The spread between the 10 Year and the Bund has surged today to a 3 year wide. After hitting an intraday slide of 14 bps (a massive move in a world in which each basis point is leveraged thousands of times), the UST-BUND is now at 73 bps. The risk aversion trade in Europe has made 10 year Geman bonds yield just over 3%, even as the near-failed 5 Year auction in the US has spooked the bond market, and an unexpected drill has forced the Primary Dealers out of hiding and into purchasing everything past 5 years to prevent a full out rout in bonds. And all this is occurring as the ECB just warned that IMF involvement in the overhyped and two-month delayed Greek bailout will be the beginning of the end for the euro and will throw the Eurozone's economy, "which has shown fresh signs of recovery, into renewed turmoil."
A chart of the intraday spread
A longer-term perspective shows that more divergence may be in the works.
And meanwhile in Euroland, courtesy of Market News:
European Central Bank Executive Board member Lorenzo Bini Smaghi Wednesday starkly warned Eurozone leaders that they must agree on aid for Greece and not let the International Monetary Fund do the job for them.
Their failure on this score could undermine the monetary stability of the Eurozone and throw the real economy, which has shown fresh signs of recovery, into renewed turmoil, he said.
Bini Smaghi's views roughly reflect previously issued comments by other Council members but are much more assertive. The ECB's new tough stance, however, may come too late, as Berlin appears set on an IMF involvement and is slowly winning Paris over.
On the eve of the summit of EU leaders in Brussels tomorrow, Bini Smaghi threw down the gauntlet. "Those who are interested in economic and monetary stability in Europe should resist the path to the IMF," he said.
Were the IMF to get involved, "then the image of the euro would be that of a currency that is only able to survive with the support of an international organization," he warned.
Sorry, Bini, it is too late. Bernanke is already on top of it and about to spend another couple hundred billion to bail out Europe, just like he did at the peak of the crisis.