As yields on 10 year bonds are flirting with the 7% mark, it’s a good opportunity to look at the high dependency on banks and the sovereign and vice versa, thanks to the LTROs. The ECB’s long term refinancing operations initially lowered Spanish yields and helped the banks. Spanish banks took cheap loans from the ECB to buy higher-yielding Spanish bonds, sometimes with leverage. The idea was to lower sovereign yields and give banks an easy arbitrage. Reality looks different. However, as worries rose in recent months, Spanish bonds fell (yields rose). So banks were stressed with these losses. If Spain doesn’t lend a helping hand to the banks, they might sell their Spanish bonds in the markets to get more cash, and this will just add more pain on Spain. External help is already promised in the form of the 100 billion bailout, but this will eventually add to Spain’s debt and will not be enough for the banks. A quicker solution is resuming the ECB’s bond buying scheme. Spanish Prime Minister Mariano Rajoy, who already suffered a huge humiliation with the bailout, is begging for ECB aid, and is so far denied. Will the ECB recognize its big mistake and offer direct aid to Spain? It already did it in the past. Spain and its banks are too dependent on each other. In the current environment, the credit rating downgrades for Spanish banks seem unnecessary: the banks in Spain are always safe. When will the Gordic Knot be cut loose? Perhaps the Greek elections will be the beginning. Further reading: 3 Scenarios for the Greek elections. Yohay Elam Yohay Elam Yohay Elam: Founder, Writer and Editor I have been into forex trading for over 5 years, and I share the experience that I have and the knowledge that I've accumulated. After taking a short course about forex. Like many forex traders, I've earned a significant share of my knowledge the hard way. Macroeconomics, the impact of news on the ever-moving currency markets and trading psychology have always fascinated me. Before founding Forex Crunch, I've worked as a programmer in various hi-tech companies. I have a B. Sc. in Computer Science from Ben Gurion University. Given this background, forex software has a relatively bigger share in the posts. Yohay's Google Profile View All Post By Yohay Elam Opinions share Read Next EUR/USD: Trading the UoM Consumer Sentiment June 2012 Kenny Fisher 11 years As yields on 10 year bonds are flirting with the 7% mark, it's a good opportunity to look at the high dependency on banks and the sovereign and vice versa, thanks to the LTROs. The ECB's long term refinancing operations initially lowered Spanish yields and helped the banks. Spanish banks took cheap loans from the ECB to buy higher-yielding Spanish bonds, sometimes with leverage. The idea was to lower sovereign yields and give banks an easy arbitrage. Reality looks different. However, as worries rose in recent months, Spanish bonds fell (yields rose). So banks were stressed with these losses. If… Regulated Forex Brokers All Brokers Sponsored Brokers Broker Benefits Min Deposit Score Visit Broker 1 $100T&Cs Apply 0% Commission and No stamp DutyRegulated by US,UK & International StockCopy Successfull Traders 9.8 Visit Site FreeBets Reviews$100Your capital is at risk. 2 T&Cs Apply 9.8 Visit Site FreeBets Reviews$100Your capital is at risk. 3 Recommended Broker $100T&Cs Apply No deposit or withdrawal feesTrade major forex pairs such as EUR/USD with leverage up to 30:1 and tight spreads of 0.9 pips Low $100 minimum deposit to open a trading account 9 Visit Site FreeBets ReviewsYour capital is at risk. 4 T&Cs Apply Visit Site FreeBets ReviewsYour capital is at risk. 5 Recommended Broker $0T&Cs Apply Trade gold, silver, and platinum directly against major currenciesUp to 1:500 leverage for forex trading24/5 customer service by phone and email 9 Visit Site FreeBets ReviewsYour capital is at risk.