Via Peter Tchir of TF Market Advisors [4],
Anyone who bought the 10 year Spanish bond this year is now down money. It does have a 5.85% coupon, so if you bought the prior lows on Jan. 6th, you have earned 1.6% of carry. Anyone else has lost more and not earned as much interest.
[5]
This year matters because 1) a lot of funds were light on risk into year end, so even if they bought into the LTRO argument they waited until this year to buy, and 2) some funds may not focus on monthly returns, but all of them focus on YTD returns.
This bond is bouncing up and down today on no volume, but I think we are very close to levels that could see a mass exodus of stop loss trading on levered positions.
As we noted earlier [6], this also raises the very notable concerns regarding ECB margin calls - set to be announced tomorrow as it is entirely evident that any bank that actually took LTRO loans and used it to buy Spanish debt is now underwater by more than the de minimus haircut the ECB set at initiation. How this will impact bank capital is unclear as they seem strapped at best and on the margin desperate at worst.