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I'm not sure if this news has already been making the rounds and is being (fairly) ignored, but last night, Germany failed an auction of 10-year bunds. The country was offering five billion euros and sold only 3.8 billion euros.
You may recall that the kick off of the European financial crisis also took place with a failed auction of German bonds back in the early spring of 2011. However, the reasons for the failures are dramatically different. Back in 2011, investors shunned German bonds as the PIIGS were overspending like drunken sailors and Germany was seen as the country that would have to pick up the slack. Suffice it to say, a lot has changed between then and now.
By all accounts, last night, traders stayed away from the bund auction as it yielded a pathetic 1.41%, more than 100 basis points less than the US 10-year Treasury bond.
That means the spread between the German and US 10-year bond yields will have to close some, so German yields will have to rise and/or US yields will have to close a little bit from the current all-time wide level. That will have consequences in financial markets, especially in currencies, but there is absolutely no indication that, credit wise, the market is on the verge of another EU freak-out.
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