So this morning, I woke up—hung over and alone, except of course for the Nympho Twins and the Thai hooker they insisted we hire last night—and was confronted with some bond market action that was . . . absurd.
|Yeah, I know: A spread like that|
doesn’t seem humanly possible.
Actually, kind of scary.
Yeah, Italian bonds are back to yielding over 7%, Greek debt is ludicrous (28.85%? Really?) as it has been for the last year, Portuguese 10-years are at 11.29%, the Irish at 8.20%, Spain at 6.33%—numbers that more or less fit where we are supposed to be insofar as the PIIGS are concerned, following the whole Greek Drama and Italian Farce, right?
So what’s up with Austria’s debt? Nevermind France’s debt, which is of course higher because of the whole Italy thing—what about Holland’s debt? Finland’s debt? In short, what’s going with the debt of the non-PIIGS who are not Germany?
Take Austria: Their 10-year is yielding 3.63%—which is 186 basis points over Germany’s 10-year, which is at 1.77% as I write: In other words, Austria’s debt is yielding over twice Germany’s.
What was the German/Austrian spread on, say, September 1? A mere 67 basis points, on a German yield of 2.15%.
France is seeing historic spreads this morning with the 10-year yield at 3.67%, and Holland—Holland!—seeing wicked spreads as well. Christ, Holland is essentially Germany’s Germany insofar as fiscal prudence is concerned—and the Dutch yield is surprisingly wide.
Check out this quick-and-dirty chart, comparing spreads today to spreads back on Sept. 1:
|Click to enlarge.|
All of these spreads are at or scraping all-time highs. CDS’s are also up across the board—even though the two new governments in Greece and Italy are making all the right noises about Austerity and Fiscal Discipline and such.
All of these facts and figures and information floated in my head, until all of a sudden, it snapped into place:
We’re about to have a run on the eurozone bonds.
Like, now—unless somebody does something about it.
The “somebody” of course is the ECB: The European Central Bank has to go out there and put a stop to this incipient run—today.
Why today? Because tomorrow the French are gonna go out and hawk something like €25 billion in two-to-five year debt; the Spanish are also putting out something like €4 billion. Here’s a link to a handy chart, courtesy of Zero Hedge.
What will happen if this incipient run isn’t nipped in the bud? The French are going to be up shit’s creek tomorrow, November 17—and from there, it’s only a matter of time before the eurozone disintegrates.
At my Strategic Planning Group, we’ve been putting together contingency plans for the break-up of the eurozone. All the analysis is in the “When The Euro Breaks” scenario at SPG—from the best case, to the worst case, to the really worst case.
But up to now, those contingency plans for the break-up of the eurozone were something that I honestly thought wouldn’t need to be applied any time soon. Eventually, yes, of course—but not so soon. Like planning for the end of the world, or for your own death: You know it’s gonna happen eventually, just not as soon as it actually does.
But now? Sheesh: If the European Central Bank acquiesces to Germany by not going out there and stabilizing the bond markets with some fairly massive purchases, then we are going to see a run on the eurozone bond market. And it’ll be just like the 2008 Global Financial Crisis—only instead of conventional weapons (plain old mortgage bonds), this crisis will be with nukes (European sovereign debt).
In a previous post, I’d been thinking that—since the European leadership is so keen to avoid any type of Lehman-like event, and will do literally anything to prevent such a triggering crisis—the likely absence of a trigger might actually prevent a collapse. But now, that might be wishful thinking: An avalanche happens not because a gunshot sets it off—it happens because all of a sudden, there’s simply too much pressure.
Like what’s happening this morning in the bond markets: No gunshot—just an avalanche.