European Bond Yield Summary 2/26/13

The drama and intensity in Europe is increasing due to the Italy elections. A second Italy vote will likely be required which would continue the theatrics. Poor Monti that stepped in with the austerity and belt-tightening and now has his head handed to him. To no surprise, the Italy vote is against austerity; people want to vote for party-time, not austerity-time. Berlusconi says "the markets are crazy."  The Italian banks are collapsing, down from 5 to 8% this morning. European stocks are down from one to six percent. Europe is back on the front burner so it is time to watch the bond yields once again.

10-Year Bond Yields:
Greece 11.05%
Portugal 6.47%
Spain 5.32%
Italy 4.81%
France 2.19%
U.S. 2.01%
U.K. 1.87%
Austria 1.85%
Netherlands 1.72%
Finland 1.66%
Germany 1.47%

Italy 2-Year Yield 2.12%
Italy 5-Year Yield 3.55%
Italy 10-Year Yield 4.81%
Italy 30-Year Yield 5.34%

The Italy 10-year yield jumps about 40 basis points in the last couple weeks. Watch to see if Italy hits 5% which will create further concern. The Italy yield curve shows a healthy bump across all time frames of about 30 basis points over the last few days; the Italy 2-year is increasing the fastest now above 2%. Spain is well-behaved through the drama, staying in the 5.3-5.4% range. Watch to see if Spain hits 5.5% which would create further concern. France and other perceived safe havens are about 2% and lower. The money that moves out of Italy moves into Germany, Finland, the Netherlands and Austria. Greece continues to hover at 11%.

The Italy-Germany spread is 334 (481-147). Keystone uses an Italy-Germany spread of 470 to indicate major turmoil and concern, where Italy will need help. Thus, this equates to the Italy 10-year yield moving above 6%, a red line alert number where the European situation will become dire.