Mish's Global Economic Trend Analysis

10-Year Treasury Yield Lowest Level in 60-Years; Spain 10-Year at 6.66%, Italy 10-Year 5.93%
Good News in Wisconsin: Governor Walker Leads Barrett 52%-45% in Recall Poll; Union-Busting is a "Godsend"
EU Throws Spain Two Deathlines; Spanish 10-Year Yield Tops 6.7%; ECB Rejects Madrid Ponzi Refinancing Scheme
Spexit Before Grexit? Six Reasons Spain Will Leave the Euro First

10-Year Treasury Yield Lowest Level in 60-Years; Spain 10-Year at 6.66%, Italy 10-Year 5.93%

Posted: 30 May 2012 03:48 PM PDT

Curve Watchers Anonymous is noting a record low yield on 10-Year US Treasury Notes.

click on chart for sharper image

The above chart shows the monthly close except for the current month.

$IRX 3-month discount rate : Brown
$FVX 5-year treasury yield : Blue
$TNX 10-year treasury yield : Orange
$TYX 30-year treasury yield : Green

CNBC reports US 10-Year Treasury Yield Hits Record Low of 1.62%

The benchmark U.S. Treasury yield fell to its lowest level in at least 60 years on Wednesday as worries of contagion from Spain's ailing banks raised bids for low-risk investments.

Yields on 10-year notes sank to a record low of 1.62 percent, down sharply from 1.73 percent in late U.S trading on Tuesday.

The 30-year bond yield fell to 2.71 percent, its lowest level since October, and down from a yield of 2.84 percent in late U.S. trade on Tuesday.

Spain Record High Spread to Germany

Spain 10-year bond yield hit 6.7%, a record spread vs. Germany, before settling at 6.66%.

Italy 10-year bond yield hit 6.01% then settled at 5.93%.

Yield on the 10-year German bond hit a record low of 1.27%.

Mike "Mish" Shedlock
http://globaleconomicanalysis.blogspot.com
Click Here To Scroll Thru My Recent Post List

Good News in Wisconsin: Governor Walker Leads Barrett 52%-45% in Recall Poll; Union-Busting is a "Godsend"

Posted: 30 May 2012 01:25 PM PDT

I have good news to report in Wisconsin.

The recall election for Republican governor Scott Walker will take place on June 7. Polls show Walker Leads Barrett 52%-45%.

Wisconsin Republican Governor Scott Walker leads Democratic Milwaukee Mayor Tom Barrett by 7 percentage points in the state's June 5 recall election.

Walker widened his edge over Barrett, 52 percent to 45 percent, in a replay of the 2010 governor's race, according to the poll released today by Milwaukee's Marquette Law School. The school's May 16 survey had Walker up 50 percent to 44 percent.

Walker, whose curbs on public-employee collective bargaining last year provoked the recall campaign, received a 51 percent approval rating while 46 percent disapproved. Next week's vote is only the third ouster election of a state chief executive in U.S. history.

Union-Busting is a "Godsend"

I commend governor Walker for killing collective bargaining of some public union workers in Wisconsin. Here are the results of Walker's efforts:

Taxpayers are better off.
School kids are better off
Class sizes are down
Struggling school districts now have a budget surplus

For details, please see Union-Busting is a "Godsend"; Elimination of Collective Bargaining is the Single Best Thing one Can do for School Kids

Mike "Mish" Shedlock
http://globaleconomicanalysis.blogspot.com
Click Here To Scroll Thru My Recent Post List

EU Throws Spain Two Deathlines; Spanish 10-Year Yield Tops 6.7%; ECB Rejects Madrid Ponzi Refinancing Scheme

Posted: 30 May 2012 10:57 AM PDT

ECB Rejects Madrid Ponzi Refinancing Scheme

The markets are reeling in the wake of rejection of Spain's Ponzi Recapitalization Scheme by the ECB according to the Financial Times.

A Spanish plan to recapitalise Bankia, the troubled lender, by indirectly tapping the European Central Bank for cash, was bluntly rejected as unacceptable by the ECB, European officials said.

Madrid had floated the unorthodox idea over the weekend of recapitalising Bankia by injecting €19bn of sovereign bonds into its parent company, which could then be swapped for cash at the ECB's three-month refinancing window, avoiding the need to raise the money on bond markets.

The ECB told Madrid that a proper capital injection was needed for Bankia and its plans were in danger of breaching an EU ban on "monetary financing," or central bank funding of governments, according to two European officials.

The ECB's rebuff appeared to toughen Madrid's insistence that the only solution to a crisis that is pushing its borrowing costs close to unsustainable levels is for the ECB to become a government lender of last resort.

Senior government officials in Madrid argue that bailouts in Portugal, Greece and Ireland have been catastrophic and Spain will not compromise on its refusal to accept a similar form of intervention.

Lifeline or Deathline?

Reuters reports EU throws Spain two potential lifelines

The European Commission threw Spain, the latest frontline in Europe's debt war, two potential lifelines on Wednesday, offering more time to reduce its budget deficit and direct aid from a euro zone rescue fund to recapitalize distressed banks.

EU Economic and Monetary Affairs Commissioner Olli Rehn said Brussels was ready to give Spain an extra year until 2014 to bring its deficit down to the EU limit of 3 percent of gross domestic product if Madrid presents a solid two-year budget plan for 2013-14, something it has committed to do.

Commission President Jose Manuel Barroso said tighter euro zone integration could include a joint bank deposit guarantee scheme to prevent a bank run and euro area financial supervision, saying the mood had changed since member states unanimously rejected a joint deposit guarantee fund only months ago.

"In the same vein, to sever the link between banks and the sovereigns, direct recapitalization by the ESM (European Stability Mechanism) might be envisaged," the report said.

Permitting the ESM to lend directly to banks would require a change to a treaty in the midst of ratification by member states that might come too late for Spain's needs. Spanish premier Mariano Rajoy backs the idea but Rehn appeared cool to it.

"Direct disbursements to banks are not foreseen as such in the treaty, and therefore this is not an available option ... in terms of direct recapitalization," Rehn told reporters.

I have no clue how Reuters came up with the title of lifelines. One proposal is impossible because it involves treaty changes. The other proposal, higher taxes and more austerity measures, looks like a deathline.

Spanish unemployment is at 24.1% and rising and youth unemployment is 51%. Spain's Revised Budget Deficit is 8.9% and rising not shrinking.

To go from 9% to 3% how many more jobs will have to go? What will happen to tax receipts? What will happen to prime minister Rajoy if he puts such a program in place?

Rajoy knows he cannot implement such an offer, and the ECB cannot or will not do what Spain wants.

The bond market reflects this shift. Yield on the 10-year Spanish government bond is up 21 basis points today to 6.65%, having touched the record high of 6.7%.

The only solution to this mess is Spain leaving the Eurozone. Please see Spexit Before Grexit? Six Reasons Spain Will Leave the Euro First for further discussion.

Mike "Mish" Shedlock
http://globaleconomicanalysis.blogspot.com
Click Here To Scroll Thru My Recent Post List

Spexit Before Grexit? Six Reasons Spain Will Leave the Euro First

Posted: 30 May 2012 08:15 AM PDT

Interest rates on the 10-Year Spanish bond touched 6.7% today after the ECB shot down prime Minister Mariano Rajoy's Ponzi plan to recapitalize banks.

The Spanish banking condition is in such precarious shape that Matthew Lynn of Strategy Economics proposed 'Spexit' Will Come Before a 'Grexit'.

"The euro debt crisis, like any really spectacular geo-economic event, is spawning its own special vocabulary" said Matthew Lynn of Strategy Economics on Wednesday.

We can now add Spexit to a list which includes Merkozy and Grexit, and Lynn believes the chances of Spain leaving the euro are now higher than those of Greece leaving.

"The Spanish are a lot more likely to pull out of the euro than the Greeks, or indeed any of the peripheral countries" said Lynn.

"They are too big to rescue, they have no political hang-ups about rupturing their relations with the European Union, they are already fed up with austerity, and there is a bigger Spanish-speaking world for them to grow into," said Lynn.

"One in four Spanish households now have no bread-winner. Retail sales are falling 10 percent year-on-year. Yet the prescription from Brussels and Berlin is precisely the same as it has been for every other country struggling with the euro. Endure a deep recession. Let unemployment rise. Allow wages to fall until you claw back competitiveness," he said.

6 Reasons Spain Will Leave the Euro First

On MarketWatch Matthew Lynn gives 6 Reasons Spain Will Leave the Euro First.

The Grexit, short for Greece finally giving up on the single currency, has been trending for the last few weeks. And coming up next: the Spexit.

In Greece, people have just about put up with it — until now. So have the Irish, the Portuguese, and the Italians. The Spanish won't. Here's why.

One: Spain is too big to rescue.

Two: Spain has tired of austerity already. Remember, the protests against cuts began in Madrid a year ago with the "indignados" movement, which started sit-ins across major cities in 2011. The protests spread from there to Greece, and other euro-zone countries. The austerity had hardly even begun, yet already it has provoked strong opposition.

Three: Spain has a real economy. The Greeks understandably feel nervous about life outside the euro zone. They don't really make anything. Spain is a successful economy with a perfectly respectable industrial base – its export to GDP ratio is 26%, similar to the U.K., France or Italy. Only last week the Japanese car-maker Nissan announced a major new investment there.

Four: Spain is politically secure. For many countries, euro membership is more about politics than economics. The Greeks stay in because it locks them into Europe (rather than being part of the Turkish sphere of influence). Latvia wanted in because it made it part of the EU rather than being dominated by Russia. For the Irish, it is about separating themselves from Britain. The Germans stick with the euro because the EU still represents a break with its troubled past.

Five: Spain has bigger horizons. The Spanish economy looks partly to Europe. But it looks just as much to the booming Spanish-speaking economies of Latin America (and indeed the huge Hispanic market in the U.S.). Rather like the U.K., Spanish business has always looked to the global rather than the European market. Why tie yourself to a failing project when there are much bigger opportunities out there?

Six: The debate has already started. There is already a serious discussion underway in Spain about the future of the currency. Plenty of mainstream economists and pundits are arguing that the real problem is the euro, and Spain will only recover once it gets the peseta back. The taboo has been broken. That isn't true in Greece, where even the far-left Syriza party still clings to the idea that it should stay in the euro.

Debate in Spain

Proving point number six above, El Economista picked up on the story in Comes Spexit: Spain's Euro exit before Greece?

If prime minister Rajoy refuses a bailout by the Troika, what other options does Spain have? Is another puppet government like we saw in Greece and Italy coming up?

The sooner Spain sees the light and gets out of the euro that is strangling it, the better off Spain will be.

Mike "Mish" Shedlock
http://globaleconomicanalysis.blogspot.com
Click Here To Scroll Thru My Recent Post List

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Wednesday, May 30, 2012

Mish's Global Economic Trend Analysis

Mish's Global Economic Trend Analysis

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