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What Happened To Spanish Bonds Today?

Tyler Durden's picture




 

From Peter Tchir of TF Market Advisors

What the TF happened to Spanish Bonds?

So what did happen in Spain today?  What is causing Spanish bonds to go down so much?

The first answer is relatively easy.  Nothing much new happened in Spain today, just variations of the same theme that has been out there for weeks if not months.  What we have is a struggling country with many banks that would view struggling as a compliment.

So why are bonds down so much?  Bonds are down because someone had some bonds to sell and that started the cascade.

Just for a moment imagine you are a market maker in the Spanish bond market.  You aren’t even an aggressive market maker, so you just make markets on the 5 year and 10 year bond.

You are making the 5 year 98/98.25 and the 10 year 100.125/100.375 on screens.  It’s a pretty bog standard market and the street market is the same. 

Hit on the 5 year at 98.  Fine, you refresh markets 97.875/98.125 and 100/100.25.  You are feeling okay, as street remains 98 bid.

Then your trade gets around and street pulls back to 97.875 bid best now and 100 bid on the 10 year.  Feeling 8a little bad about the purchase, but can’t help getting this bad vibe.  The news has been bad and market hasn’t reacted, but seriously do you really want to own this bond here.

You ring the street broker and see if you can get the 98 bid back, figuring you will just whack the bonds out and maybe even put on a small short.  The broker tells you he had to beg the guy to keep any bid.

Hmm…You refresh 97.75/98 and 99.875/100.125 thinking maybe a client will come and lift your offer.

Sales shouts over, “hey, for XYZ, where are you on the Spanish 10 year – giving you a hand signal indicating guy is a likely seller”.  You refresh as 99.75/100 thinking XYZ won’t hit you and expecting sales to whine and moan that you faded the bid from your recent run (I did give salesperson credit for indicating right direction with hand signal).  They don’t even argue they just hit you at 99.75.  D*mn.  XYZ is always a nickel and dimer, if he’s hitting you down an 1/8th from the most recent run, things must feel heavy.

You look up at the street screens and they just went offered.  Cr*p, no street bid.

Now what to do?  Got to pretend things are like normal.  Refresh markets at 97.375/97.875 on the 5 year and 99.375/99.875 on the 10 year.  With ½ point markets no one is going to touch your bids, and if you can get lifted on both you break even.  You can hear the one salesperson already moan that the “gutless” trader is widening the market – “what a wimp, and how the heck am I supposed to make money” (sic, sales credits is what is actually being “made”).  Trader could care less about what sales thinks at this point, he now has two positions, one of which is already a loser.  Not what he needed.

Nothing happens on the markets, which on the bright side is better than getting hit.  The trader gets sales to focus – “pick up your bloody phones and get on the wire with your guys and find me a buyer”.

Sales gets to work looking for a buyer.  Sadly the response is underwhelming.  Hedge funds keep coming back with the response that they aren’t buyers here.  The news has been bad and they don’t want to step up just yet.  We are off the wides, and we think it could break to new lows.  Shorts don’t want to cover and no one wants to set longs.  Worse, a couple of the momo guys indicate they are thinking of selling, they see “no reason” why bonds are trading as good as they are. Yikes.

The news is only marginally better from the “real money” accounts.  Each one basically comes back with the color that they are on hold for now and not looking to add exposure to either Spain or Italy until the situation gets more clarity.  The news would be more useful if you could short some Italian bonds against your Spanish ones, but in this environment, that would cause more problems with the Italian bond trader and management than its worth.

The trader is starting to get very nervous.  He screams at the Spanish saleswoman, “Are any of your Rioja swilling guys back from siesta yet?  Why the heck aren’t they buying these bonds, they’re bloody well CHEAP and I thought the government told them to buy more!”  Saleswoman decides that now is not the time to get in a fight with the trader over his ridiculously inappropriate comments.  She might have picked a fight if she had a bid, but she doesn’t.  A couple of her smaller accounts are totally full.  They aren’t adding at all.  One or two of her larger accounts are looking to buy on weakness, but really focused at the front end of the curve.  Yes, they see value in these bonds, but just feel a lot more comfortable 2 years and in.

Trader looks at the street screen.  The 5 year is 97.25/97.75.  The 10 year is 99.5/99.75.  He is thinking of just smacking the bid at 99.5 since the street 99.75 offer looks aggressive.  Just cut the losses before this gets ugly.  As much as salespeople in general annoy him, they are making sense. 

The news has been bad, bonds were trading too well, and there really are no buyers.

Trader hears momo’s salesperson shouting over.  “Hey where are you on those 10 Spanish 10 years?”  The trader attempts to use his primary skill, the ability to say “99 bid” while clicking on the 99.5 street bid.  But disaster, like a scene out of the matrix, it occurs in slow motion, with his finger within an inch of the keyboard, the 99.5 bid gets hit and left offered.  “Noooo….” thinks the trader.  For a brief second he’s in his own world, but he is jerked back into reality by the persistent yammering of momo’s sales coverage.  Sales has a big smile on his face.  It turns out momo didn’t hit your 97 bid (sales makes disappointed face) but left a 97.25 offer to work (with big grin).  Sales is happy, momo rarely leaves orders.  Just bloody great thinks the trader wondering for the millionth time how the salesperson can be so clueless.  They don’t see that momo left the offer just to ensure that prices stay low, and by the time the trader finds a buyer, momentum will have shifted and momo won’t execute.  Bloody hell this sucks.

But, the trader has to refresh the markets.  97/97.5 on the 5 year and 98.875/99.375 on the 10 year, and voila, the 5 year bond is down 7/8 of apoint and the 10 year is down 1 point.

 

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Wed, 05/09/2012 - 08:02 | 2409459 NewThor
NewThor's picture

Gravity and reality, bitchez!

Wed, 05/09/2012 - 08:02 | 2409463 GetSome
GetSome's picture

Spain is feeling the Pain Train

Wed, 05/09/2012 - 08:10 | 2409473 GetZeeGold
GetZeeGold's picture

 

 

CONfidence........not all that high.

 

Wed, 05/09/2012 - 09:44 | 2409689 hedgeless_horseman
hedgeless_horseman's picture

 

 

So, at what point should we start thinking about going long Spanish beach front?

Wed, 05/09/2012 - 09:58 | 2409747 GMadScientist
GMadScientist's picture

Just make sure you get a geologist to check for volcanoes before you buy.

Wed, 05/09/2012 - 11:52 | 2410162 vh070
vh070's picture

When you get a quote in pesetas.

Wed, 05/09/2012 - 08:02 | 2409460 oogs66
oogs66's picture

the volcker rule might actually be a good thing

Wed, 05/09/2012 - 09:56 | 2409743 5880
5880's picture

trade n fade!

trade n fade...

trade n fade?

pound all bids!

Wed, 05/09/2012 - 08:05 | 2409465 ziggy59
ziggy59's picture

The Pain in Spain stays away from the Main.. stream idiots

Wed, 05/09/2012 - 08:05 | 2409466 slackrabbit
slackrabbit's picture

"You look up at the street screens and they just went offered.  Cr*p, no street bid.

Now what to do?"

Hi Ben,.....hey its um XXXX...Like, umm is that printer of yours fixed yet? Cos our toilets out of paper...

Wed, 05/09/2012 - 09:01 | 2409585 oogs66
oogs66's picture

is there a patron saint of central bank intevention?

Wed, 05/09/2012 - 08:06 | 2409467 Mae Kadoodie
Mae Kadoodie's picture

Seems like back breaking work being a trader.

Wed, 05/09/2012 - 08:11 | 2409478 GetZeeGold
GetZeeGold's picture

 

 

Not hard.....just keep buying the cheap gold.

Wed, 05/09/2012 - 08:06 | 2409470 Catullus
Catullus's picture

Does every salesperson think they're getting fucked on price?  Is it just their standard answer for everything?

Wed, 05/09/2012 - 08:18 | 2409480 GetZeeGold
GetZeeGold's picture

 

 

Salesperson.......do you mean stockbroker?

 

Wed, 05/09/2012 - 08:45 | 2409544 ZeroPower
ZeroPower's picture

No.

Every trading floor has an S&T (sales & trading) squad. 

Sales guys (typically view down on by traders due to their lack of knowledge with products compared to the trader yet pretending they know everything) are the ones that work real money orders i.e. institutions, pension funds etc. They communicate to the trader (each trader and sales person are typically divided by asset class) what exactly their buyer/seller is wanting to do in the market and the trader provides them a price which (hopefully) is better or at least at where the market is.

Wed, 05/09/2012 - 08:19 | 2409490 the not so migh...
the not so mighty maximiza's picture

I am a salesperson, and yes I do.

Wed, 05/09/2012 - 08:20 | 2409492 lizzy36
lizzy36's picture

Fuck, or be fucked world. Nothing in between.

Wed, 05/09/2012 - 08:23 | 2409500 GetZeeGold
GetZeeGold's picture

 

 

Don't hold back Liz.....tell us what you really think.

 

Wed, 05/09/2012 - 08:32 | 2409515 NewThor
NewThor's picture

A bodhisattva can live without either.

Wed, 05/09/2012 - 08:50 | 2409557 idea_hamster
idea_hamster's picture

A bodhisattva recognizes no duality -- om mani pad me hum!

:-)

Wed, 05/09/2012 - 09:59 | 2409750 GMadScientist
GMadScientist's picture

Oh money, pat my hand.

 

Wed, 05/09/2012 - 10:33 | 2409857 Element
Element's picture

Just out of curiosity, have you seen the Nostromo's self-destruct keypad used in the first Alien movie? ... there's a "PADME" button on it, just to the right of the "Shakti Excess" button ... and several other curiously titled buttons ... but don't press the Agaric Fly button ... there's also a Cross with the illuminati cap-stone and eye symbol on it.

Interesting thing is, Princess Amidala (the one Darth-Vader was banging) in the other big sci-fi space-flick series, was named PADME ...

Someone might think that was a Hollywood occultist piss-take ... and George Lucas just decided to continue the occultist gags between this clique of big-name Directors.

Wed, 05/09/2012 - 08:27 | 2409507 the not so migh...
the not so mighty maximiza's picture

Thats so HOT Lizzy36

Wed, 05/09/2012 - 08:37 | 2409524 LawsofPhysics
LawsofPhysics's picture

Pssst, hey lizzy it has always been that way.  Just waking up are we?

Wed, 05/09/2012 - 08:10 | 2409472 PMakoi
PMakoi's picture

That was good.  Thank you for that reality story.  It was an interesting and entertaining read.

Wed, 05/09/2012 - 08:15 | 2409486 Ivanovich
Ivanovich's picture

It was!  But I'm as fucking lost as Ray Charles at a flea market.

Wed, 05/09/2012 - 08:10 | 2409476 insanelysane
insanelysane's picture

The media, carrying the banksters message, are already saying the yet publicly "unknown" bailout of Spain is too little.  Sounds like some good old insider trading as the muppet masters already know how much Spain is getting and have already done their calculations on how much they will make and it is not enough.

Wed, 05/09/2012 - 08:21 | 2409495 Hobbleknee
Hobbleknee's picture

How many times will they bail out Spain before they finally let go?

Wed, 05/09/2012 - 08:23 | 2409497 The Axe
The Axe's picture

That is the problem with the entire market, HFT has created a illusion of liquidity!!!  Look at FOSL or GMCR   millions of example.....flash and crash     when electronic monsters algo assholes pull bids you see the TRUE viewpoint inside the BOX....nothing   ...a vacuum of no bids....lots of offers..... totally broken market..

 

Wed, 05/09/2012 - 08:32 | 2409516 Village Smithy
Village Smithy's picture

First FOSL and GMCR, then AAPL then SPY, QQQ...

Wed, 05/09/2012 - 08:40 | 2409527 GetZeeGold
GetZeeGold's picture

 

 

One question Mr. Lay.........are you smoking crack?

 

Wed, 05/09/2012 - 08:26 | 2409503 icanhasbailout
icanhasbailout's picture

Spanish bonds in Andalucia...

http://www.youtube.com/watch?v=u-qcy0-7ngw

Wed, 05/09/2012 - 08:31 | 2409512 Benjamin Glutton
Benjamin Glutton's picture
Fast, Easy, Secure. Get Cash for Bonds! Get Cash for Gold, Silver and Platinum Bonds! Follow These 3 Simple Steps to Sell Your Bonds Online:
  1. Complete the FORM to the right to request your FREE Bond Return Pack
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Wed, 05/09/2012 - 08:36 | 2409522 LawsofPhysics
LawsofPhysics's picture

The central banks and financial fucks are simply setting the new paradigm.  Look at America, if yields go up it is game over therefore the new paradigm wil be when bonds go bidless, yeilds and rates go down.  Brilliant.

Wed, 05/09/2012 - 08:40 | 2409529 insanelysane
insanelysane's picture

Is this Spanish debt legal?

Wed, 05/09/2012 - 08:41 | 2409534 mess nonster
mess nonster's picture

ATTENTION/YOUR/CREDIT/LIMIT/HAS/BEEN/REACHED/IF/YOU/HAVE/ANY/QUESTIONS/PLEASE/CALL/THE/CUSTOMER/SERVICE/DESK/THANK/YOU/

Wed, 05/09/2012 - 08:50 | 2409556 Flounder
Flounder's picture

The CAC40 is down 25% since Feb 11 and 48% since Feb 07.

Wed, 05/09/2012 - 09:46 | 2409696 tiwimon
tiwimon's picture

Its all because of this...

The PM made this remark in public, I think he forgot social engneering rule 101, tell a lie which is henceforth known as truth...

"Mariano Rajoy, Prime Minister of Spain, made a very interesting comment in the Senate today. He told the politicians that virtually EVERYONE in Spain, including banks, corporations and regional governments, have been locked out of credit markets. The only institution that is still able to issue debt, according to Rajoy, is the Spanish Treasury itself. "

http://theautomaticearth.org/Finance/spain-has-been-shut-out.html

 

Wed, 05/09/2012 - 11:24 | 2410065 falak pema
falak pema's picture

In Memory of May 9 THE DAY OF EUROPE :

 

HERE IS AN ARTICLE IN FRENCH ABOUT THE CRASH OF 1873 THAT OCCURRED ON MAY 9 TH.

BANK SHENANIGANS IS NOTHING NEW; SORRY FOR ARTICLE IN FRENCH BUT I'M SURE THERE IS A CORRESPONDING ONE IN ENGLISH; AS THE CRASH WHICH BEGAN IN VIENNA, WENT TO GERMANY, THEN FRANCE AND ENDED UP AT WS. ENJOY! 

9 mai 1873. En Europe, aux USA, les Bourses plongent, la crise, le chômage... Déjà. - Le Point

Wed, 05/09/2012 - 13:01 | 2410365 Bugsquasher
Bugsquasher's picture

I still have some old Pesetas with Franco's picture on them.  Think maybe they might be good to bid on some beach front property.

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