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  • This time to Spain

    Posted on June 6th, 2012 Peter Tjernström No comments

    After trading up in a risk-approving enviornment for almost three months, stock markets in the US and Europe started to reverse in March and accelerated the fall through April and May. All major European stock indicies as well as e.g. the DJIA is now in red for the year. Yesterday the ECB published data showing that, for the twelfth consecutive week, its purchase volumes of eurozone nation’s bonds were zero. In the last six months, there has been a strong correlation between central bank interventions, lower yields on troubled eurozone nation’s bonds and rising stock markets. The ECB jumped in to rescue Italy in December 2011 and at the same time it launched LTRO (effectively risk-free money for Europe’s banks), which triggered the bull market that later peaked in March this year. If there ever was any doubt that ECB’s Securities Market Programme (SMP) was effective, the graph below (click to enlarge) will remove all doubt. It speaks for itself: Spain can no longer finance its debt through the regular bond market. The ECB will have to resume purchase of Spaniard bonds on the secondary market – or launch a broader measure like LTRO3.


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