Monday, November 14, 2011

Italian Yields Spike Following Weak 5 Year Bond Auction, ECB Intervenes Again

Unlike in the past week, when the ECB had a clear agenda of getting Berlusconi out, and thus let 10 Year BTPs tumble to a record low price of 82 cents before even pretending to intervene, all it took today was a modest drop from 88.80 to 87.80 before Mario Draghi sent his bond traders out in the market lifting every offer. As for the sell off catalyst: the auctioning off of €3 billion in 5 year bonds which cleared at a record 6.29%, the highest pricing yield since 1997. This compares to the last auction of 5.32% on October 13 and a bid to cover at the current auction of 1.47 compared to 1.34 last. Yet once again, mysteriously like last week's 1 year auction, the bonds came in well inside of the prevailing yield just before the auction which was 6.43%. Once again one wonders: precisely how do these auctions continue to clear with no tail whatsoever, and why would anyone buy the bonds in the primary market at a price that is much higher than the secondary one. But we can wonder: in the meantime the EFSF will assure us it is not a ponzi scheme. Either way, just as the 10 Year BTP price threatened to take out early support following a very aggressive selloff beginning just as the 3 Year came to market, the ECB stepped in and started buying bonds up. No wonder the EURUSD is well below the Friday closing price, and trading at 1.3670 at last check. For those interested, below are the kneejerk Wall Street analyst responses to the Italian auction.


Warren Buffett: 'Not Clear' Europe Has Will or Ability to Resolve Crisis (Click for Story...)

EURJPY Falters As ECB's Weidmann Suggests Savior Of Last Resort Won't Be There

Speaking at the EuroFinance conference, the recently chatty Jens Weidmann makes it clear that expecting the ECB to save the day is not a good idea. His comments, via Bloomberg, were enough to crack EURUSD under 1.37 and take EURJPY below Friday's lows - dragging risk assets lower across the board.

Italian 10Y spreads are almost back to unch after being 11bps tighter at their best.

Risk Leaking Off As EURUSD Loses Late Friday Lows And Spreads Decompress

Some early excitement in credit markets with XOver and senior financials gapping tighter - trying to catch up to equities - has started to show signs of weakness as EURUSD just lost late Friday swing lows and sovereign spreads start to decompress. Broad risk markets are indicating more weakness for S&P futures as US TSYs are rallying. The shift in EUR has had its largest impact on Silver so far as dollar strength is a drag on commodities (though we note Brent priced in EUR is +1%) - though copper enjoyed the Asia session gaining over 2.5% from Friday's close. With the Italian bond auction later this morning it is no surprise that EFSF bonds are well off their tight spreads of the morning already and as EUR-USD swap spreads adjust, they are pointing to further deterioration in EURUSD from here. This modest pessimism is already reflected in the short-end underperformance across the European sovereign yield curves as flatteners appear popular once again.

Greece's ‘Worst-Worst-Case-Scenario’
11/13/2011 - 23:14
Germany makes contingency plans to deal with the fallout from the debt crisis.

Radioactive Iodine Blankets Much of Europe ... Everyone Points Fingers
George Washington
11/14/2011 - 02:34
All is well ... the EFSF will quietly monetize the radiation ... 

Bloomberg Video Interview, November 14

Admin at Marc Faber Blog - 7 minutes ago
Bloomberg video interview, November 14. Nov. 14 (Bloomberg) - Marc Faber, publisher of the Gloom, Boom and Doom Report," talks about the outlook for global stock markets. Faber also discusses Europe's sovereign debt crisis, the U.S. economy and Federal Reserve monetary policy. He speaks from Ho Chi Minh City, Vietnam, with Susan Li on Bloomberg Television's "First Up."(Source: Bloomberg) *Marc Faber is an international investor known for his uncanny predictions of the stock market and futures markets around the world.* 

Gold: Bull Market Has Years To Run

Admin at Jim Rogers Blog - 10 minutes ago
It will easily go to 2,000 dollars/ounce but it will reach 2,400 dollars/ounce over the course of the bull run, which has years to run. It will end in a bubble when this is over. The way bull markets work is they go up and up and then by the end they turn into a bubble and that will happen to gold. That could be five years, 18 years or six years. I hope I am smart enough to sell but when that happens it will probably double. - *in CNBC* *Related, SPDR Gold Trust ETF (GLD)* *Jim Rogers is an author, financial commentator and successful international investor. He has been frequently ... more » 

Moody's Says EFSF Unable To Support EU Bonds, Sends EURUSD Lower

UPDATE: TSYs actually moving most on this news, yield down 1-2bps and 2s10s30s 3-4bps flatter pulling risk lower.
Given the extent of our discussions both today and over the last two weeks of the EFSF, Moody's confirmation of all that we have said should come as no surprise. In their Weekly Credit Outlook the rating agency, that hasn't accidentally downgraded FrAAAnce recently, cites weak demand and investor's cold reception of proposals as betraying the limits of EFSF's powers. This development calls into question the ability of the EFSF to fund itself in the markets at low cost. The success of the EFSF as a tool to stabilize sovereign debt prices and the success of the current euro area-wide support mechanism comes into doubt if that ability is compromised. Clearly traders are also starting to wake up to this reality as EURUSD drops below Friday's close and given the size of sovereign issuance on deck this week, it is not surprising.

RANsquawk European Morning Briefing - 14/11/11

Morning Briefing RANSquawk
11/14/2011 - 06:11
All you need to read.

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