While everyone likes to hate on Cyprus, it is Italy that is the focal point of today's European "omnishambles" that has seen the EURUSD tumble to a five month low as of this writing. First it was economic data that scared investors, with Industrial Sales and Orders tumbling far below expected, posting numbers of -1.3% and -1.4%, respectively, on expectations of an increase. Retail sales were just as ugly, declining by -0.5% in January, on expectations of an unchanged print, with the December 0.2% number revised also into negative territory.
Marc Chandler submits:Spanish bonds have fallen each day this week. The 13 bp increase today brings the 10-year yield increase to 30 bp this week, easily the worst performing bond market within the euro zone. Portugal has the dubious honor of being in second place with a 19 bp yield increase. Pressure is also evident in the short end of the coupon curve. The 2-year yield is up 19 bp on the day and 32 bp on the week; again easily the word performer over the past five sessions.
June has been a brutal month for bonds but particularly in the high-yield space, where issuance has cooled after a record run. Junk bond volume has slowed to $7.1 billion this month, the slowest pace since December 2011 and about one-fifth the average monthly total previously in 2013, according to Dealogic.
Is it any wonder Mario Draghi didn't lift a quantitative-easing finger this week? Despite record unemployment, record (and disastrous youth unemployment), record suicide rates, record non-performing loans, and an inextricably-linked banking system facing $3 trillion in exposure to emerging markets... Spanish bond yields have collapsed to their lowest since 2006 (and Italian close behind).
Greek stocks are now down 15% since Q€ started... German stocks are up 3.1% in that period. Europe's broad EuroStoxx 600 closed at its highest since 2000 as Greek government bond yields (and spreads) surged once again. The contagion to the rest of the Europe remains a problem with Spanish and Italian bond risk up 15-20bps since Q€ started. Have and Have-Nots... in stocks...
By Cullen Roche: This is getting more interesting with every day. As the ECB is increasingly pressured to stop the Eurozone crisis with massive bond buying, the yield blowout is starting to spread to the core countries. The surge in Italian bond yields is taking all the media glory in recent weeks, but the surge in French, Belgian, Austrian and Spanish yields is equally alarming. Spain’s 10 year yield is now sitting well above 6% with Belgium fast approaching the 5% level.
EuroStoxx (Europe's Dow) closed today -1% for 2013. France, Germany, and Spain are all lower on the year now. Italy, following ENI's CEO fraud, collapsed almost 3% from the US day-session open, leaving it up less than 1% for the year. Just as we argued, credit markets have been warning that all is not well and today's afternoon free-fall begins the catch-down. European sovereign bonds are no better with Belgian spreads the worst +13bps on the year.
EU officials have hatched a plan to make banks and bondholders take losses for risks, not now of course, but after 2013. In the meantime, taxpayers will shoulder 100% of the losses for bank lending stupidity. On this confidence inspiring news, European bonds rallied sharply.
Bloomberg reports EU Bank Writedown to Exclude Pre-’13 Debt