The idea that the latest Greek bailout plan would solve anything is officially dead. Government bond spreads of Spain, Italy, and Belgium are at all-time highs. The yield on 10-year bonds of Spain and Italy are now both well North of 6%. Here are a few charts to consider.

Belgium 10-Year Government Bonds

Spain 10-Year Government Bonds

Italy 10-Year Government Bonds

Germany 10-Year Government Bonds

Portugal, Greece, and Ireland are now a sideshow. However, as a point of interest, 2-Year Greek bonds are 32.35% down from a record high of over 40% but well above the lows in the high 20’s following the Greek bailout agreement.

Self-Fulfilling Crisis

Bloomberg reports Italy, Spain 10-Year Bond Spreads Are at Euro-Era Record on Growth Concern

Italian and Spanish 10-year bonds dropped, pushing yields up to euro-era records versus benchmark German bunds, on concern that slowing growth will hamper efforts to tame the nations’ debt loads.

“This has all the features of a self-fulfilling crisis,” said Harvinder Sian, a senior bond strategist at Royal Bank of Scotland Plc in London. “The rise in yields looks pretty relentless, and it doesn’t look as if the politicians are anywhere near to getting ahead of the curve.”

The yield on 10-year Italian bonds jumped 18 basis points to 6.18 percent as of 8:48 a.m. in London, the most since November 1997.

Spanish 10-year yields surged 16 basis points to 6.36 percent, pushing the spread over similar-maturity German debt up 19 basis points to 393 basis points. A 6.5 percent yield will be a key level for Spain, RBS’s Sian said.

The yield premium investors demand to hold Belgian 10-year bonds instead of benchmark bunds widened to a euro-era record of 202 basis points before an auction of as much as 2.8 billion euros of 105-and 168 day bills.

Expect a “stern warning” from ECB president Jean-Claude Trichet soon. Also expect the market to laugh in his face.

Any bets on when the EU has another emergency meeting? I suspect two more days of this action might do it. Now answer this: what can they do that makes any sense?

Mike “Mish” Shedlock
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