In the wake of Papandreou’s Call for Voter Referendum on EU Debt Deal sovereign debt yields plunged in Germany and surged higher in most other European countries, but most notably Italy and France.

Bloomberg reports Italian Bonds Slide, Premium to Bunds Reaches Record, Amid Greece Concern

Italian bonds led declines among the securities issued by Europe’s most indebted nations after a Greek plan to hold a referendum on its international bailout added to concern the region’s financial turmoil will deepen.

Italy and France’s 10-year borrowing costs climbed the highest levels relative to benchmark German debt since before the creation of the euro in 1999. Bund yields fell the most on record, with the securities outperforming all their euro-area peers, as investors sought the safest assets.

“The run-up will put the European Central Bank, European Union and International Monetary Fund in a tough position regarding disbursements to Greece,” El-Erian wrote. The EU deal “appears to be unraveling from many sides.”

The ECB was said by three people to have bought Italian debt today as it tries to stem financial-market contagion to the euro area’s biggest bond market. Two-year note yields still rose 75 basis points to 5.75 percent, the highest since 1997. The five-year rate rose to more than 6 percent, a premium of more than 5 percentage points compared with similar-maturity German debt.

European Sovereign Debt Spread Table 10-Year Bonds

Country 10-Yr Yield Spread vs. Germany
Germany 1.77 0.00
France 2.96 1.19
Belgium 4.40 2.63
Spain 5.52 3.75
Italy 6.19 4.42
Ireland 8.21 6.44
Portugal 11.80 10.03
Greece 24.65 22.88

European Sovereign Debt Spread Table 2-Year Bonds

Country 2-Yr Yield Spread vs. Germany
Germany 0.41 0.00
France 1.09 0.68
Belgium 2.77 2.36
Spain 4.02 3.61
Italy 5.28 4.87
Ireland 9.27 8.86
Portugal 20.30 19.89
Greece 87.28 86.87

Italy yields are well off the highs of the day after the ECB stepped up Italy bond purchases.

Italy 10-Year Government Bonds

Italy 2-Year Government Bonds

For some reason Bloomberg charts do not match intra-day figures but the summary section on the left is accurate. Note the explosion in Italy’s 2-year bond yield, at one point up .76.

Meanwhile, the German 10-year yield fell 26 basis points and the 2-Year yield fell 13 basis points.

Thus at one point today the German 2-year spread vs. Germany widened by a massive 89 basis points.

The deal is certainly “unraveling from many sides” with force, so much so that Europe is in the midst of an “all out sovereign bond crisis”.

Mike “Mish” Shedlock
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