Those who claim there will be no Greece contagion need consider yields in other European bonds.
In spite of the fact the ECB is buying 60 billion euros of debt a month for 19 months, yields on many longer-dated bonds are rising.
Spain 10-Year Yield
Italy 10-Year Yield
Germany 10-Year Yield
Saxo Bank chief economist Steen Jakobsen sees contagion risk in bond yield breakouts.
Via email …
A quick note as there has been a number of “break-outs” and risk warnings activated.
First, and most important.
I have long argued that Italian 2 yr vs. 10 yr is excellent predictor of contagion on Greece, and sure enough we have had massive spike!
2-10 if reflecting much higher short-end risk (higher yield) Italy because with France only countries who has done nothing to reign in fiscal deficit plus CLUB MED members.
Contagion or Something Else?
10-year bond yields are up. So are 2-10 spreads. And it isn’t just Italy.
But is the reason contagion risk or erroneous belief that a eurozone recovery is underway? What about the chance the ECB has lost control?
- ECB has lost control
Which is it?
Presuming this trend lasts, this will not be good for equities no matter the reason. But really look out if the reason is #1 or #2.
Mike “Mish” Shedlock