Monday, Bloody Monday... For European Bonds

Absolute bloodbath in Europe:

  • Italian 10-Year Bonds Extend Drop; Yield Climbs to 6 Percent
  • Spain 10-Year Bond Yield Surges to Euro-Era Record 6.31 Percent

And more from Bloomberg...

  • Yield on 10-yr Treasuries slumped 2bps to 2.88% on haven bid as European peripheral spreads hit euro-era record high after digesting bank stress test results over the weekend.
  • Mkt skeptical over outcome of Thursday’s special summit of top EU officials as Merkel indicates unlikely to attend unless deal is on, BNP note says
  • 2/10 spread shrunk 3bps to 252bps, narrowest since December
  • "We expect to see a floor in the 2/10 slope in the 250bps zone, with the possibility of a return to 265-270bps,” note from BBVA says
  • Fed futures pricing 15% chance of Fed rate at 0.5% by April 2012 vs 14% a week ago, 22% a month ago
  • 10-yr Treasury futures due September hit new high of 125.01 to imply 3.07% vs 3.09% on Friday
  • Stay short 2-yr duration and remain weighted in 2/5s flatteners, Terry Bolton, strategist at JPM, writes in note
  • Recommend FRA/OIS wideners outright as well as 2-yr swap spread narrowers, he adds