 You can breathe a sigh of relief that Spain managed to sell a new debt issue at all, but the soaring interest rate the country had to promise buyers is a sign that worries that Spain is headed straight toward a Greek-style debt crisis are all too justified.
Yesterday, May 5, Spain sold $3 billion in five-year notes at an interest rate of 3.532%.
Doesn’t sound too bad right? Wrong.
The yield is 0.716 percentage points higher than it was when the Spanish government sold similar debt in March.
 That’s a jump from 2.816% to 3.532% since March 4, an increase of 25%.
Things are likely to get worse with the next offering. Most of the buyers in this round were primary dealers who buy for their own account in the hope of selling the offering on to clients later. Speculation is that most of this offering is going to stay stuck on dealers’ books for quite a while since clients are likely to be reluctant to buy more debt that they’re worried they might have to sell into a falling market. If that’s true, and it makes sense to me, dealers will go into the next auction with sizeable positions in Spanish debt still on their books and will need even higher interest rates to persuade them to add to that risk.
The premium on Spanish debt to the benchmark German bond is already the highest on record since the introduction of the euro in 1999. Yesterday the yield spread between Spanish and German 10-year bonds stood at 1.39 percentage points.
Jim sold out of GLF which rallied about $7 a share since he sold it. The difficulty of timing can not be understated. I wonder if he is still following the stock since he sold out of it about a month ago?
Jim:
Continue to my above question. Would STD be a wreckage at the end?
Jim:
Would you comment on STD in a potential Spanish crisis and what’s the impact on GLF and other offshore drillers even though they did not involved in the spill? Thanks.
Let’s officially add the UK to the list of PIIGS:
http://www.guardian.co.uk/business/2010/may/05/uk-budget-deficit-worse-than-greece
World GDP ranks (for 2009, according to the IMF per Wikipedia):
6. UK
7. Italy
9. Spain
28. Greece
37. Portugal
38. Ireland
If this bleeds over into the rest of the EU, then we are looking at a total risk to over $16 trillion of the world’s GDP (and that is ONLY the EU, not even counting collateral damage).
Mind you, I’m not suggesting Europe will go up in flames tomorrow. I’m not even suggesting the PIIGS will. But the numbers are starting to approach our budget deficit, and we have a much larger economy than any of the PIIGS.
EUO is looking mighty good right now…
My own 2 cents on TC…
http://www.reuters.com/article/idAFN059850920100505?rpc=44
Aside from the disappointing earnings announced yesterday (due to accounting shenanigans with a charge for outstanding stock warrants), one thing that stands out to me on TC is the number of insider stock sales. At least since the end of last year, TC’s insiders have only sold stock. Not a single stock purchase. Insiders currently own only 0.39% of TC’s stock. Not exactly a ringing endorsement by it’s people of a company with supposedly good prospects?
Something is fishy with TC.
yes, Jim can you please talk about TC, seems like we should have sold between 14 and 15, the stock could never get through that resistance. If it gets back there should we sell?
Jim, would you please give us an update on Maxwell Tech.
Jim, can you commnet on Thomson Creek (TC)?