One sneeze, and over we go
The Slog: European bond rates are rising rapidly.
Yesterday the rise spiked after Mario Draghi said the ECB was
maintaining the key lending rate, and the overnight deposit rate. The
ECB also cut its 2013 gross domestic product growth forecast to negative
-0.6% from -0.5% as predicted in March, but boosted the 2014 outlook to
1.1% from 1%. Italian 10-year bond yields zoomed 23 basis points to
4.369%, Spanish 10-year bond yields rose by the same to 4.675%, and
Portuguese 10-year yields climbed 24 basis points to 6.019%. Greek
10-year yields climbed 15 basis points to 9.271%.
What these reactions tell us is two things. First – as with the
jittery stock movements and Bernanker QE exit hints – any sign at all
that the Wily Coyote flying carpet is about to be pulled evoke dramatic
pessimism. That’s because the markets know that this is just a
game: they’ve known this for coming up to two years now. Any sign at all
that the game-players are taking their ball home is greeted with panic.
Second, Portugal above 6% and Greece back over 9% means that this is no
longer a loss of faith in one Clubmed sovereign: the markets are losing
faith in the eurozone. A wobble from France will be enough to destroy
what’s left of the European Bond risk appetite.