Lots happened, all pretty much bad.
– Spreading contagion. This from the Daily Guardian:
The premium investors pay to buy Spanish 10-year bonds rather than the German benchmark rose to its highest in the euro’s history after this morning’s Spanish bond auction. The Spanish-German spread widened to 501 basis points, up from 488bps before the auction. … Spain sold €3.6bn of new 10-year bonds, with the average yield, or interest rate, at 6.975% – the highest paid since 1997. … In another worrying development, the cost of insuring French and Spanish five-year government debt against default soared to record highs this morning. Spanish 5-year CDS rose 23 basis points to 490 bps, which means it costs €490,000 to insure €10m of bonds. French 5-year CDS rose 9 bps to a record high of 234 bps while Italian 5-year CDS widened 15 basis points to 589 bps.
– Scary stuff from the bond raters. This from Bloomberg:
U.S. banks face a “serious risk” that their creditworthiness will deteriorate if Europe’s debt crisis deepens and spreads beyond the five most-troubled nations, Fitch Ratings said “Unless the euro zone debt crisis is resolved in a timely and orderly manner, the broad credit outlook for the U.S. banking industry could worsen,” the New York-based rating company said yesterday in a statement. Even as U.S. banks have “manageable” exposure to stressed European markets, “further contagion poses a serious risk,” Fitch said, without explaining what it meant by contagion. … The six biggest U.S. banks — JPMorgan Chase & Co. (JPM), Bank of America Corp. (BAC), Citigroup Inc. (C), Wells Fargo & Co. (WFC), Goldman Sachs Group Inc. and Morgan Stanley (MS) — had $50 billion in risk tied to the GIIPS on Sept. 30, Fitch said. So-called cross-border outstandings to France for all except Wells Fargo were $188 billion, including $114 billion to French banks. Risk to Britain and its banks was $225 billion and $51 billion, respectively.
– Did I mention spreading contagion? Now it’s France. This from CNBC:
The spread between French 10-year government bonds and their German equivalents rose to a fresh euro-era high of 200 basis points on Thursday on fears that the debt crisis engulfing the euro zone is spreading to its larger economies, with disappointing auctions of French and Spanish debt. France offered 6 to 7 billion euros of Treasury notes (also called BTANs ) at an auction , with the 5-year French treasury bond’s average yield reaching 2.82 percent on a 1.675 bid/cover ratio. The Spanish/German 10-year yield spread rose 16 basis points on the day to 477 basis points, while the yield on its 10-year bond also hit the highest since the inception of the euro at 6.57 percent. The French/German 10-year yield spread hit a euro-era high of 197 bps. Yields in a Spanish auction of 10-year bonds rose to an euro lifetime high of 6.975 percent and the country sold 3.56 billion euros ($4.8 billion) worth of debt. Credit default swaps on French and Spanish sovereign debt hit a record high on Thursday.
ECB, ease our pain. This from the WSJ:
Pressure mounted on the European Central Bank to take drastic action to stabilize euro-zone bond markets, as investors shrugged off the bank’s limited bond buying and European politicians sparred over the ECB’s role in fighting the debt crisis. ECB purchases of Italian and other euro-zone government bonds on Wednesday largely failed to halt the sell-off of struggling euro nations’ debt. Investors continued to dump everything but German bunds and it became increasingly difficult to find private buyers for bonds issued by large, economically struggling countries such as Italy and Spain.
– Nice quote from Reuters sums things up:
“Everyone’s looking around saying we should be doing something but no one is making any decisions. It can’t carry on like this,” said Justin Urquhart Stewart, director at Seven Investment Management. “But how many weeks have we said that for? Germany needs to lead the way in a euro core, and then think about how we handle the periphery.”