The selloff on Spanish and Italian bonds continued today with yields in Spain hitting euro-era record highs.

On the deficit side of matters, I do not believe Spain will meet its budget-deficit targets, and neither does Fitch.

Fitch Managing Director Ed Parker said Spanish Prime Minister Mariano Rajoy will miss budget-deficit targets this year “by a substantial margin.” according to a Bloomberg report.

10-Year Spanish Bond Yield Hits Record High

The previous euro-era 10-year Spanish Bond Yield high-water mark was 6.7%. That record was shattered today with a rise to 6.83%, closing at 6.7%, right at the previous high. The yield closed up 20 basis points (.2 percentage points).

Yields Climb in Italy

10-Year bonds in Italy were hammered as well, with the yield climbing as high as 6.3% before settling at 6.17%, up 14 basis points.

Emperor Has No Clothes Moment

Yesterday, on news of a Spanish bailout, stocks and bonds gapped up (yields down). The yield on the 10-year Spanish bond dropped as low as 6.01%, but the selling began immediately.

I commented that the sell-the-news reaction represented An “Emperor Has No Clothes” Moment: ESM Has Failed Already.

The jump from 6.01% coupled with significant follow-through today offers substantial evidence that time has expired for Europe to address the crisis.

Mike “Mish” Shedlock
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