Spain, Italy, Belgium Bond Spreads Hit Euro Record; Italy 10-Year Bond Yield Highest Since 1997; Self-Fulfilling Crisis

The idea that the latest Greek bailout plan would solve anything is officially dead. Government bond spreads of Spain, Italy, and Belgium are at all-time highs. The yield on 10-year bonds of Spain and Italy are now both well North of 6%. Here are a few charts to consider.

Belgium 10-Year Government Bonds



Spain 10-Year Government Bonds



Italy 10-Year Government Bonds



Germany 10-Year Government Bonds



Portugal, Greece, and Ireland are now a sideshow. However, as a point of interest, 2-Year Greek bonds are 32.35% down from a record high of over 40% but well above the lows in the high 20's following the Greek bailout agreement.

Self-Fulfilling Crisis

Bloomberg reports Italy, Spain 10-Year Bond Spreads Are at Euro-Era Record on Growth Concern

Italian and Spanish 10-year bonds dropped, pushing yields up to euro-era records versus benchmark German bunds, on concern that slowing growth will hamper efforts to tame the nations� debt loads.

�This has all the features of a self-fulfilling crisis,� said Harvinder Sian, a senior bond strategist at Royal Bank of Scotland Plc in London. �The rise in yields looks pretty relentless, and it doesn�t look as if the politicians are anywhere near to getting ahead of the curve.�

The yield on 10-year Italian bonds jumped 18 basis points to 6.18 percent as of 8:48 a.m. in London, the most since November 1997.

Spanish 10-year yields surged 16 basis points to 6.36 percent, pushing the spread over similar-maturity German debt up 19 basis points to 393 basis points. A 6.5 percent yield will be a key level for Spain, RBS�s Sian said.

The yield premium investors demand to hold Belgian 10-year bonds instead of benchmark bunds widened to a euro-era record of 202 basis points before an auction of as much as 2.8 billion euros of 105-and 168 day bills.

Expect a "stern warning" from ECB president Jean-Claude Trichet soon. Also expect the market to laugh in his face.

Any bets on when the EU has another emergency meeting? I suspect two more days of this action might do it. Now answer this: what can they do that makes any sense?

Mike "Mish" Shedlock
http://globaleconomicanalysis.blogspot.com
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