Three Bad Signs for Europe’s Ongoing Debt Circus

Three Bad Signs for Europe’s Ongoing Debt Circus

Some very foreboding straws in the wind…

(Big hat tip to our regular reader and correspondent Dr. Evil, who greatly assisted with this piece!)

1. The spread on 10-year French debt over German bunds reached 2%, the highest since the formation of the euro.  Lately we’ve seen the market increasingly question France’s ability to serve as a backstop for this mess, as its own financial strength is ironically weakened by these bailout plans by being forced itself to borrow at higher rates.

2. Yields on German 2-year bunds are just 40 bps while ECB rates are at 1.25% – suggesting they are not being viewed as equivalents by market participants.

German Two Year Bond Yields 2012

Europe’s relentless thirst for German paper – and only German paper. (Source: Bloomberg)

3. Greece’s next bond to expire is yielding 1000%!

Suffice to say it’s been a tough year for these bondholders…

Greece Bond Price Chart 2012