The Spanish Disaster Indicator Is Going Berserk

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		Tech Science Entertainment Wall Street Markets Strategy Sports Lifestyle Politics Law International Video Latest Monday, July 23, 2012 The Spanish Disaster Indicator Is Going Berserk Investors have focused on Spanish bond yields as an important indicator of financial stress in Europe. Spain has seen its borrowing costs rise as the sovereign debt and banking crises ravaging the European periphery threaten to infect more and more economies. Months ago, we pointed to Spanish two-year yields as an indicator of urgent financial stress, the kind of angst that could cause the country to need a full-blown bailout like that of Greece, Portugal, and Ireland. Two massive liquidity operations—three-year LTROs—from the European Central Bank diminished the prospect of immediate catastrophe. Faith in these measures was reflected in the widening gap between Spanish 2-year and 10-year lending. Because banks could borrow money at incredibly cheap rates from the ECB, they had big incentive to make money off of high Spanish yields but less incentive to purchase 10-year Spanish debt as the future remained uncertain. However, the spread between these two maturities has narrowed dramatically within the last week, indicating that investors no longer believe the ECB's liquidity measures will have any significant effect. Spanish 2-year yields rose 77 basis points to 6.53 percent while 10-year yields were up 23 basis points to 7.50 percent. A look at this spread in the last year reflects moments of particular crisis in Europe, serving as a sign that investors have rejected Spanish bonds altogether—i.e. loss of faith in the sovereign—rather than uncertainty about the long-term health of the eurozone: As a bonus, we tracked both yields side by side: Read » Also On Money Game Today: STOCKS FALL AND EVERYONE'S FREAKING OUT ABOUT EUROPE: Here's What You Need To Know Don't Worry America, Processed Foods Will Still Be Cheap In Spite Of The Drought JP Morgan: 7 Red Flags In The Market Mean Stocks Are In For a 'Reality Check' 7 Fascinating Facts About Six Flags Advertisement CHART OF THE DAY: The Great European Compression CHART OF THE DAY: Are You Ready To See A Totally Bonkers Soybean Chart? Recap After The Bell With 'Money Game Chart Of The Day' Share this: Facebook Twitter Digg Reddit StumbleUpon LinkedIn The email address for your subscription is: ipat39@gmail.com Change Your Email Address | Unsubscribe | Subscribe | Subscribe to the Money Game RSS Feed Business Insider. 257 Park Avenue South, New York, NY 10010 Terms of Service | Privacy Policy

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