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Spain Bond Drubbing Continues As Stocks Surge

Tyler Durden's picture


Spanish sovereign bonds ended the week at all-time record wide spreads to bunds, pushing back up near 7% yields today before falling back into the close, and +55bps on the week. This is a 50bps underperformance of Italian sovereigns on the week, while Spanish stocks notably outperformed Italian stocks on the week (though faded notably today having been unable to regain Monday's opening highs). German Bunds also deteriorated notably relative to Treasuries on the week (the biggest wekly jump in Bunds-Treasuries in almost 7 months) and while equity and credit markets reconverged into the weekend - with position-squaring evident - as the shifts in Swiss rates suggest all is not well under the surface as repatriation flows drove EURUSD up over 115pips on the week to near its Sunday-night opening highs (amid a 200 pip range). Finally for all the ebullient US investors, we note that Europe's VIX was bid notably higher today to near a 3 week high relative to US VIX as hedges into the weekend were very prevalent.

It seems the end of the week in Europe - just like in the US - was about position-squaring as early-week protection (cheap macro overlays in MAIN - Europe's investment grade index) was sold back and stocks and credit resynced...

with Spanish stocks (pink) rallying the most on the week (though fading today and unable to reachMonday's opening highs) and Italy underperforming (red).


And clearly Spain (red) bonds diverged notably in the last two days from the rest of European sovereigns - especially Italy. Also note the green curve which reflects the almost 18bps decompression of German Bunds over Treasuries this week (as 10Y bunds rose 12bps while 10Y Treasuries are down around 6bps from Europe's close last Friday)...

leaving Spanish 10Y spread to Bunds at an all-time record high...

but Bund 10Y yields rose the most relative to 10Y TSYs in almost 7 months!

as hedgers were active into this event-heavy weekend as Europe's VIX ramped relative to US VIX (for now)...

Charts: Bloomberg


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Fri, 06/15/2012 - 12:01 | 2529558 The Monkey
The Monkey's picture

Central banks cometh.

Fri, 06/15/2012 - 12:04 | 2529573 NotApplicable
NotApplicable's picture

That big sucking sound you hear is them picking up everything that isn't nailed down.

Fri, 06/15/2012 - 12:10 | 2529597 CommunityStandard
CommunityStandard's picture

Thanks for clarifying.  I thought the sucking sound was some servicing in exchange for more ECB funding.

Fri, 06/15/2012 - 13:07 | 2529776 ACP
ACP's picture

Yes, because no matter what happens, everything is A-OK as long as stocks go up.

Fri, 06/15/2012 - 12:03 | 2529567 bidaskspread
bidaskspread's picture

Steps to make a 100% return in under 7 months.

Step 1: Accept stolen money from a thief.

 Step 2:  Be put on the bankruptcy committee on thief’s company.

Step 3: Look at bankrupt company asset and cherry pick best asset. Find asset and offer a fire sale price, Purchase illiquid assets with stolen money for $39.1 million (LME) and have buyers in hand that will pay more.

Step 4: Return a portion of stolen money to improve public image and reduce legal expense.

Step 5: Review offers that value the asset (LME) for $103.4 and potentially sell netting $64.3 million.

And that is one way the rich get richer. Vomit bags anyone?

Fri, 06/15/2012 - 12:06 | 2529577 NotApplicable
NotApplicable's picture

Not bad work, if you can get it. I guess.

Fri, 06/15/2012 - 12:14 | 2529608 q99x2
q99x2's picture

Here's another way. Banksters convince guillable young poor people that they will be defending their country if the go out a murder millions of innocent people with heavy high tech weaponry which blows the jaws off children and contaminates the lands with nuclear waste. They then move in and rape all the natural resources of the countries they invade. They will also use toture and often leave a technocrat in place to continue the torture for decades to come.

And they're about to move in with military force on America.

Fri, 06/15/2012 - 12:03 | 2529569 SeverinSlade
SeverinSlade's picture

If Syriza wins and the CBs don't deliver outright LSAP, markets are set to be verrrrrrrrrrrry disappointed. 

Fri, 06/15/2012 - 12:35 | 2529666 CClarity
CClarity's picture

Agree.  Markets are also set to be disappointed if Syriza doesn't win but coalition that does still asks Berlin for additional concessions, which they must have as they cannot meet terms, no matter "who" is in charge.

Markets also set to be disappointed if no formal help for Spain, yet with bond yield slipping back under 7%, that may be tabled for a little longer.  But fear not, the sparks to start the wildfire are flickering everywhere.  There will be an inferno, sooner than later, but not SURE where and when.

Fri, 06/15/2012 - 14:13 | 2530063 Nobody For President
Nobody For President's picture

You are assuming that a coalition is formed that actually has the 151 parliment votes needed to govern.

Maybe a bad assumption.

Maybe we wind up with no government again, and a third round of elections is scheduled.

Maybe the Greece military says "screw this" and takes over.

Maybe, maybe, maybe...

The situation is more fluid than the usual fluid Euro soap opera...

The old Chinese curse applies: "May you live in interesting times."

Fri, 06/15/2012 - 12:04 | 2529571 q99x2
q99x2's picture

Stocks are loving it today. VIX has been going crazy. Both up and down while stocks are always green.

Fri, 06/15/2012 - 12:06 | 2529572 Manthong
Manthong's picture

More popcorn, please.

The three ring circus of evil is on display.

Fri, 06/15/2012 - 12:08 | 2529588 junkyardjack
junkyardjack's picture

So credit converged to stocks?

Fri, 06/15/2012 - 12:17 | 2529619 bagehot99
bagehot99's picture

Don't worry, it's all going to be fine. The EU told me so.


Fri, 06/15/2012 - 12:25 | 2529637 Snakeeyes
Snakeeyes's picture

But Spanish sov yields are actually down along with all Europe sov yields.

And Greek yields were down 176bps today.

They died with their boots on with be the historical epitaph.


Fri, 06/15/2012 - 13:12 | 2529769 slewie the pi-rat
slewie the pi-rat's picture

even the long bond has fallen from its 150.01 paint job!  L0L!!!

we will drink no ZIRP b4 its time

it's time!

Fri, 06/15/2012 - 14:14 | 2530073 Nobody For President
Nobody For President's picture

I DO appreciate these little charts, Tyler.

Thank you.

Fri, 06/15/2012 - 14:56 | 2530296 Grand Supercycle
Grand Supercycle's picture

Rally warning continues...

SPX & EURUSD bullish daily charts dominate further.

As mentioned, shorts will be slaughtered next week.

Fri, 06/15/2012 - 15:21 | 2530408 hugovanderbubble
hugovanderbubble's picture

Hotkarl is bearish

Fri, 06/15/2012 - 18:11 | 2530899 Itch
Itch's picture

Not sure about the repat flows in EUR/USD; the amount of long retail interest when Spain got that bailout was almost surely substantial, along with that the market took the opportunity to send an instant message about Spain, and probably ended up fearing they had over did it. I think the unwinding of those scenarios has led to this levitation, besides if it was repatriation it would atleast show up somewhere else.

Fri, 06/15/2012 - 23:47 | 2531366 michaelsmith_9
michaelsmith_9's picture

For those that trade forex, the GBPUSD is very likely at a significant reversal point.  This offers a tremendous trading opportunity, as well as a significant warning for the markets as a whole in general.  Premium service at
