PREVIOUSLY: As we said yesterday in our CHART OF THE DAY: the scariest chart in Europe is the surge in yields in shorter-term Spanish debt maturing before banks will have to repay the cheap cash they borrowed from the European Central Bank during two three-year LTROs.
Spain and Italy have been financing themselves through debts that mature while banks know they will still have access to easy cash. So while it is notable that Spanish 10-year bonds are at 6.7 per cent, it is conceivable that Spain could finance itself through issuing shorter term debt. But when short-term borrowing costs get steeper, then they’re really in trouble.
That story is getting a whole lot worse today.
Yields on the Spanish 2-year have jumped a whopping 48 basis points to 5.11 per cent. These yields were just 2.24 per cent in March.
UPDATE: Headlines about possible bank recapitalization led to a slight pullback in yields. They remain 43 bps higher on the day, currently at 5.06 per cent.
As noted here, it’s overall a pretty unpleasant day in Europe.