The Greek new-election news this morning pushed sovereign spreads wider across the board in Europe. Spain and Italy have leaked back off those high spread levels in the last hour (while Portugal has not) but critically, Spain is rapidly approaching a very significant Maginot Line, as noted by Bloomberg's chart-of-the-day today. In the past (in the case of Portugal and Ireland) when the bond spread on European sovereigns relative to AAA-rated European debt has reached 450bps, the LCH has slapped on significant margin hikes. At a time when cash/collateral is in extremely short-supply (as indicated most obviously by the rapid deterioration in EUR-USD basis swaps recently), Spanish 10Y spreads are perhaps a day or two of weakness away from the point of no-return. When Portugal broke this level it rapidly accelerated from 450bps to over 800bps in less than three months.
Spanish 10Y Yields...
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Portugal...tested the margin levels (was defended by ECB's SMP) and then broke and never looked back
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