European Bond Yield Summary 3/26/13

Greece 10-year yield has dropped under 12% but the Portugal yield moves higher, now at 6.11% approaching the highs from one week ago so this warrants attention.

10-Year Yields:
Greece 11.87%
Portugal 6.11%
Spain 4.91%
Italy 4.54%
Australia 3.58%
France 2.03%
U.S. 1.93%
U.K. 1.82%
Netherlands 1.81%
Austria 1.70%
Finland 1.58%
Germany 1.35%
Japan 0.54% (setting records)

Spain remains under 5% and Italy around 4.5% so this creates calm as the Cyprus drama continues to unfold (they are not blowing out to the upside). The ECB is likely behind the scenes supporting these two too-big-to-fail nations. France moves across 2% with no great reaction to the ongoing European theatrics. The U.K. is lower a couple ticks, from 1.84% last week. Germany also stays at a low 1.35% level. Thus, money in Europe is definitely flowing to the safety of Germany and the U.K. The U.S.-Germany spread is now at 58 (1.93-1.35), the highest since 2010. Rather than a continued blowout higher, a move towards reducing the spread is anticipated, and since the low Germany yield will likely stay that way for some time, that hints that the 10-year Treasury should move lower. Lower Treasury yields would occur in concert with lower equity markets. Note the obscene 0.54% yield for Japan.

The Cyprus drama has not created contagion as yet as shown by the well-behaved Spain and Italy yields, however, the situation is shaky. Cyprus banks are to reopen tomorrow with capital controls in place; citizens will only be allowed to withdrawal 100 euro's, about 130 bucks. The last day that banks were open were Friday, 3/15/13, so the bank holiday is now approaching two weeks old. The folks that were skeptical about the banks, and had cash stashed away for such turmoil, were the smart ones.

Note Added 3/26/13 at 1:23 PM:  Portugal says that Cyprus does serve as a template for banks moving forward. What does that tell you if you have 100,000 euro's in a Portugal bank? Watch the Portugal yield as highlighted above. Portugal may become the next trouble spot. It is surprising to see that the equity markets ignore the Portugal comments as the Tuesday trading session continues.