There is blood...Europe Government Bond Market getting whacked this morning

Linderhof Castle, Atlas statue, Upper Bavaria, Bavaria.

Looks more and more that Germany is the European Atlas supporting all of Europe...

Just four days earlier I wrote there will be blood. I was expecting additional pressure in the Government bond market. We have it. The bond vigilantes are clearly not satisfied with the politicians answer to the crisis. The Irish solution is clearly not enough to calm the market. The EFSF is a weak structure as well, please look at the previous post "The European Vortex" for more details.

Spreads of European Government debt versus Germany:

Versus the 10 Year German Bund:
France: 49 +7 bps wider
Belgium: 117 +20 bps wider
Spain: 273 +29
Italy: 190 +27
Portugal: 432 +14
Ireland: 653 +13
Greece: 891 no change

Versus the 5 Year German BOBL:
France: 34 +4 bps wider
Belgium: 114 +23 bps wider
Spain: 288 +32 bps wider
Italy: 190 +30 bps wider
Portugal: 420 +14 bps wider
Ireland: 673 +15 bps wider
Greece: 1046 -1 bps tighter

Versus the 2 Year German Schatz:
France: 21 +3 bps wider
Belgium: 80 +19 bps wider
Spain: 290 +32 bps wider
Italy: 193 +38 bps wider
Portugal: 398 +14 bps wider
Ireland: 564 -13 bps tighter
Greece: 1140 -4 bps tighter

New records at wider levels for:
2 year Spanish at 290 bps ,
2 year Belgium at 80 bps
2 year Italien at 193 bps
5 year Spanish at 288 bps ,
5 year Irish at 673 bps
5 year Italian at 190 bps (as I was typing this post, 200 bps was reached)
10 year Spanish at 273 bps
10 year Belgium at 117 bps
10 year Irish at 653 bps
10 year Italian at 190 bps

Only sellers apparently this morning...

Bid by appointment only please...

Good news for Germany, German unemployment level is at its lowest level since December 1992 at 7.5%.
German IFO (business confidence index) reached a record level in November .
Bad news for Germany their high spending neighbors are falling apart.
Euro/USD went below 1.30.

Sovereign CDS Credit Game - Spot the difference...

29th of November 2010:

HIGH BETA EU SOVEREIGN CDS closing 5 Year market run:
PORTUGAL 530/550 +35 bps
ITALY 245/253 +30 bps
GREECE 945/970 -
SPAIN 348/358 +28 bps
IRELAND 600/620 +10 bps
U.K. 74/78 +4 bps
BELGIUM 180/190 +21 bps
FRTR 98/103 +6 bps
AUST 88/93 +8 bps

SOVX CEEMEA S4 5y 223/226 +8 , S3 207/211, ROLL 15/16 1/2

CNTRY RATING | 5Y CDS CHG | BOND ZSPRD
Russia Baa1/BBB | 169/172 +8 | Russia 20' 193
Turkey Ba2/BB | 148/151 +7 | Tky 20' 147
Bulgaria Baa3/BBB | 250/265 +10| Bgaria 15' 191 p
Croatia Baa3/BBB | 255/270 +13| Croati 19' 271
Czech A1/A | 88/93 +3 | Czech 21' € 99
Hungary Baa1/BBB- | 367/380 +17| Rephun 15' 315
Kazakhstan | 200/210 +7 | a
Latvia Baa3/BB | 280/300 +5 | Latvia 18'€ 249 t
Lithuania Baa1/BBB | 265/285 +5 | Lithun 20' 281 e
Poland A2/A- | 155/160 +15| Poland 19 163 s
Romania Baa3/BB+ | 315/330 +15| Romani 15'€ 292


At 600 bps, Ireland's cumulated probability of default on 5 year CDS spread is around 40%.
At close to 1000, Greece's probability of default on 5 year CDS is around 55% as priced by the market in the CDS space.
Belgium hasn't had a government for more than 6 months by the way...Happy birthday! Three prime ministers and two elections since 2007. Is the economy worse off? Apparently not. Belgium's economy is growing, with GDP growth of 2.1% in the third quarter from a year earlier.

Hungary’s central bank decided today to raise interest rates by 25 basis points : its first tightening move since the financial crisis kicked off in 2008...
Fitch may downgrade Hungary from its current BBB- and the 5 year CDS of Hungary is trading tighter than 5 year CDS Portugal!

For me it doesn't sound right. Given the latest hijack on pensions in Hungary, Hungary's 5 year CDS looks cheap. Hungary failed to sell the planned amount of debt at the latest auction on the 25th of November. They planned to sell 40 billions florint 12 months treasury bills, they sold 30 billions only, 10 billions short. That sounds to me like further yield curve steepening and further CDS 5 year spread widening. Florint note due February 2015 was yielding 7.642 percent on the 25th of November, highest yield since January.

People are so focused at the core of Europe's problem (Greece, Ireland, Portugal, Spain and now Belgium's been added), that they have forgotten what is going on at the periphery.

Bye bye Irish Bank debt...

On the 26th of November:
Irish Banks CDS still getting crushed...

Allied Irish Banks Plc Senior 5 year : 1354 bps, wider by +213 bps, +18.75%.
Allied Irish Banks Plc (SUB)5 year : 5042 bps, wider by a cool 982 bps, +24.19%.
Bank of Ireland Senior 5 year : 989 bps, wider by +167 bps, +20.32%.
Bank of Ireland (SUB) 5 year: 2330 bps, wider by +339 bps, +17.07%.

http://www.cmavision.com/market-data/