Stop press. The biggest news of the month is that Germany’s most recent bond auction failed horribly in attracting buyers. Some 39% of the bonds available for sale were left unsold and had to be mopped up by the Bundesbank.
This is extraordinary news. It means that contagion has now spread from Greece, to Ireland and Portugal, to Italy, to France – and now to the beating heart of the eurozone itself. This was the sloppiest German 10 year auction since the inception of the euro. As French and Spanish yields continue climbing to historically high yields Vs. Bunds the “bond vigilantes” view Bunds meagre 1.98% yield as terrible value. This very well may be a prelude to a “buyers strike” in select euro issue auctions to come.
That spells disaster for the euro – which has already dropped below €1 = $1.34. But more than that, it spells disaster for the eurozone. If Germany can’t sell its bonds, then Italy is a basket case and France is little better. The euro crisis has been bad so far. But it’s just entered a far more serious phase. This could prove lethal.