The first, if very transitory, fruits of a US-taxpayer (insufficient) bailout of Europe bear fruit. This morning Italy’s 10-year yield has dropped below the psychological 7% barrier while the yield of Spain’s 10 year bonds is testing a break below 6% after strong auction results in France and Spain. As noted by Bloomberg, "easing funding concerns is also buoying core bonds as French yields drop the most on record while spreads on Austrian, Belgium bonds over bunds narrow significantly to break/test key 50- and 100-DMA supports." Naturally the safe-havens, Bunds and Gilts, slump, which makes the probability of another failed German auction remote as primary market demand will rise at lower prices. Specifically, in France the 10 year yield dropped -25bps to 3.15% the biggest decline since at least 1990; lowest since Nov. 9. France today sold €1.571 billion bonds due Oct. 2021, Average yield 3.18% vs prev 3.22% and a Bid/cover 3.05 vs prev 2.24. France also sold: €595 million bonds due Oct. 2017, at an average yield 2.42% and a bid/cover 4.4; €1.1 billion bonds due April 2026 at average yield 3.65% and bid/cover 3.24; €1.08b bonds due April 2041 at average yield 3.94% and Bid/cover 2.26. Elsewhere Spain also performed quite well: Spain met its maximum auction target today to sell EU3.75b in 3 bonds, fetching higher bid/cover ratios for all of them: Spain sold EU1.2b 3-yr bond due April 2015 bonds at an average yield 5.19% vs prev 4.27% and a bid/cover ratio 2.7 vs prev 1.66; also sold were €1.15 billion 4-yr bond due January 2016, an average yield 5.276% vs prev 5.187% and aid/cover ratio 2.83 vs prev 2.7, and €1.4b 5-yr bond due January 2017 average yield 5.54% vs prev 4.85% - a bid/cover ratio 2.69 vs prev 1.62. Yet in terms of outright liquidity, the primary beneficiary were USD-factors: 3-month Euribor/OIS spread continues to rise today to reach highest levels since March 2009 despite the concerted central bank actions on dollar swap funding, specifically the 3-mo Euribor/OIS +1 bp to 1.0 from 0.99 yesterday, highest since March 2009. However, funding strains ease further in cross-currency basis swaps. 3-mo EUR/USD cross currency basis swap +10.63bps to -120.63bps, least since Nov. 15.
All this said, in the aftermath of the biggest kneejerk reaction in the market since August, and the biggest 4 days Eurostoxx rally in years, successful autions were to be expeted. We give Europe a week or so before reality reasserts itself. In the meantime, risk is merely adding some additional vertidal distance before it has to be reacquainted with gravity all over again, and much more has to be done by the global central banking cartel.