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This is getting really ugly. Spain’s fresh bond auction resulted in a very high price: bonds maturing in January 2022 (10 yearish) will yield 6.97%. This is adding pressure on the euro. The Spanish treasury collected a total of  3.562 billion euros.

The price in the secondary market isn’t so much better: 10 year yields are leaping to 6.71%. The Spanish/German bond spread is almost at 5% (or 500 basis points). Spain will hold elections on Sunday. Italian yields are well above 7%.

EUR/USD is now sliding to 1.3440, in the lower part of the range that characterized in the past two days (1.3420 – 1.3550). For more on the euro, see the EUR/USD forecast.

France will soon have its own bond auction. The spread between French and Spanish yields is touching 2%.

When will the ECB intervene in the markets? Yes, buying government debt makes governments lazy and is a “moral hazard”. But this bond rout is already spilling into the real economy. Isn’t letting the euro-zone economy collapse a moral hazard by its own right?

A 2008 style credit crunch seems close and so does a €100 billion bailout package for Spain.

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