“Troubled” Europe Spreads Up Big This Morning – Serious Trouble Dead Ahead?

“Troubled” Europe Spreads Up Big This Morning – Serious Trouble Dead Ahead?

Our good friend and European bond expert/correspondent Dr. Evil sent in a note this morning about the big moves in Spain’s and Italy’s 10-year paper – which we’ve previously highlighted as the real elephants in the room (see: European Sovereign Debt Spread Breakouts Near).

Dr. Evil writes that Spain 10-year yields are up BIG – 16 bps this morning (to 5.69%), with Italy 10-year yields also up 8 bps.  Pulling up the charts for each (courtesy of Bloomberg.com), we find Spain precariously on the edge of a breakout:

Source: Bloomberg.com

While Italy does its best to play a little catch up ball, as spreads break out to a 3-month high:

Italy 10 year bond yieldsSource: Bloomberg.com

We’ve seen before that when spreads break out, they can run away quite fast.  Dr. Evil for one is not a fan of Italian paper in this “120% debt/GDP, 5% deficit, rising yield environment.”

Meanwhile the euro is showing some signs of breaking down as well:

Euro price chart downtrend begins June 2011Source: StockCharts.com

And the euro’s downtrend is a bit more pronounced with respect to its traditional counterpart, the dollar:

euro dollar ratio downtrend june 2011Source: StockCharts.com

Fasten your seatbelts!  We could be on the brink of a wild ride across the pond.

PS – Ironically I am spending the week in Brussels – a bit of a working vacation with my Chrometa co-founder.  We did pay homage to the EU sights yesterday (in between frequent stops for trappist ales, of course!)  The EU’s presence here has certainly lifted Brussels lot thus far.  Don’t listen to the French – this is actually a very cool, metropolitan city – well worth a visit if you ever get the chance.