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| The Spanish Government 10-year bond yield |
The Spanish 10-year bond yields and the 5-year CDS prices continued their march upwards. Here's how I see this: last summer's great EU Summit that was supposed to solve everything did not manage to agree on anything, so ECB was forced to start supporting the PIIGS bonds in the secondary markets (so-called SMP). The CDS prices kept on rising, effectively decoupling from the manipulated bond market, and kept rising until the two LTRO's were announced (see the charts, click to enlarge).
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| The 5-year Credit Default Swap on Spanish bonds |
Since there is no SMP or LTRO in horizon and the whole Spanish economy looks simply terrible by any metric, the markets are now moving in for a kill. The "death star" is not yet operational, so I guess the yields will spike to around 6% and the CDS's could test the 470-480 highs. Those levels would then push the eurocrats either to play announcement games,
restart the SMP or announce a special LTRO designed for Spanish banks' pleasure.
Neither of these will of course work, as SMP leads to eventually higher PSI losses at haircut time, and LTRO's push the banks to even more precarious state.
Neither of these will of course work, as SMP leads to eventually higher PSI losses at haircut time, and LTRO's push the banks to even more precarious state.
Possible vaporwares are the usual China and IMF. They will not announce a joint- or bilater debt guarantees, as that would just subordinate the existing investors and push the PSI fear even further. What else is left? Not much, but if you have ideas drop me a line.
For my other recent views, see Buiter Butchers and Weekender: Crisis & Views I’m on Twitter, Facebook, email, paper.li.
News – Between The HedgesMarkets – Between The Hedges
Recap – Global Macro Trading
The Closer – alphaville / FT
Debt crisis: live – The Telegraph
Europe Crisis Tracker – WSJ
EURO CRISIS
LTROsophy 101 – alphaville / FT…if such an improvement does not materialise, the ECB may get under renewed criticism for having addressed a solvency problem with a liquidity solution. Indeed, it may actually reduce the chances of a third LTRO, forcing the ECB to rethink its unconventional policy strategy.
Two Charts On Why The LTRO Is A 'Real' Failure – ZH
Morgan Stanley’s two charts tell about lower corporate credit demand and tighter credit supply by banks.
Morgan Stanley’s two charts tell about lower corporate credit demand and tighter credit supply by banks.
The euro crisis: Through the eye of the storm – Free exchange / The Economist
The ECB bought the euro zone time. Without growth, that time represents little more than the gap between one delay tactic and the next. There is a lot that can go wrong yet, in Europe and elsewhere.
Why Germans should support the Euro – Place du Luxembourg
Germans should care about the EU, not due to some sort historical guilt, but rather out of their own self interest. Off the top of my head there are at least 11 good reasons why Germans should support the Euro:
The ability to achieve political reforms in the eurozone – Deutsche Bank (pdf)
This report from 9-Mar is probably getting more important, as the austerity / fiscal treaty is broken even before it started – and the only choice remaining is “more Europe”.
Spanish Yield Curve – A loud whisper? – TF Market Advisors
Expect talk of PSI and debt restructuring to increase. There is only one way for sovereigns to get their debt down quickly. That is to pull a PSI and make banks and insurance companies take the hit. I would avoid European bank shares here, as their equity market cap and ability to absorb losses will be a tempting target for politicians who want to reduce debt and don’t want to waste a year making things worse, like Greece did. This is especially true with LTRO reducing funding concerns.
Ireland will not have any access to any additional IMF money in the future without the ESM also participating.
Pimco’s Crescenzi Says European Banks Still at Risk – BB (mp3)
EMERGING
The Cracks in the BRICS – Project Syndicate
BRICS annual summit on 28-29 Mar.
12 Charts On China's Chagrin – ZH
JP Morgan’s quick charts tell a sad story – even with all the easing, macro data is still looking weaker.
JP Morgan’s quick charts tell a sad story – even with all the easing, macro data is still looking weaker.
OTHER
Equity derivatives salesman: 'The fun got squeezed out of it. That's why I quit' – The Guardian
Joris Luyendijk hears from a former trader about the old days on the trading floor, before computerization
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Hedge Fund Market Wizards – Amazon
Jack D. Schwager, the author of the classic Market Wizards-books, is coming out with a new book, other books by Schwager here. The book is out in May, preorder now.