While the S&P downgrade of Spain to BBB+, one notch below Moody’s and two below Fitch, is not a surprise considering its CDS is trading near 500 (Brazil has a BBB rating and trades at 123 bps), bond yields are moving higher with the 10 yr approaching 6% again. Spain’s unemployment rate in Q1 rose to 24.44% from 22.85% in Q4, a new high. Italy issued debt with 4 maturities out to 10 yrs totaling 5.95B euros, less than their maximum target of 6.25b. Yields in Italy are higher in response. A bright spot in the troubled sovereign world, the Portuguese 10 yr yield is falling to the lowest since Sept. German consumer confidence in May fell to a 5 month low and French consumer spending in Mar fell more than expected. The BoJ announced another 10T yen increase in QE, above what the Nikkei news reported prior. The Nikkei market immediately jumped and the yen sold off but the BoJ diluted the move by saying it won’t be too long before they hit their 1% inflation target, implying less stimulus going forward and the Nikkei and yen reversed the initial move as a result. US Q1 GDP is expected to show a gain of 2.5%. With weather an obvious factor, it won’t be until Q2 is reported that we’ll see what was pulled forward.

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