10 Year Italian-German Bund Yield Spread Makes New High; Watching Spain (Chart)

Italy - Germany 10Y Spread (Bloomberg)
After Moody's put "Italy's Aa2 ratings on review for possible downgrade",  I charted out Italy's 10-year bond yield and randomly opened up a chart of the 10 Year Italian-German bond yield spread (ITAGER10:IND) on Sunday 6/17/2011, and it appeared to me that the spread wanted to test the high on 1/10/2011 (1.97) and potentially make a new four year high. I told my twitter followers to watch it on Sunday night. During the next four days the spread went from 1.88 to 2.07 and made a new high. The 5-year Italian-German bund (ITAGER5:IND) spread did not make a new high, but it did spike to test the high on 1/10/2011 (2.17). Thoughts?

The spread measures Italy's credit risk against Germany which is considered the safest credit in the Eurozone. There is an ongoing sovereign debt crisis in Europe with the PIIGS (Portugal, Italy, Ireland, Greece and Spain), so these spreads are important to watch. Today the 10 Year Spanish-German Bund spread (SPAGER10:IND) closed 6 basis points away from the high made on 11/30/2010 (283). The 5 year spread is not on Bloomberg.com. I provide links to more spread quotes on Bloomberg.com in this post.

*This just in:

Moody's Warns On Ratings Of Italian Banks (WSJ)

China Formally Working With IMF To Avoid Eurozone Restructuring - Qu Xing, director of the China Institute of International Studies (Zero Hedge)

China Recognizes Risk Of Buying Euro-Zone Sovereign Debt -China Adviser (Wall Street Journal)

Chinese Energy Policies Harming Neighbors - Guest Post

South China Sea (Wikimedia)
Guest post by OilPrice.com

Chinese Energy Policies Harming Neighbors

China's omnivorous energy requirements have been attracting increasing attention as of late, as Beijing attempts to secure any and all sources of power for its growing industrial base.

Nowhere is this more noticeable than Beijing's policies in the South China Sea, where Chinese assertions of sovereignty are unsettling the Philippines, Taiwan, Vietnam, Malaysia, Indonesia and Brunei, all of whom have counter claims on the various shoals and islets.

China's landward neighbors are also feeling the hot breath of Beijing's mandarins, however, most notably its economic rival India, with whom China fought a brief war in 1962 in the Himalayas over a disputed frontier, where the alpine conflict, according to China's official military history, achieved China's policy objectives of securing borders in its western sector in retaining Chinese control of the Aksai Chin with India accepting the de facto borders which codified along the Line of Actual Control.

Now China and India are engaged yet again in a spat, this time over the headwaters of the Brahmaputra River. According to New Delhi China is planning up to 24 hydroelectric facilities with a cumulative power generation capacity of nearly 2,000 megawatts along Brahmaputra's source, the Arun River, before it descends into India.

BAC, ProLogis, NRG Energy Partner in Huge Rooftop Solar Generation Project (With DOE Loan)

I thought this was interesting:

Source: Flickr (Montgomery County, MD)
Landmark Rooftop Solar Project to Create Thousands of Jobs in 28 States

Bank of America Merrill Lynch, Prologis and NRG Energy Secure an Offer of a Conditional Loan Guarantee Commitment From Department of Energy NEW YORK, Jun 22, 2011 (BUSINESS WIRE) --

Rooftop solar generation takes a giant leap forward as a consortium of leading companies - Bank of America Merrill Lynch, Prologis and NRG Energy - announce an offer of a conditional commitment from the U.S. Department of Energy's Loan Programs Office to help finance the largest distributed rooftop solar generation project in the world. The loan guarantee supporting $1.4 billion of debt facilitates a total project size of about $2.6 billion, which is being financed entirely by the private sector over the next four years.

This distributed solar project will generate employment across 28 states and will create the equivalent of more than 10,000 full-year jobs. Once fully funded and completed, these installations are expected to provide approximately 733 megawatts (MW) of distributed solar energy, which is enough clean, renewable energy to power approximately 100,000 homes.


Kazakhstan's Uranium Industry Could Lose Its Luster - Guest Post

Guest post by OilPrice.com

Kazakhstan Uranium Reserves (via Ernar Sagatov)
Kazakhstan's Uranium Industry Could Lose Its Luster

What a difference a year and a tsunami make.

Western investors have been salivating over the post-Soviet space's energy riches since the 1991 collapse of communism. While focusing on the Caspian's hydrocarbon reserves other mineralogical riches awaited development as well, none more so than Kazakhstan's vast uranium deposits.

Given an investor-friendly government in Astana, the country's uranium deposits seemed to be the Next Big Thing, an attitude encouraged by the government of President Nursultan Nazarbayev. Kazakhstan contains the world's second-largest uranium reserves, estimated at 1.5 million tons. Until 2009 Kazakhstan was the world's No. 3 uranium miner, exceeded only by Australia and Canada; the three countries account for more than half of global uranium production.

A mere five years ago Kazakhstan produced 5,279 tons of uranium, 21 percent more than in 2005.

Even better, local markets seemed assured in the form of Asia's rising economic powerhouses China and India. China's Commission of Science Technology and Industry for National Defense in its 11th Five-Year Plan for the Nuclear Industry said China intended to produce 40 gigawatts of nuclear power electrical generating capacity by 2020. Even though nuclear power currently accounts for just 1.4 percent of China's electrical power generation, China's planned nuclear power reactors were estimated to need 44 million pounds of uranium annually, as more than 16 provinces, regions and municipalities announced intentions to build NPPS, bringing the country's total of 77 planned and proposed new reactors.

Bill Gross: College is a Waste (College Tuition Inflation, Student Debt and No Jobs)

In his most recent note, Bill Gross, manager of the largest bond fund in the world at PIMCO, said college is a waste and needs to restructured in order to create jobs again. Read the full note here.

"​A mind is a precious thing to waste, so why are millions of America’s students wasting theirs by going to college? All of us who have been there know an undergraduate education is primarily a four year vacation interrupted by periodic bouts of cramming or Google plagiarizing, but at least it used to serve a purpose. It weeded out underachievers and proved at a minimum that you could pass an SAT test. For those who made it to the good schools, it proved that your parents had enough money to either bribe administrators or hire SAT tutors to increase your score by 500 points. And a degree represented that the graduate could “party hearty” for long stretches of time and establish social networking skills that would prove invaluable later on at office cocktail parties or interactively via Facebook. College was great as long as the jobs were there.

So is college tuition (higher education) in a bubble? Here are facts Gross provided. The chart above compares college tuition, home prices and the CPI.

EUR/USD Chart Testing 50DMA Before Greek Confidence Vote

EUR/USD broke above resistance in the vertex and is still riding the uptrend line. It is now testing the 50 day moving average. Catalysts ahead include the Fed meeting and Greece confidence vote. Continue to watch that trend line and floor support (Nov 2010 high). If tested again and breached, I think it presents a decent short opportunity (in my opinion). A chart with EUR/USD updated is after jump, as well as a hyperlink to the layout with trend lines. You can also watch the EUR/USD quote live on the FreeStockCharts.com widget on the sidebar.



Obama Impersonator at Republican Leadership Conference (Reggie Brown)

While waiting on Greece's confidence vote, watch some political comedy that occurred over the weekend. Reggie Brown, a comedian and Obama impersonator, performed at the Republican Leadership Conference in New Orleans on Saturday and was eventually kicked off stage, haha. He started taking shots at Republicans and they cut off his mic during a joke on Michele Bachmann. From the Washington Post:
“Had I been in the room I would have pulled him sooner,” Charlie Davis, executive director of the RLC told The Fix. “We have zero tolerance for racially insensitive jokes. As soon as I realized what was going on, I rushed backstage and had him pulled."
He does a good impersonation. Watch the CSPAN video after the jump.

Sarah Hewin: Greek Banks More Exposed To Sovereign Debt Crisis (CNBCTV18)

Sarah Hewin (Source: Youtube)
If you want detailed information on the Greek sovereign debt crisis, Sarah Hewin, Head of Research at Standard Chartered Bank in Europe, explained everything on CNBCTV18 yesterday. Read the full transcript or watch the video after the jump. I also provided links to breaking news on the situation. Ahead of the confidence vote, the Greek 2-year government bond yields 28.098% (went from 28.81% to 28.09% this morning) and EUR/USD is trading higher at 1.43433. Good luck Greece!
Greece 2-year Gov Bond Yield (Bloomberg)
"The question is how voluntary a voluntary rollover can be is an interesting one. I think that there is a certain amount of behind the scenes coercion which is going on for large banks, particularly state owned banks in Europe to rollover debt as it falls due. Now, the main thing is that there should not be seen to be any coercion because if that’s the case then the ratings agencies have said that they will class Greek debt as in default, and if that’s the case then the European Central Bank has said that they will no longer accept Greek debt as collateral. So the definitions are quite important. 
The main difference really is that in a truly voluntary situation you frankly don’t know how much debt is going to be rolled over. So it’s a bit of a shot in the dark as to how much you can rely upon the private sector to refinance that debt as it falls due. The overall exposure to Greece, again an interesting question, we have got various parts of the global economy which has exposure to Greece but of course the main holders of Greek debt are the Greek banks themselves, the European banks hold probably 80% of foreign banking exposure to Greece and amongst those European banks its France and Germany that have the major holdings, has major holding in euro size. But if you look at what their holdings are as a share, as a percent of the banking sector assets is relatively small amount. The Greek banks are much more exposed on that measure."

Aviation Biofuels About to Take Off (Camelina) - Guest Post

Camelina and Algae Fuels via U.S. Navy
Guest post by OilPrice.com

Aviation Biofuels About to Take Off

An extraordinary convergence of recent events seems poised shortly to make aviation biofuels the belle of the investor's ball.

The first is that on 8 June the follows the international standards certifying body ASTM International announcing its approval of its BIO SPK Fuel Standard, to be made official later in the year, of the use of hydrotreated renewable jet (HRJ) Jet A-1 fuel in commercial aviation. The potential financial implications are massive, as together the airline industry and the U.S. military use more than 42.25 million gallons (1.5 million barrels) of jet fuel a day.

One of the leading contenders for ramping up production of Jet A-1 HRJ is camelina, which has undergone extensive testing by both civilian airlines and the U.S. military. Camelina HRJ qualifies as a "drop-in" fuel, which can simply be mixed with regular Jet A-1 in a 50-50 ratio, allowing jet engines to function without any modifications.

In March 2010 Biomass Advisors released their 116-page study, Camelina Aviation Biofuels Market Opportunity and Renewable Energy Strategy Report, projecting that by 2025 one billion gallons of camelina biofuel would be produced for the aviation and biodiesel sectors, creating 25,000 new jobs and producing over $5.5 billion in new revenues and $3.5 billion in new agricultural income for U.S. and Canadian farmers. Biofuels Digest is projecting that global advanced biofuels capacity will reach 4.003 billion gallons by 2015, based on company announcements to date, with capacity reaching 718 million gallons in 2011, 1.522 billion by 2012, 2.685 billion by 2013, and 3.579 billion gallons by 2014.

Fuel and oil comprise 25 percent of civilian airlines' operating costs. When the price of jet fuel rises one cent, it increases the global cost of aviation $195 million.

Italy, Spain, Greece, Portugal, Ireland Spreads to German Bunds (Quotes)

10Y Portuguese-German Yield Spread (Bloomberg)
Bloomberg.com has charts and quotes of Eurozone government bond yield spreads to German bunds as a sovereign credit risk indicator. Germany is considered the safest sovereign credit in the Eurozone; so if a country's bond yield increases against German bunds, then credit risk is rising. Unfortunately I could only find 10-year spreads on Bloomberg's website (UPDATE: The 5Y Italian-German Bund spread works, you can try to tweak the other quotes). Apparently 5-year spreads are more important to watch. You can also watch the government bond yield itself and the credit default swap to monitor credit risk. Look at the snapshot of Portugal-Germany during the past year!

*Update: Unfortunately Bloomberg.com took these charts down, but the spreads are still available on a daily basis (the links redirect to their government bond center). You can still view charts of government bond yields.

First the PIIGS:
10 Year Greek - German Bund Spread (.GRGER10:IND)
10 Year Italian - German Bund Spead (.ITAGER10:IND)
5 Year Italian - German Bund Spread (.ITAGER5)
10 Year Portuguese - German Bund Spread (.PORGER10:IND)
10 Year Ireland - German Bund Spread (.IRGERSP:IND)
10 Year Spanish - German Bund Spread (.SPAINGER10:IND) (works)

France, Belgium and the UK:
10 Year French - German Bund Spread (.FRAGER10:IND)
10 Year Belgium - German Bund Spread (.BELGER10:IND)
10 Year U.K. Gilt - German Bund Spread (.UKGER10:IND)

Related Post on June 24, 2011: 10 Year Italian-German Bund Yield Spread Makes New High; Watching Spain (Chart)

For more bond quotes and charts at Bloomberg.com visit this post at tickerforum.org. Market participants can now trade 10-year Sovereign Yield Spread Futures. Here is the press release and video via CME Group. I embedded the video after the jump.

"CME Group Announces the Introduction of Sovereign Yield Spread Futures to Help Manage Risk Exposure Between Government Bond Markets

LONDON, April 21, 2011 /PRNewswire/ -- CME Group, the world's leading and most diverse derivatives marketplace, has announced today that it will introduce cash-settled Sovereign Yield Spread futures beginning May 22 for a trade date of May 23. The six countries represented in the initial launch phase include France (OAT), Germany (Bund), Italy (BTP), Netherlands (DSL), United Kingdom (Treasury Gilts), and United States (Treasury Notes). These products are listed by and subject to the rules of CME, and further diversifies CME Group’s Interest Rates product portfolio.

Moody's: Italy's Aa2 Ratings On Review For Possible Downgrade (10-year Bond Yields 4.81%)

Italy 10-Year Government Bond Yield
(Source: Bloomberg.com)
From Moody's Investors Service on Friday June 17, 2011. To your right is Italy's 10-year government bond yield.
"Moody's places Italy's Aa2 ratings on review for possible downgrade

Frankfurt am Main, June 17, 2011 -- Moody's Investors Service has today placed Italy's Aa2 local and foreign currency government bond ratings on review for possible downgrade, while affirming its short-term ratings at Prime-1.

The main drivers that prompted the rating review are:

(1) Economic growth challenges due to macroeconomic structural weaknesses and a likely rise in interest rates over time;

(2) Implementation risks surrounding the fiscal consolidation plans that are required to reduce Italy's stock of debt and keep it at affordable levels; and

(3) Risks posed by changing funding conditions for European sovereigns with high levels of debt.

Moody's review will evaluate the weight of these growing risks in light of the country's high rating but also relative to some credit-strengthening trends that have been observed in recent years and are expected over the coming years, such as improved fiscal governance, lower budget deficits and a modest economic recovery.

RATIONALE FOR REVIEW

First, the Italian economy faces growth challenges in an environment characterized by long-term structural impediments to growth and potentially rising interest rates. Structural economic weaknesses -- mainly low productivity and important labour and product market rigidities -- have been a major impediment to growth in the last decade and continue to hinder the economy's recovery from the severe recession it experienced in 2009. Italy has so far only recovered a fraction of the nearly seven percentage points in GDP that it lost during the global crisis, despite low interest rates, which are likely to rise in the medium term. Growth prospects for the Italian economy in the coming years will be a crucial factor that will determine the government's revenues and the achievement of fiscal consolidation targets.

EUR/USD Inside Vertex Waiting For Eurozone Catalyst (Trends, Channels To Watch)

EUR/USD (FreeStockCharts.com) - shorter term
I'm watching the EURUSD vertex point. Putting the action into words, The Euro in U.S. Dollars is testing the high from November 2010, as well as uptrend support from January 2011. The green circle shows where it would trade if EURUSD successfully broke above the November high with support from the rising trend. However, it is still in a wide descending channel. If EURUSD breaks below the uptrend line from January, EURUSD would trade inside of a longer term symmetrical triangle using the uptrend line from June 2010 as support.

EURUSD is trading below the 50 day moving average (blue line) and above the 200 day moving average (red line). I wouldn't be surprised if the Dollar rallied further here (EUR/USD moved lower) and market pulled back as a result, but the debt ceiling debate, end of QE2 and U.S. economic slow down will all affect Treasury yields and the U.S Dollar going forward. The sovereign debt crisis in Europe, as well as contagion risks, are affecting the Euro. For more information and catalysts that lie ahead read these articles below. I also embedded a video with Greek Prime Minister George Papandreou addressing parliament (via Al Jazeera).

Europe Fails to Agree on Greek Aid Payout (Bloomberg)
Europe delays decision on emergency loans to Greece (Reuters)
EU’s Juncker Says Progress Made on New Greek Aid Package (Bloomberg) ?
Euro zone finance ministers' statement on Greece (Reuters
)
Official Statement By An Insolvent Europe On An Insolvent Greece (Zero Hedge)

Japan says G7 finance leaders discussed Greek crisis (Reuters)
Greek Default Would Spell ‘Havoc’ for Banks (Bloomberg)
Related: Italy’s Bond Ratings May Be Downgraded by Moody’s Amid ‘Growth Challenges’ (Bloomberg)
Pimco head says EU must change course on Greek aid (Reuters)
"Europe risks wasting more money for nothing if it keeps pumping billions into the ailing Greek economy, the head of Pimco, the world's largest bond fund, said in an interview published on Sunday."
If All Else Fails, Lower Your Standards (Irwin Seltzer - Wall Street Journal)

*EUR/USD (FreeStockCharts.com) - longer term*

Soros: China Risks Hard Landing (Shanghai, Hang Seng, FXI, EWH Charts - 6/19/2011)

via Flickr (JamesReaFotos)
George Soros warned about China's economy at a conference in Oslo, according to Bloomberg.

"China has missed its opportunity to stem inflation and may now risk a hard landing, billionaire investor George Soros said."

"The world’s second-largest economy is in a “bit of a bubble,” Soros, 80, said today at a conference in Oslo. There are some signs that China is “losing control,” he said."

"China’s formula for steering its economy is “running out of steam,” Soros said, adding the country is seeing the beginnings of wage-price inflation."

Shanghai Stock Index ($SSEC) 1-year Chart

Soros also talked about Europe and Africa. Below I put up charts of the Shanghai Stock Composite Index ($SSEC), Hang Seng Index ($HSI), FXI (iShares FTSE China 25 Index ETF) and EWH (HongKong iShares). They all look like they are rolling over and/or piercing near term support levels. EWH, and probably the others, couldn't break above the 2008 high so I bet it retraces a bit. A breakout above 2008 resistance would signal long-term upside in my opinion. In the near term, these charts need to break out of downtrends and confirms support levels. Jim Chanos, who warned about Enron before it collapsed, has been bearish on China for a while. (Jim Chanos: China's Economic Growth Path Is Unsustainable (CNBC) 5/6/2011).