European 10-Year Bond Yields Spike Higher; Contagion Already? Something Worse?

Those who claim there will be no Greece contagion need consider yields in other European bonds.

In spite of the fact the ECB is buying 60 billion euros of debt a month for 19 months, yields on many longer-dated bonds are rising.

Spain 10-Year Yield

Italy 10-Year Yield

Germany 10-Year Yield

Contagion Already?

Saxo Bank chief economist Steen Jakobsen sees contagion risk in bond yield breakouts.

Via email … 

 A quick note as there has been a number of “break-outs” and risk warnings activated.

First, and most important.

I have long argued that Italian 2 yr vs. 10 yr is excellent predictor of contagion on Greece, and sure enough  we have had massive spike!

2-10 if reflecting much higher short-end risk (higher yield) Italy because with France only countries who has done nothing to reign in fiscal deficit plus CLUB MED members.

Contagion or Something Else?

10-year bond yields are up. So are 2-10 spreads. And it isn’t just Italy.

But is the reason contagion risk or erroneous belief that a eurozone recovery is underway? What about the chance the ECB has lost control?

1. ECB has lost control
2. Contagion
3. Recovery

Which is it?

Presuming this trend lasts, this will not be good for equities no matter the reason. But really look out if the reason is #1 or #2.

Mike “Mish” Shedlock