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90 seconds at 9 am: Fear over Spanish bailout sparks rout on Southern European bond markets; NZ$ down a cent to 75.3 USc; BHP freezes new investment decisions

Posted in News
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Here's my summary of the key news overnight in 90 seconds at 9 am, including news of a rout on Southern European bond markets on fears Spain will soon need a bailout, or worse, may have to exit the Euro.

Spain's 10 year bond yield rose to a Euro-era record high of 6.7% and its spread above German 10 year bund yields rose to over 540 basis points. This spread is closely watched as an indicator of capital flight out of Spanish bonds denominated in euros into German bonds denominated in euros. The 10 year German bund yield dropped to a record low 1.26% overnight. The 2 year German bund yield fell to 0% overnight. See more here at Bloomberg.

If Spain were to exit the euro, now known as 'Spaxit', then bond investors would not have to take any losses as they had moved their funds into Germany. The blowout in that spread shows the capital flight now underway from Southern Europe into Germany. The rise over the 500 basis point threshold is seen as crucial. The spreads for Greek, Irish and Portugese bonds were over 500 basis points for  16 days, 24 days and 34 days respectively before they were forced into bailouts.

The Telegraph's Ambrose Evans Pritchard reported Spain's former Prime Minister Felipe Gonzalez described the bond market rout as a "situation of total emergency, the worst crisis we have ever lived through.”

This fear about Spain needing a bailout saw European stock markets fall around 2% overnight. See BNZ's currencies report on our site here.

That also drove a reduction in risk appetites in America and on many other markets. The S&P 500 closed down 1.4% and the New Zealand dollar, which often falls when appetites for 'risky' assets drop, fell almost a cent to 75.3 USc overnight. The US 10 year bond yield fell to a 60 year low of 1.63% in another sign of a rush to safe haven assets. Oil fell 3% to a six month low on the widespread move to take risk off the table. See more here at Reuters.

However, there were signs overnight that European authorities were grinding into gear to try to find a solution to Spain's problems, albeit well after the market's signals.

Bloomberg reported the European Commission has called on Germany to accept the direct use of the European Stability Mechanism (ESM) to bail out Spain's banks. It has also called for a roadmap towards joint issuance of Eurozone bonds, which is seen as one solution to the problems on Southern Europe's bond markets. However, the Germans yet again rejected these suggestions, which would see German funds guaranteeing or rescuing Southern European governments and banks.

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Also, the European Commission gave Spain another yet to meet its deficit targets.

Meanwhile, across the Tasman, BHP's CEO Marius Kloppers told China's Caixin news service the Australian mining giant had frozen all major investment decisions for six months because of falling prices and weak demand from China, ABC reported.

Also in Australia, editors at Fairfax's Sydney Morning Herald, Age and Financial Review staged an immediate 36 hour wildcat strike overnight in support of 60 colleages at the Illawarra Mercury and Newcastle Herald newspapers who are set to lose their jobs in a move to outsource their work to Fairfax editors in New Zealand, ABC reported.

This situation highlights the way the use of the Internet is opening up new markets, particularly in services, to global competition.


 

We welcome your help to improve our coverage of this issue. Any examples or experiences to relate? Any links to other news, data or research to shed more light on this? Any insight or views on what might happen next or what should happen next? Any errors to correct?

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38 Comments

SPAIN - AMBROSE EVANS

"The US 10 year bond yield

"The US 10 year bond yield fell to a 60 year low of 1.63% in another sign of a rush to safe haven assets."
 
Bernard - US Gov't Bonds - a safe asset, you must be joking!  Wasn't the same thing being said about Southern European Bonds not long ago?  It's all paper that will either be defaulted on or repaid in a much lower valued currency.

Safe is relative...and

Safe is relative...and historically the US (and UK, NZ?) has I think never defaulted. Its also safe in the medium term (<10 years) compared now to the EU which doesnt look like 10 months to live....maybe not even 10 weeks.
Also while there might of been silly claims that PIIGS bonds were OK....that wasnt based on any reality......
You are right, default en mass is now probable, we are heading towards a global depression that will decimate Govns revenues...
regards
 

Hmmm , a flight to safety

Hmmm , a flight to safety ...... the US bonds market , or being employed by Fairfax ...
 
...... which one  is bad , and which one of the two is truely monumentally mindnumbingly freaking scary ?

The value of interest.co.nz

The value of interest.co.nz just went up a notch or two ...

Ha Gummy, Nice one. Don't

Ha Gummy,
Nice one. Don't know. Haven't owned US govt bonds and won't, given they yield 1.63% for 10 years.
On Fairfax. Been there. Done that. ;) Yourself?
cheers
Bernard

Never owned a bond , neither

Never owned a bond , neither , Bernard ...... gotta keep the equity working for moi , rather than lending it to the government for their use .......
 
..... as for Fairfax , their stock ( ASX : FXJ ) is lower now than it was at the depths of the GFC ..
 
Better hock off interest.co.nz to them ASAP  !

I would guess a lot of monied

I would guess a lot of monied ppl are panicking as they need to own a something that isnt going to crash in value hugely....followed by having whats left confiscated or taxed off them by a desperate Govn....
I really wonder how well our [global] society will hold together........
regards
 
 

Haha, "US never defaulted"?

Haha, "US never defaulted"? Bretton Woods - "All US dollars are backed by gold and can be redeemed at any time"
1971 - "we will not give anyone gold for US dollars anymore."
(Paraphrased)

OK as in defaulted on

OK as in defaulted on debt....context. and yes well Nixon was a crook......funny how the right wingers seem to be the worst crooks on the block...
regards

Yes, unless their name

Yes, unless their name happens to be Josef or Mao.

Thank God we and everybody

Thank God we and everybody else aren't on the gold standard. Do you really want our monetary policy being run out of Washington, Berlin, London and Beijing? People need to really think that one through. Why do you think Greece has many of the problems it currently has?
 
New Zealand who?

Andy, Understand your point.

Andy,
Understand your point. Perceived safe haven might have been a better descriptor.
I agree there's plenty of risk in that US budget outlook.
cheers
Bernard

May be hard to grasp at this

May be hard to grasp at this stage Bernard...but perception has been at least 50% of the market place for many a year....percieved safe haven or no the USD will rise in spite  of QE3 still being a probability /possibility.
 On perception....the explanation for Facebook buy up without dilligence
On perception.....The ratings agencies maintain N.Z.  rating without dilligence
Asa I said to GBH on the Nicole Foss thread ....it is the world we live and trade in, where perception is the driver and reality the passenger.....he agreed.
For Heavens sake we have an Administration that spends more time and taxpayer dollars working on the peception of the economy than the economy itself.
Nuff said.
P.S. June 6 should be a busy ,fun day for you.

Spain needs to leave the

Spain needs to leave the Euro...the sooner the better...

  moraymint Today 12:00

 

moraymint
Today 12:00 PM

 

"Any reader brainwaves on how we get out of this?"
Ambrose, I'm reminded of Sir Walter Scott's axiom, "Oh! What a tangled web we weave, when first we practice to deceive!"
And then I'm also reminded of the eminent historian Antony Beevor's comments to Elizabeth Grice in Monday's Daily Telegraph when she reported him as saying that, "The only similarity between now and the late Thirties ... is that the public have not been told the truth about how desperate the situation is because no politician, then or now, dares to spell it out."
And since our own politico-banking elites are now waging an economic war on the ordinary citizens of Europe then, last but not least, I'm reminded of Sun Tzu's observation that, "All warfare is based on deception."
So, how do we get out of this?  From a technical perspective, I don't have a clue: you and others are far more qualified than me to propose solutions.
However, at the most fundamental level, what we desperately need now is a politician and/or a political party to front up to the ordinary citizens of Europe and tell the truth about what's really going on here. Surely it can't be the case, can it, that the whole of the European and UK mainstream political classes are as one in this monstrous deception?
The shocking thing about what's happening in the eurozone and the EU itself - all of which portend very bad things in socio-economic terms as the nutjobs in Brussels push on with "ever closer union" - is that the British political class is complicit in this madness. One day, historians will look back at this era and declare Nigel Farage the only British politician to have spoken the truth about the European Union (well, Dan Hannan makes two, but why does he call himself a Conservative?).
So, over to the technically qualified now to describe how to reverse a collapsing eurozone money supply. Consciously and systematically dismantle the eurozone perhaps?
 
http://blogs.telegraph.co.uk/finance/ambroseevans-pritchard/100017508/europes-money-contracts-again/

 

well said. regards

well said.
regards

Steven, heres the Antont

Steven, heres the Antont Beevor  article
 
The European crisis threatens to re-awaken the old monster of nationalism, military historian Antony Beevor has warned. In an interview with the Telegraph, the author of Stalingrad and Berlin: the Downfall said that:
The great European dream was to diminish militant nationalism. We would all be happy Europeans together. But we are going to see the old monster of militant nationalism being awoken when people realise how little control their politicians have. We are already seeing political disintegration in Europe.
I feel slightly uneasy at the way historians are consulted as if history is going to repeat itself. It never does. It is misleading and dangerous to make sweeping parallels with the Second World War. Politicians like Blair and Bush liked to sound Churchillian or Rooseveltian at times of crisis, but the comparisons of Saddam Hussein to Hitler were preposterous. Eden compared Nasser to Hitler and that led us into the Suez disaster.
 
http://blogs.telegraph.co.uk/news/edwest/100161509/europes-post-nazi-str...

  Gold – a potential

 

Gold – a potential waterfall event
http://peterlbrandt.com/gold-a-potential-waterfall-event/

It sort of gets a bit painful

It sort of gets a bit painful hearing what price gold is going to reach from all these experts, even the bullish predictions that I am more inclined to listening to. It is also quite funny how different people can look at the same information and see a different pattern. I look at that 9 month descending triange and see the makings of a bullish flag on a monthly chart. It could still go down to 1450 and stay within that pattern, if it breaks to the topside of that channel then it should be good for a $1000 rise without too many interruptions. Too much bloody thievery going on everywhere to really know how it will pan out. I suspect price doesn't matter too much to investors in the metal now, apart from finding a good entry point.

Re outsourcing work from Oz,

Re outsourcing work from Oz, seems to portend a day when NZ can compete with India for call centres. LOL
 

There didn't seem to be much

There didn't seem to be much reaction around Australia  when the story went out erroneously , that Fairfax had outsourced these jobs to Mexico ....
 
..... but when the truth emerged , that the outsourcing was to New Zealand instead  , all hell broke loose !
 
 

Or as an american diplomat

Or as an american diplomat once said of NZ'ers "Mexican's with cellphones"

You mean we've got cellphones

You mean we've got cellphones now!

China man sell phones : Kiwi

China man sell phones : Kiwi man wonder why instructions in rare Tibetan dialect .

Yep call centres coming to

Anyone see the Paul Krugman

Anyone see the Paul Krugman interview on BBC Hardtalk? If so, comments?

Cant find it but Steve Keen

Thanks. Purely by chance, I

Thanks. Purely by chance, I saw Krugman on BBC Hardtalk on tv this morning.

One day (coming fairly soon),

One day (coming fairly soon), people will sit down with a blank piece of paper and ask themselves what a sustainable financial system might look like. How do we best connect up labour and resources in order to provide for a basic needs and private wants. 
I'll give you a clue as to the answer. It won't be the farcical system we have now, where people's basic livelihood is determined by financial chicanery that would flummox Da Vinci, Newton and Einstein (if they happened to be in a room together).
At some point, people will ask why?
Economic growth will not be the correct answer (sorry JK).
The market says so will not be the correct answer (sorry Gerry).
The ratings agencies say so will not be the correct answer (sorry Bill).
Perhaps we should leave it to a bunch of smart schoolkids. They certainly couldn't do any worse than the current crop of bumbling mis-managers.  
 
 
 
 
 

Raf - his head start would be

Raf - his head start would be that he at least doesn't ignore complexity. I note it says he's deciding whether to study math or physics - he could do us all a favour if he were to instead study economics and assist the like of Lowell Manning and Steve Keen by bringing some much needed analytical rigour to the "dismal science". Science(?) sorry I meant ...... 
Cheers, Les.

raf – acting on ethical

raf – acting on ethical standards would be a fine start.

I would think if say Ian

I would think if say Ian Parker's posts are anything to go by that process of sitting down is at least 5 years  old...and gets ignored...
regards
 
 

Can't understand why so many

Can't understand why so many are so angry with John boy, for stuffing more rug rats in the classrooms and turning a blind elderly eye to the shabby employment conditions in the death camps...ooops I mean elderly care facilities...Give John boy a break why don't you...he has said very clearly there is no money....and it stands to reason he must be correct...what little was avilable went to boost MPs salaries and perks and to ensure the Treasury shiney bums collected their half million dollar pay packs. Next thing you lot will be demanding he slash the Prime Ministerial staff ....dear oh dear.

I say..capital old chap...

I say..capital old chap...

Thing is sore loser...people

Thing is sore loser...people would not think so little of Key and mob, were they to swing the same austerity axe through Treasury and their own wasteful splurge...
How Treasury manage to blow more than one thousand million each year is beyond me....staggering waste is certain...uselessness...I think of Treasury as the Drivel Factory.