Spanish yield spreads over bunds have narrowed another 13 bp this morning to 208 bp, down about 60 bp from the middle of last week. This, in reaction to the Spanish plan to partially privatize weak cajas (savings banks).
Seems to me, this is how Ireland got itself in such trouble. It first guaranteed bank deposits and then nationalized the banks, taking on to the public balance sheet acres (literally) of private debts. It seems to me Spain may find itself in the same boat some months down the road…
The market doesn’t care, at the moment. Spreads are narrowing, CHF is weakening, confidence in German is ebullient… It will take some time before the Spanish debt situation plays out…
Near-term, modest support is at 1.3500/10. Better buying is rumored between 1.3450/70.
