Today Spain had an bond auction fail on a sale of its debt. That is as serious as it gets.
A bond auction failure is the red light flashing. It’s very bad indeed especially at this time. Spain cannot afford a second. A second is not the red light flashing but when no one is noticing the light any more and the bell has shaken itself lose from the wall from ringing while people trample over each other trying to get to the exit first.
Spain put up 4-5 billion as its target. Not huge. Just testing really. No one wanted them.
They offered a massively higher rate, up from 0.951% to 1.743%. The numbers look small but it means Spain is now having to pay over 50% more. That is a death sentence if it stays like that.
So will it stay like that? Well probably not. It will probably go higher. Because even at that massive rate Spain still only managed to sell 3.26 billion of 4-5 billion on offer.
That is the bond speculators sharpening their steely knives. Portugal will be a side show if Spain doesn’t convince the world this was a one off aberration. Merkel in Germany already said this is very dangerous. And she is right. Spain is the one that bring s them all down if she goes.
The IMF is panicking. Strauss-Kahn gave a briefing in which he came out bluntly and said Europe must now have a central financial authority over its nations. It must have a unified labour market – meaning wages must drop everywhere and unions must be a thing of the past.
For Strauss-Kahn to say this is amazing. It is the Washington DC Free market zealots ‘telling’ Europe what it ‘must’ do. They know that is guaranteed to incite real anger. For him to say it tells me how worried he and his free market true blue believers are.
This is crisis time and no mistake. If Wall Street could get America to invade Europe it would because what is boiling up here could burn them all down.
I read this post and thought;
A-ha! These are the prices for short-term bonds (3 & 6 month). At a time of great economic uncertainty it is not surprising that the cost of a short-term loan should rise. So I looked at the relative yield on 10 yr bonds.
Oh deary deary me!
http://markets.ft.com/markets/bonds.asp?ftauth=1290544653854
Dominique Strauss-Kahn…called on the European Union to move responsibility for fiscal discipline and structural reform to a central body that is free from the influences of member states
Shows what a crazy, messed-up world we are living in when you realize that Strauss-Kahn is a member of the French Socialist Party.
He's essentially calling for a Europe-wide monetary authority w/no accountability. To anyone. They're not even bothering to give lip-service to democracy anymore.
Hi Jim
Thanks for the link, even though I don't understand the numbers well enough to see what alarms you.
I see Spain has a bid yield of 4.93, but then I look at Australia at 5.43. I thought Australia was doing ok.
I must be reading the numbers incorrectly. Can anybody put me right?
Hi Rich, if you click on the FT Bond tables link above the UK yield curve chart, you can access the historical data for anything you could possibly wish to see.
Comparing the 10 yr Govt bonds with a month ago, Australia is up 0.24%, as is the US, the UK up 0.33%, Sweden and Switzerland are flat. In fact most countries are round about 0.25% up.
Outliers are:
Italy up 0.48%
New Zealand?!?! up 0.68%
Spain up 0.85%
Portugal up 1.31%
and, you guessed it, Greece up 2.56%
yours giltily, Unclear.
Ooh, look what I just found. Congrats Golem.
Seems as we are coming out of the eye of the storm back into the vortex Golem as you said and here is a view on Spain from the first ring of the storm in 2008 …sounds oddly familiar even the charactors!
Strauss-Kahn is a marxist btw..just sayin like.
Or should I have been dividing by the 10 year bond rate 1 month ago to get the increase in amount payable??
It's one thing getting the info, it's another knowing what to do with it.
Yours analytically, Unclear.
Spain will increase the yield another 50% to 2.6145% and the bonds will be snapped up by US Banks. They will be purchased with money loaned to them from the Fed at a interest rate of ZERO. That is a pretty nice risk free rate of return, isn't it? Risk free? Yep, because the EU/IMF will bail out the bond holders (banks) with money given to them from Germany, Holland, etc. Hell, the Fed would probably kick in, basically lending money to a bond issuer to pay principle and interest on a bond owned by a bank that bought the bond with money the Fed lent (gave) them. So the net effect will be the Fed paying the banks 2.6145% to take money from the Fed…
I think Spain (and Italy) are the deal breakers. Much bigger than Ireland, Greece and Portugal. The next level down in the house of cards if you will. I think if Spain goes their bail out could break the ECB emergency fund. If they don’t get bailed out the amount of Spanish bonds held by French and German financial interests mean if Spain defaults it will really impact those countries.
@Corbero your right the FED can print and shoot but this will further devalue their currency, anger their population and just kick the can a little further down the road. Although they could try and do it through the back door.
@Unclear the NZ bonds have probably increased after S&P "said it was revising New Zealand's foreign currency outlook to negative from stable"[1]. I believe I read that New Zealand's foreign debt to GDP is equivalent to Ireland's.
[1] http://www.reuters.com/article/idUSTRE6AL0WS20101122
Is it just me or does anybody else wonder this?
it does seem like a forest fire, it spreads in stop and starts and jumps to start new fires like Belgium and new zealand. and we know where its headed but at any moment the winds could change and the firefighters burnt to a crisp. you know i don't like this analogy i'm gonna stop here
Sean said…
Strauss-Kahn is a marxist btw..just sayin like.
Yeah, and my name's Santa Claus. Labels mean nothing in today's neoliberal free-for-all.
Thanks for the link Unclear.
A year ago I didn't think I'd be looking at government spreads, but Golem is very persuasive.
Learning about financial machinations poses two challenges: 1) the intellectual effort with a short time to do it in, and 2) how to stay positive for the remainder of the day.
Let's sing it: 'I don't need no water mister!'
In relation this article (and my post above) I think the following is relevant.
This shows the interdependency commonly referred to as Financial Contagion (the house of cards)
http://www.creditwritedowns.com/2010/11/chart-of-the-day-bubble-chart-of-exposure-to-and-bailout-of-ireland.html (click on the chart to zoom)
RT interview – Portugal Goes Pop? 'Euro burning, people pay, bankers get away'
http://www.youtube.com/watch?v=2noi0ukU9co
re alexei sayle above "Strauss-Kahn is a marxist btw..just sayin like."
Last year I met some guy taking his degree in economics. Standing behind somebody elses private bar, he complained that he had passed everything but failed " risk". The problem, as he explained to me, was that he had answered by saying what he would have done (and indeed had already done working for his mates bank) in a job… but in an exam, it wouldn't pass because it was against regulations. This pissed him off.
My subsequent suggestion that acceptance of a national minimum wage implies consideration of a national maximum wage brought the same retort as user "sean" above r.e. daemonic strauss kahn.." r u a marxist?"
Muttering something about equal distribution of alcohol, I suggested he reach above his head for something a little stronger from his set of optics. He complied.
He has now passed " risk" and works" in the finance industry".
Hi Everyone,
I've been in Paris and Germany this week. In Paris property prices are increasing – apparently quite a lot this year. Most of the restaurants are full, we had trouble finding a place without a reservation. Hotel reservation was difficult too. The euro still works for payment (sorry all you english euro haters). I've been telling everyone that europe just bailed out their banks rather than Ireland – most people understand this when you explain it. Germany seems to be in a construction boom at the moment – at least where I was. They also still use the euro 😉
Anyway – I thought that you might like this article by Michael Hudson
Schemes of the Rich and Greedy
Bonne Nuit
Rob
Hi Rob
Michael Hudson is so outrageous I don't know how to read his stuff objectively. If what he says about a flat-rate tax is true then there is little to stop the financial class adopting similar schemes in other countries.