Best of the Week
Most Popular
1. Best Cash ISA Savings Account for Soaring UK Inflation - February 2018 - Nadeem_Walayat
2.Gold Price Forecast 2018 - February Update - Nadeem_Walayat
3.Bitcoin Crypto Currencies Crash 2018, Are We Near the Bottom? - Nadeem_Walayat
4.Trump Bubble Bursts, Stock Market Panic Dow 1175 Point Crash Analysis - Nadeem_Walayat
5.Gold Corrects, Bitcoin Markets Crash, Whilst Stocks Plunge - Nadeem_Walayat
6.US Treasury Bonds: Fuse to Light the Bonfire - Jim_Willie_CB
7.Dow Falls 666 Points As Cryptocurrencies Crash And Krugman Emerges From His Van - Jeff_Berwick
8.Stock Market Roller Coaster Crash Ride Down to Dow Forecast 23,000 - Nadeem_Walayat
9.Trading the Shadows - Oil, Dollar, Stocks, Gold Trend Analysis - B.R. Hollister
10.Stock Market Analysis: Baying for Blood - Abalgorithm
Last 7 days
How to Anticipate Stock Market Trend Changes - 21st Feb 18
Gold Miners’ Rally? What Rally? Watch Out for More Fake Moves! - 21st Feb 18
5 Big Drivers of Higher Inflation Rates Ahead - 21st Feb 18
Goofy Indictments Divert Attention from Criminal Abuses at the FBI and DOJ - 21st Feb 18
Bitcoin or British Pound ‘Pretty Much Failed’ As Currency? - 21st Feb 18
Stock Market Waiting for the Fed - 21st Feb 18
National Identity Demands Restrictive Immigration - 21st Feb 18
Best Opportunities for Freelance Technical Writing Jobs - 21st Feb 18
4% US 10-year Treasury Note Yield Will Be a Floor Not a Ceiling - 20th Feb 18
Governments Are LYING about Their Gold Activities while Mining Companies Cower - 20th Feb 18
No Silver Lining Here - 20th Feb 18
Semi Conductor Stocks SEMI Bearish? - 20th Feb 18
The Prisoner Promised Land - 20th Feb 18
Best Car Dash Cam Review: Z-Edge S3 Dual Dash Cam - UNBOXING (1) - 20th Feb 18
How Inflation Reduces The Real Value Of Social Security Net Of Medicare Premiums - 19th Feb 18
Could Stellar Lumens be a Challenger to Bitcoin for International Payments? - 19th Feb 18
US-China Trade War Escalates As Further Measures Are Taken - 19th Feb 18
How To Trade Gold Stocks with Momentum - 19th Feb 18
Is a New Gold Bull Market on the Horizon? - 19th Feb 18
Stock Market Decision Point! - 19th Feb 18
An Inflation Indicator to Watch, Part 1 - 18th Feb 18
Get on Top Of Debt Before It Gets on Top of You - 18th Feb 18
Will the Stock Market Make a Double Bottom? - 18th Feb 18
5 Reasons Why Commodities Are the Investment Place to be in 2018 - 18th Feb 18
1 Week Later, Stock, Bond Market Risk Remains ‘On’ as 2 of 3 Amigos Ride On - 17th Feb 18
Crude Oil Prices: A Case of Dueling Narratives? - 17th Feb 18
Free 1000 Youtube Subscribers Services - YTpals, Subpals, SubmeNow Test - 17th Feb 18
How to Trade as We Near March Stock Market Top - 16th Feb 18
Bitcoin as Poison - 16th Feb 18
GDX Gold ETF Weathers Stock Market Selloff - 16th Feb 18
Casino Statistics and Demographics - 16th Feb 18
IS Today Thee Stock Market Turn Day? - 16th Feb 18
Huge SMIGGLE Shopping HAUL, Pencil Cases, Drinks Bottles, Back Packs, Toys.... - 16th Feb 18
Tesla Cash Keeps Burning at $320 a Share - 15th Feb 18
Big Conflict Ahead in the Financial Markets - 15th Feb 18
Stocks Extend Rally Off Friday's Low, But Short-Term Exhaustion Near - 15th Feb 18
Stock Market Out on a Limb... - 15th Feb 18
Things Only a True Friend Would Say About Gold - 14th Feb 18
Global Debt Crisis II Cometh - 14th Feb 18
Understanding Crude Oil Behavior - 14th Feb 18
Stock Market is Getting Scary... - 14th Feb 18

Market Oracle FREE Newsletter

Urgent Stock Market Message

Spain and the Western Financial System on the Brink

Interest-Rates / Eurozone Debt Crisis Jun 19, 2012 - 04:01 AM GMT

By: Mario_Innecco

Interest-Rates

This weekend the world kept a close eye on the Greek parliamentary elections and the big worry, from a EU establishment perspective, was that the a victory by the Coalition of the Radical Left or SYRIZA would result in market turmoil today. SYRIZA, under the leadership of Alexis Tsipras, did not win and the New Democracy party triumphed and as a result Greece is now expected to stay the course as far as the EU bailout plan is concerned. So this should have been great news for the markets right? Europe could now move ahead and sort its sovereign debt crisis out.


That is what we were led to believe but the reality of what happened in Europe today was quite disconcerting as the markets turned their eyes towards the Kingdom of Spain and gave it the thumbs down despite the much hyped €100 billion bailout of its major banks just a week before. Maybe the markets now realise that one can not solve a debt problem by piling on more debt? We at For Sound Money think the markets are quickly losing faith in the Kingdom's ability to not only pay back its debts but also service its debts.

Today the Spanish 10-year government bond or bono yield settled at a post EMU (European Monetary Union) high of 7.158% or up 28.4 basis point from Friday's closing of 6.874%. The short end of the yield curve reacted even more negatively as the 2-year yield spiked 45.6 basis points higher to 5.445%! This 2-year yield had dropped from 6.12% at the end of November 2011 to a low of 2.15% in the beginning of March this year. This 400 basis point or 4% drop came as a result of the ECB's (European Central Bank) Long Term Refinancing Operations or LTRO through which the central bank lent a total of €1.018 trillion to European banks at a very low rate of 1% for three years. The first of these financing operations took place on December 22, 2011 and the second leg of of the LTRO came on the 29th of Febraury when €529.5 billion was borrowed from the ECB. As one will notice the Spanish 2-year yield bottomed just a few day after this second LTRO.

The purpose of the LTRO was to help the European banks and at the same time drive government bond yields lower as Spanish and Italian banks would borrow at 1% for 3 years from the ECB and lend (buy government bonds) to their respective govenments at a higher rate. This LTRO was supposed to be a win-win deal as the the Spanish and Italian government borrowing costs would be driven down by their banks buying their paper and the banks would at the same time make a profit as dropping yields of their government bond holdings would mean rising prices of their holdings. So just over three months since the last LTRO Spanish yields are exploding higher once again and that means the value of the Spanish government bonds are crashing which also means that the financial health of the Spanish banks is quickly detereorating. Not surprisingly the Spanish IBEX-35 index finished down 2.965 today and the financials led the way with a drop of 4.22%.

It is clear that the ECB's LTRO strategy has been an "epic fail" as my teenaged daughter would say. It looks to us here at For Sound Money that the post Bretton Woods "Fiat Dollar" system is in critical condition as the Spanish domino seems very close to falling on to the Italian domino.

The ball is your side of the court central bankers and we are not even sure you will be able to hit it back over the net!

The Spanish 10-year yield chart. (Bloomberg)

By Mario Innecco
ForSoundMoney.com

At ForSoundMoney we stand for a hard currency. We believe in a monetary system based on commodity money and a free-market banking system where central banks are non-existant.

Mario Innecco Archive

© 2005-2018 http://www.MarketOracle.co.uk - The Market Oracle is a FREE Daily Financial Markets Analysis & Forecasting online publication.


Post Comment

Only logged in users are allowed to post comments. Register/ Log in

6 Critical Money Making Rules