Often times market conclusions are drawn, if for no other reason, just to have an explanation. The thinking goes, capital markets are doing this, so there must be a reason.
The recent movements and concerns of Spain do not fall in this category. Spain, unlike Greece is a larger and a more important participant of the EU. It’s faltering would have major impact. As such, as Spain’s bond yield and CDS (insurance on the credit quality) have risen, capital markets have taken notice.
This chart from Bloomberg shows the Spanish general government 10 year bond yield and the SPY (S&P 500).
As the orange line (Spanish debt yields), rise above 6% (a pseudo threshold level), market participants have, and are, taking notice. At 4 AM Thursday (4-19-12) a large new debt auction will transpire in Spain. The demand of this auction will be interesting and will give us, as well as other market participants, a good read of confidence moving forward. (Earlier this week, similar auctions went well.)
I will try not to wake the rest of the Kvale family!
We will update you with any surprises.
Have a Great Day!
JK
214-706-4300