CHART OF THE DAY: The Most Important Chart In Europe Is A Disaster

 

We’ve been talking a lot about what we think is the most important chart in Europe—yields on Spanish bonds that mature in less than three years.

(High yields mean Spain is paying through the nose to borrow when it needs to roll over its debts.)

In two operations beginning in December, the European Central Bank loaned Spanish (and Italian) banks tons of money at low interest rates with the hope that they would buy domestic sovereign bonds, which would lower these yields.

Higher yields on bonds with maturities of less than two years, however, indicate that investors are increasingly doubtful of Spain’s fiscal health despite the ECB’s assistance.

These shorter-term borrowing costs fell in the wake of the EU summit, but this move has completely reversed.

Yields on two-year Spanish notes rose a dramatic 52 basis points today to 4.61 percent:

 

 

Italy has been under slightly less pressure than Spain recently, but yields on bonds there are higher too. The 10-year is up 22 bps, having crossed the important 6 percent benchmark. Two-year yields closed at 3.73 percent today, up 29 bps.

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