Spanish 10-Year Note Yield Makes New High, Then ECB Pushes It Down (11/17/2011)

10y Spanish-German Yield Spread
gives back all gains (Bloomberg)
Yesterday, the Spanish 10-year note yield and the 10-year Spanish-German yield spread broke out to new highs, but both reversed sharply when, according to FT and Guardian, the ECB intervened and bought Spanish bonds (which lowered the yield). The Spanish 10-year yield hit a high of 6.78%, but closed at 6.48%; and the 10-year Spanish-German yield spread hit a high of 4.99, but closed at 4.59, or unchanged after the huge intraday spike (see the chart). Sovereign debt in every euro zone country is getting attacked, but most recently in Greece, Italy, France, Belgium and now Spain. The ECB (European Central Bank) keeps buying up distressed Italian and Spanish bonds as yields keep pushing higher. Read the articles below for more information. It's hard to tell what will happen next with the ECB manipulating european sovereign debt markets, and possibly the IMF, EU and sovereign wealth funds getting involved via the leveraged EFSF plan (European Financial Stability Facility). Update (11/17/2011): Or the ECB could lend money to the IMF to bailout "even the biggest euro zone sovereigns". FYI: The Lisbon Treaty says the ECB can't buy debt directly from governments, but can on the secondary market (WashingtonPost). it is illegal for the ECB to monetizeillegal for the ECB to It's obvious though that if government bond yields keep rising, these distressed leveraged governments that can't print money, and with large amounts of debt maturing next year, will either see huge interventions or debt restructurings. Read this article by Satyajit Das at Naked Capitalism on how the leveraged EFSF and a special purpose vehicle are supposed to save Europe: Satyajit Das – Europe’s Plan To End the Debt Crisis – Putting The “Con” in “Confidence” Part 1. And as you've noticed, the balance sheets of banks, broker/dealers and funds holding European sovereign debt are directly affected. That's why people are hoping a European fiscal union gets formed so it can issue T-bonds and have a tax base.

Getting a little Spanish bond yield perspective (FT Alphaville)
Spanish bond yields near critical level (FT)
Spain's prime minister pleads for help from EU and ECB as yields climb (Guardian)
Stocks Retreat While Italy Bonds Gain on ECB Buys; Euro Rises (SF Gate)
ECB buying drives down Italian yields (and Spanish yields) (FT)

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