Because it looks like it might be time to fire up the Securities Markets Programme again.
RTRS-PORTUGUESE/GERMAN 10-YEAR GOVERNMENT BOND YIELD SPREAD WIDENS FURTHER TO 414 BPS, 26 BPS WIDER ON DAY
RTRS-PORTUGUESE/GERMAN 10-YEAR GOVERNMENT BOND YIELD SPREAD HITS WIDEST SINCE DECEMBER 1
RTRS-SPANISH/GERMAN 10-YEAR GOVERNMENT BOND YIELD SPREAD WIDENS 18 BPS TO 258 BPS, WIDEST IN MORE THAN 2 WEEKS
And in graphical form:
Yep, Portugal’s 10-year debt is yielding more than 7 per cent.
Belgian and Italian government has also fallen sharply.
RTRS-BELGIAN/GERMAN 10-YEAR GOVERNMENT BOND YIELD SPREAD WIDENS 12 BPS TO 113 BPS, WIDEST SINCE DEC 2
RTRS-ITALY/GERMAN 10-YEAR GOVERNMENT BOND YIELD SPREAD WIDENS 15 BPS TO 186 BPS
Is this the end of the New Year rally? Already?
Update: 17.09 (GMT).
In light of today’s sell off it will be interesting to see how next week’s Portuguese bond auctions go.
IGCP announces a Portuguese Government Bond auction on January 12
IGCP announces an auction of the OT 3.60% October 2014 and the OT 4.80% June 2020, with an indicative global range amount of EUR 750 milion to 1 250 milion, to be held on January 12 at 10:30 a.m. (11:30 a.m. CET). The minimum allocation amount to each line will be EUR 300 million.
Update: 21.00 (GMT)
RBS are pinning the blowout in Portuguese yields on the aforementioned bond auction.
There are many pieces to the European story today, but the main spark was the Portuguese debt announcement. We had observed for some time that a high amount of European issuance is in the first quarter (31%) and that issuance needs were very low into the end of last year. It was our belief that once the auctions came into sight, markets would begin to balk and part 3 of the European debt crisis would begin.
And this is the case, or at least for today. The relief from Chinese support is proving short lived once investors are going to be asked to actually bid on bonds, with Portugal, Spain, and Italy all issuing next week. Rich Tang said it best this morning in relation to China: “while I think I don’t think the European peripheral crisis will be the driver of the next flight-to-quality, I would not get too over my skis thinking that China will bail out the entire debt-laden peripheral zone. There is a natural reason to buy $ assets due to the trade imbalances & currency peg management, it is not a natural economic necessity to load up on Spanish real estate assets.”
Adding to the concerns, beyond looming supply, are political issues such as the Belgian governmental paralysis and the EU looking to apply haircuts to any bank rescue. I will not opine on whether or not this should happen, the concern in the market currently is that it will happen. We saw what happened in November when Merkel attempted to press potential haircuts on sovereigns, with wider spreads leading to the Irish bailout. The prevailing view currently is that if the EU gets a similar approach written in stone in relation to the banks, it will be an easy side-step to then apply it to sovereign bailouts as well.
Portugal bond-buying estimates du jour – FT Alphaville