Your Daily Update On European Bonds


Wall Street Journal – European Bonds Under Pressure

Spain was forced to offer record euro-era yields at its government bond auction Thursday, reflecting investors’ demands for higher-risk premiums as Europe struggles to contain its sovereign-debt crisis. The auction results escalated concerns that large economies previously considered safe bets could see borrowing costs rising to levels that treasuries cannot sustain over time. Greece, Portugal and Ireland lost access to market funding and had to seek bail outs after being forced to pay yields of more than 7% on their 10-year bonds. Now Spain isn’t far behind, having to pay an average yield of 6.975% to sell a total of €3.563 billion ($4.8 billion) in 10-year bonds.

The Wall Street Journal – The Culture War Over Europe’s Money

France is basically a Club Med country with some northern features (historically often found among the Huguenots and Jews, out of which communities many of its most successful business leaders have come). It wants a “political” economic system for Europe, one in which political pressures can ensure the kind of steady devaluation of the euro that Italy, Spain, France, Greece and Portugal used to enjoy with their national currencies in the good old pre-euro days. The only problem with this old system was that it gave too many advantages to the Germans, Dutch and others (in the form of lower interest rates). France wants to stick the Germans with a Latin currency and Latin rules for running it . . .


The chart below is the metric that the London Clearinghouse now uses to determine when to hike margin rates.  Should Spanish yields exceed 4.50%, history says LCH will hike rates.  This was the case last week with Italy.

Considering that Spain is only 44 basis points from this level and Spanish yields are 50 basis points higher just this week, this might only be a few days away.

Arbor Research
Your Daily Update On European Bonds
November 17, 2011

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