European Bond Yield Summary 8/7/12

10-Year Yields:
Greece 24.83%
Portugal 10.27%
Spain 6.77%
Italy 6.00%
Belgium 2.50%
France 2.10%
Austria 1.93%
Netherlands 1.73%
U.S. 1.57%
U.K. 1.51%
Finland 1.50%
Germany 1.42%

Spain 2-Year Yield 3.73%
Spain 5-Year Yield 5.57%
Spain 10-Year Yield 6.77%
Spain 30-Year Yield 7.10%

Italy 2-Year Yield 3.32%
Italy 5-Year Yield 5.06%
Italy 10-Year Yield 6.00%
Italy 30-Year Yield 6.55%

Australia 2-Year Yield 2.90%
Australia 5-Year Yield 2.87%
Australia 10-Year Yield 3.26%

The Portugal yield continues to languish for months above the 10% level.  The Italy yield sits on the critical 6% level. Italy's GDP minutes ago shows a contraction of 0.7%; recession continues. Spain's yield is under the 7% level used as a gauge of trouble.  The U.K. and Finland yield are provided safe haven status, now below the U.S. yield. Germany remains at 1.4%-ish, the strongest nation in Europe. The Spain-Germany and Italy-Gemany spreads remain elevated continuing to signal problems ahead.  The France-Germany spread has lowered considerably over the last couple weeks verifying the slight calm on the continent.

The RBA (Australia) left rates unchanged overnight saying that China is stabilizing.  Note the inversion occurring for Australia for the 2's and 5's. Keep an eye on the 2-10 spread moving forward. The short end yields for Spain and Italy dropped dramatically on the projected ECB bond-buying plans moving forward but interestingly, the Italy 2-year yield is already heading higher again, now at 3.32% so keep an eye on that.  The 2-10 spreads for Spain and Italy are now 304 and 268, respectively, which provides hope for the Eurozone.  The banks love the steeper yield curve to increase profits and help them dig out of the hole. If the curves start to flatten again, say if the 2-10 spreads for Spain and Italy drop under 200, that will signal increased turmoil. The Spain 10 and 30-year yields were briefly inverted on 7/23/12 but that reversed with the 30-year yield about thirty basis points higher now.

Europe remains in a malaise moving forward, the politico's manage to save the markets from the cliff edge, only to then retreat each time rather than taking bold steps. With the Spain and Italy yields moving lower on happy talk, this only prolongs the overall pain; Spain and Italy will not ask for help as yields move lower so the debt crisis will linger along like a matastasizing cancer.  In a nutshell, watch Spain-Germany and Italy-Germany spreads, the 2-10 spreads for Spain and Italy paying attention to the short-end yields, the Australia 2-10 potential inversion, and of course, the 7% level for the Spain 10-year, and the 6% level for the Italy 10-year. Also, listen to see if Rajoy (Spain) requests a bailout; the markets are pricing it in since he has played up this action in recent days, but he has yet to make the formal request.  Any hesitation may cause the markets to retreat.