Of Belgium, Bonds, and Bullion

Fear is quite obviously rearing its ugly head once again tonight and Belgium's ever-ready-for-an-understatement finance minister Reynders told La Tribune that the euro area may need as much as two years to overcome the sovereign debt crisis. We think it will all be over one way or another by then. As the US Treasury market opens for business tonight, yields are reflecting the fearful action seen in futures markets and dropping notably. The 2Y has just traded at its lowest yield ever at 15.12bps and the 10Y is trying its best to hold above yet another Maginot line at 2.0026%. Credit markets are also starting to crack wider as they open for trading with financials and non-financials notably wider already. While risk-assets in general are offered and safe-haven TSYs are bid, we are seeing PMs gently glide higher and note an interesting article in today's FT that asserts European Central Banks have resumed net-buying Gold after 20 years of consistent selling.


Reynders also added that any adoption of euro-bonds is several years away and would involve a loss of national sovereignty for individual states - perhaps hinting at the sacrifice to come, or more simply explaining that it will never happen. We have no strong comment other than to note his previous ventures forth into public comment with regards dismay at other nations not providing aid to Greece, and the lack of concern at major banks in his nation such as our favorite Dexia. We respectfully remind the minister of the EUR7.656bn principal due on September 28th (and EUR4.46bn interest for the rest of September).

The Treasury rally, and start of trading in European Sovereigns (mostly wider at this time), is extending losses in S&P futures to overnight lows and -23pts from Friday's close. 2s10s30s has dropped significantly but is relatively in-line (perhaps biased to the downside) with where S&P futures are trading currently.


In credit land, PIIGS 2Y yields are all higher except GRE (which is -23bps but that is simply noise given the levels at which it is trading). PTE is the worst at the current time +39bps (in cash). FRA and CHF bonds are 2-3bps lower in yield. However, it is CDS markets that are starting to crack again! Main is +5bps, XOver +14bps, and SUB & SEN Financials are 6-7bps wider. As we noted earlier, the front-end of the curves are underperforming with XOver 3Y +26bps at 725bps as we post.


The FT's note on gold provides some further color:

European central banks have added about 25,000 ounces, or 0.8 tonnes, of gold to their reserves in the year to date, according to data from the European Central Bank and the International Monetary Fund.


That compares with average sales of almost 400 tonnes a year since 1999, as they swapped their non-yielding and unfashionable bullion for sovereign debt. Global gold consumption stands at about 4,500 tonnes a year.

But for now, gold is chopping around in the $1820-1830 range for now - up about $10 from Friday's close - having dramatically outperformed the rest of the commodity complex (even as the dollar has strengthened in the last couple of days). Copper just hit a six-week low.

Charts: Bloomberg

While Gold and the Dollar climb, JPY (carry) crosses continue to slide south - led by KRWJPY now.