Today, despite the announcement by Chinese Vice Premier Li Keqiangin in Madrid that China is willing to buy as much Spanish debt as that of Greece and Portugal (but not Ireland), or roughly €6 billion each, CDS in both the core and the semi-periphery, are back to record levels (El Pais and Reuters sources). Spain was last seen trying to catch up with Illinois, somewhere in the mid 300s, while Belgium also took out record wides at 225 bps. On one hand this is beneficial news for Spain, now that China is seemingly instituting its latest sphere of influence, but in reality is just doing all it can to precent the euro from collapsing (and thus killing Chinese exports to its second largest trading partner, the EU) and with net issuance in the country expected at just €47.2 billion, Spain may have well gone the distance to plugging as much as 13% of its net funding needs for the year. However, and what is spooking markets more, is that, as we reported yesterday, today European Commissioner Michael Bernier will publish a “consultation paper” outlining ways to shield taxpayers from banking crises, chief among which is the renewed floating of the debt haircut idea.
As the Telegraph reports, the paper "is the first stage of what will almost certainly become a binding law. We are pursuing the idea of a debt write-down or conversion to help stabilise a failing bank and reduce the need for public funds,” said an EU source." While in practice this is great, consultation papers come and go, and as Ireland demonstrated so vividly less than a month ago, German banks will fight tooth and nail to prevent this from happening.
And lastly, following in the aftermath of the weak German and Portuguese bond auctions, and confirming that not even the very heart of the core of the Eurozone is clear, today's French auction of roughly €9 billion in medium and long term OATs due 2020, 2026 and 2029, as the yields continued pushing ever higher compared to previous auctions. To wit:
- French OAT auction for EUR 4.48bln, 2.5% 12-Oct-20, bid/cover 1.996 vs. Prev. 1.87 (yield 3.36% vs. Prev. 2.87%)
- French OAT auction for EUR 3.42bln, 3.5% 25-Apr-26, bid/cover 1.763 vs. Prev. 1.76 (yield 3.76% vs. Prev. 3.07%)
- French OAT auction for EUR 1.075bln, 5.5% 25-Apr-29, bid/cover 2.395 vs. Prev. 2.80 (yield 3.84% vs. Prev. 3.15%)
Obviously, it is the bolded sections that are most relevant