking sector.
    • A 10-year bond was sold at a yield of 5.743 percent compared with 5.403 percent when the paper was sold via a syndicate in February. The yield on a two-year bond dipped to 3.463 percent from 3.495 percent at a previous auction on Oct. 6.
  • France sold 7.97 billion euros of government bonds on Thursday, in a sale which analysts said met good demand aided by slightly higher yields in the secondary market on jitters over the first round of presidential elections due on Sunday.
    • The amount sold was at the upper end of the debt management agency's range of 7.0 billion to 8.0 billion euros. It received bids for nearly three times that amount.

The one market that matters, the IBEX is solidly lower post auction, as is the EURUSD, and the Spanish-Bund spread is wider.

And Wall Street's take on:

The Spanish Auction:


"Although more sentiment-shaping, the modest size of today's auction clearly helped mitigate the growing nervousness surrounding Spain. Right now, the overriding concern for the Treasury is to ensure that its issuance targets are met and it achieved this today with continued support from domestic banks. It was a given that yields would rise. Spain's bond market has entered a perilous "post-LTRO" phase in which fundamentals are at least as important as liquidity in determining auction results. January's bumper sales are now a distant memory."

"This week's Spanish auctions were a relative success. But this may be a temporary reprieve more than anything else."


"Overall, then, a reasonable set of results which will go some way to allaying fears the domestic bid for Spanish bonds has dried up. That said, as evidenced by the accepted yield on the 10-year, this support does come at a price. Meanwhile, the market had clearly set itself up for a positive outcome and, hence, the hurdle for an unexpectedly favourable set of results had risen.

"This may explain the retracement of this morning's gains along the Spanish curve in the wake of these data. On a broader level, we expect crisis tensions to continue to ratchet higher going forward as fundamentals continue to reassert themselves post the recent short-lived liquidity boost to market sentiment."


"They've achieved their target although it was a modest one. Bid/cover ratios both in the two- and 10-year pretty decent, but yields are clearly high."

"The bigger story for Spain remains one of fiscal position and growth. Until we see signs that the government is implementing the medium-term fiscal consolidation programme and signs of life in the Spanish economy, investors are going to worry about the trajectory of the debt-to-GDP ratio (gross domestic product) in the medium-term."

"The risk is that any fall in yields will be short-lived until the credibility of the Spanish government improves."


"The most encouraging part is they sold more of the 10-year than they did of the two-year. That was quite important because if it had been skewed the other way around then people would have thought, if all they can rely on doing is selling lots of short-dated bonds they are creating themselves a (refinancing) problem at a time when their overall debt levels are rising.

"It's been clear ... that there has been heavy domestic buying, a lot of the demand has come from the domestic institutions, above all official institutions.

"What does it tell us? Well, they got over this hurdle and the next one is not far away."


"It's a mixed auction. From the treasury's perspective, it is good, selling the maximum amount. The reason Bunds spiked and there might be some disappointment right now is that it priced slightly cheaper than the secondary market. But, given the market volatility, I would not read too much into this. It's job done for this round."

French Auction


"It went smoothly, decent demand, they've reached their target. We've seen a bit of a concession in the past few weeks as investors fret about a shift in policy under the helm of Hollande if he gets into power."

"It looks very likely that... Hollande becomes the next president. He clearly wants to renegotiate the fiscal compact agreed last year and that has unnerved investors."


"In terms of the total size, close to 8 billion (euros) which is the target they had, so that satisfies the market. The new bond, the 2014, came around the fair value... so that was quite good. Overall nothing extraordinary. Another decent French auction."

"Bid-covers were good, the yields were not far from where it was trading, it just shows that there is demand for French paper."


"Demand for all three lines on offer was very good."

"Three factors supported today's auction. First of all, the attractive pick-up levels versus Germany, due to recent wider spreads; secondly the large redemptions and coupon payments next week; third, some interesting ... valuations of the lines versus the French curve."

Source: Reuters

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Irelevant's picture

Smoke and mirrors bitchez!

Oh regional Indian's picture

Just what I was thinking irelevant.

Who bought this stuff anyways? And hey, auction looks shaky, let's just sell 10 Million Euro's worth and call it a 100% success.

Smaller and smaller bond auctions in a sea of liquidity that seems to be..... moving away from us....very fast....lot's of BEACH showing up...hmmmm.... nice, just like having summer time in the winter.....

Hey, lookee here, big beach....perpetual summer...yeeeee haw!



fbrothers's picture

They are just swaping bullshit with each other.


Oh regional Indian's picture

Yup fbro, something smells and it's not roses.


DavidC's picture

This just like the Fed buying 60% plus of Treasury debt and the markets saying there's a solid demand for it.


SimpleandConfused's picture

David, there is solid demand.  You might not care for the source of the demand, but it is demand all the same.

Let me help you guys out so you're not too upset come December 2012.  The end result of Spain, Italy, Ireland et al will be the Fed and ECB buying more and more sovereign debt coupled with higher inflation, but nothing so severe the voting public will vote in anyone who is going to reduce government spending.  So, no matter all of these deficits will be higher and funded by the central banks.  The DOW hits 17K, the S&P 1800.

But more importantly, will Manning be able to play as he did with the Colts?  Will Tebow be in the playoffs as a Jet?  My god did you see the kid belt out those songs on American Idol???  Who is the newest Top Model???  Can you believe what happened on DWTS?/ OMG LOL WTF!!!!

People just don't give a damn.  And the banks have all the printed fiat they need to do whatever they want.  Nothing changes here except everything gets more expensive and that includes equities.  Bonds?  No idea but I'm betting the central banks keep a lid where they wish to do so.

The ZH community is aware at a level unheard of in the general public.  Folks here are better educated about what's going on than most college professors and certainly all of the financial news types on the MSM.  You guys will be proven right one day.  I just think that day will be many, many years away.

maxmad's picture

Fair Market value of Futures now in the RED!! 

Imminent Crucible's picture

It is true that unsustainable trends often go much farther, and hold together longer, than most informed observers think they can. That said, the average fiat currency has historically survived about 17 years. The average extant paper currency has been around for about 28 years. At 41 years, the unbacked FRN dollar is very, very long in the tooth.

A compound (exponential) curve seems quite tame until the third decade, as long as the exponent is a relatively low number. In the fourth decade comes the sudden violent ramp.

It is not coincidental that the Treasury is adding to the federal debt at the fastest run rate in history (more than $200 billion per month lately). And that's just on-balance-sheet federal. Add in the OBS borrowings and state and municipal debt growth and you have a ferocious ramp underway.

Everything looks more or less normal; don't be concerned about those rumblings, or slight tremors, or the occasional fumarole. Mt. Deficit is an extinct volcano.

Ghordius's picture

I agree in principle, though I thought the average lifespan of a fiat currency is 40 years - and much longer if it's managed by a great, first-world, first-class, inventive, careful, powerful, productive, exporting and principled region or country that avoids unnecessary conficts.

Because at the end, it's nearly every time war (or an internal conflict) that consumes this military-power instrument called fiat.

Imminent Crucible's picture

Can't argue with that. Just as patriotism is the last refuge of scoundrels, war is the last resort of failing central bankers. It's no accident that we're presently involved in more wars than the average sheep can keep track of.

Disclaimer: Nothing herein shall be construed to imply that you are not smarter than the average sheep.

Ghordius's picture

I see it the other way around: central banks are the financers of last resort for conflict. And this consumes fiat.

tinsmith's picture

I think you hit the nail on the head. I try to talk to people about how perilous (albeit glacially moving) our situation is financially both localy and globaly. The responses I get range from 'what are you talkingabout?' To 'so what, that's stuff I can't do anything about' To 'the economy won't collapse/currency won't debase/world won't end for a long, long time'. In the long run it seems we will indeed have to pay for the sins of our fathers, along with our own. However, not many people seem to care anymore about the long run.

beachdude's picture

Was right there with you S & C until your closing sentence. As this Keynsian experiment really begins to put the pedal to the metal, that wall gets closer very quickly.

Northeaster's picture


I think your brief analysis is spot on, make your money now, even with low returns, it's better than anything else out there.

Lux Fiat's picture

Not so simple and confused,

You make some very good points.  And unsustainable trends can run on much longer than most would expect.  However, when I look at the following factors, I have serious doubts as to whether this can go on for many, many years.

  • an average maturity on the Federal debt somewhere around 5 years, if memory serves me correctly, meaning a substantial portion of the current Federal debt will have to rolled in the next few years,
  • new debt on deck to the tune of $1 trillion plus each year (of which there is "non-Fed" demand for only 40%),
  • the longer we put off seriously working to our house in order, the less "non-Fed" demand there will be (unless they pull a pre-2001 Argentina and try to herd domestics into the bond markets in much greater numbers)
  • our biggest "non-Fed" foreign buyers are facing economic issues of their own, exacerbated by ours, and in the case of Japanese pension funds, will have to start selling treasuries instead of buying them.

If the gov't can pull this off without massive inflation and/or price controls (a short-term panacea at best, and a sure sign that policy makers are in a "treat the symptom and not the cause" mindset), then I have not given them anywhere near enough ...credit. 

eddiebe's picture

Captain to crew of the Titanic: Rearrange those chairs mates and keep the music lively.

youngman's picture

To me is seemed like all of the comments were negative.....like yeah they sold them but they still are in trouble.....so who bought them...they are in big trouble because they will be in the red by next week...and will never get the principal paid back...oh well...I know..its the new Central Bank controllled markets...I still can´t get my old economics 101 out of my head....but the commentators are still using it....they call this a sucessful auction....thats old 101 talking

disabledvet's picture

well we're MONETIZING 100 billion a week...so i don't understand why they're so chincy over there. I'm sure the media will explain it to me in a way not even Big Bird could fathom...http://www.youtube.com/watch?feature=player_detailpage&v=QpL6EIMShO4

lolmao500's picture

Better than expected, rally on!

Stoploss's picture

Looking like it's pretty much instafucked from about here on out.

Im sure it will be up by the time i click the save button.

firstdivision's picture

Spanish auction, sammish auction.  No one cares, all they care about is that futures are up 1%.  All earnings reports are coming in as beat, no one cares that the bar was lowred two months ago.  All everyone knows is to plow every penny into stocks, cause Uncle Sam told us to.

Barometer's picture

Can we get a view from Stolper please??

Oh regional Indian's picture

How is the view from Denkali, oh Ghost Who Walks?

Or have you merely come to mock these Phantom markets?


Barometer's picture

Just hiding in the Skull Cave watching over my treasure.

Stoploss's picture

Ahh, there goes the Paindex..

crawl's picture

Just another bond auction with CB manipulation.

DeadFred's picture

Someone drew a line at EURUSD 130.7, I wonder who has the pockets deep enough to defend it from so many attempts? China has been rumored to be the champion. There's supposed to be a whole bunch of stops hanging out just below there. The chart is starting to look like the EURCHF.

Village Smithy's picture

Fred keeps running at that 130 door like he really wants to break it down. Barney is waiting for Fred to show the maximum amount of frustration and least amount of caution and then Barney will open it.

Bastiat009's picture

The debt crisis seems to be very negative for gold.

I am not saying it makes sense, but it's a fact (for now).

Stocks have proven much safer than gold lately.

gnomon's picture

And lead and copper and brass and propellants and primers loaded in a totally reliable firearm will trump both stocks and gold in regards to safety, (whenever the "checks stop coming").  

And that time WILL COME.

(And "stocks safer than gold lately" is the most ludicrous statement I have read yet today).