... Which is not to say that the other usual suspects are fine, they aren't: Spain's 10 year just hit a record 6.72%, a spike of nearly 30 bps on the day, and just shy of the apocalyptic 7.00%, at which point everyone will quietly move to the bomb shelter (and JPM is not helping things, saying the total Spanish bank bailout may hit €350 billion even as the Spanish bailout fund [8]has just €4 billion left in it...), even as the 2 Year rises above 5% for the first time since December 2011 on some rapid curve inversion moves. No: today the market simply had one of those epiphanies where it sat in front of a map, and finally remembered that last year as part of the continental contagion spread that forced the November 30 coordinated global central bank intervention, Italy was at the forefront. Sure enough, 2011 is once again becoming 2012. Today's catalyst was an Italian sale of €5.73 billion in 5 and 10 year bonds, less than the maximum €6.25, where €3.391 billion of the 5 Year was sold at a 5.66% yield, compared to 4.86% on April 27, and the BTC of 1.35 vs 1.34. But the optical killer was the €2.341 billion in 10 Years which priced above 6% for the first time in a long while, coming at 6.03% compared to 5.84% in April, and a dropping BTC of 1.40 compared to 1.48 before. The result is a blow out in the entire Italian curve, with the 10 Year point widening by 28 bps, and sending Italian CDS wider by 21 bps to 543 bps. In other words: welcome to the party Italy. You have been missed.
Some perspectives on the first of many ugly Italian bond auctions:
MICHAEL LEISTER, RATE STRATEGIST, DZ BANK, FRANKFURT
"Those figures are really unconvincing. The 10-year benchmark has been issued (at a price) below secondary levels and the bid/cover for the new bond doesn't look too strong. All these on the back of quite a concession into the auction.
"The auction doesn't provide any arguments to become bullish on peripherals again. We're seeing Italy being taken hostage by the Spanish concerns. The market does not discriminate anymore, it is either 'risk on' or 'risk off', you either buy periphery as a whole or you sell it.
"The market isn't happy with this auction."
PETER CHATWELL, RATE STRATEGIST, CREDIT AGRICOLE, LONDON
"The market appears disappointed by the Italian auctions, in that the 10-year came above 6 percent in yield and the new 5-year gave up a lot of yield in the grey market ahead of the auction. The deterioration of peripheral markets appears to be accelerating, which is mainly a function of stress stemming from Spain's banking sector and the Greek exit risks (i.e. market contagion effect), highlighting that the peripheral markets are in dysfunctional territory, raising the risk that peripheral sovereigns lose market access without intervention from policymakers."
MARC OSTWALD, STRATEGIST, MONUMENT SECURITIES, LONDON
"The levels at which the yields were struck were actually higher than the levels on the bid side in the secondary markets. The market had built in a big concession for it and the actual bidding... the prices which they had to strike at the sale had to have an even bigger concession and that's not good."
"With all the noises going on around at the moment, it's really rather unsurprising."
ALESSANDRO GIANSANTI, RATE STRATEGIST, ING, AMSTERDAM
"There was a huge concession before the auction and even despite that both bonds came out with a weak price, below the market. The "risk off" we have seen in markets is affecting especially Spain, but also Italy. Yields and spreads are back to January levels and the indications are the market is going back to the danger zone."
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Other news did not help: European confidence plunged to 90.6 vs. estimates of 91.9, and down from 92.9. European M3 dropped to just 2.5% from 3.1%, while private loans grew just 0.3% vs 0.6% in March, which RBC's James Ashley called "unequivocally a disappointing report in all key areas", and which for all Austrian theory of money folks out there means just one thing: more printing is coming.