Investors Vote No on Spain and Italy

Mike Shedlock

Investors wasted no time in a vote of no confidence on the latest debt package supposed to save Europe. 10-year Spanish government bonds are back above 6% and yields on Italian government bonds are close behind.

Bloomberg reports Italian Bonds Decline After Borrowing Costs Rise at Nation’s Debt Sale http://www.bloomberg.com/news/2011-07-2 ... ction.html

Italian bonds fell for a second day, increasing the yield spread over German bunds, after the nation’s borrowing costs rose at a sale of 10-year debt and Standard & Poor’s said Greece risks further defaults.

Italy’s 10-year yield surged to the most in more than a week amid speculation a probe into a former aide of Finance Minister Giulio Tremonti may force him to step down. German yields fell to near a five-month low versus their U.S. counterparts as American lawmakers pushed conflicting plans to raise the nation’s debt ceiling. Bunds rose for fifth day, the longest streak since April.

Italian Auction

Italy sold 2.7 billion euros of its 10-year benchmark security, less than the maximum target of 3 billion euros. The debt was priced to yield 5.77 percent, higher than 4.94 percent the last time the securities were sold on June 28, and drew bids for 1.38 times the securities on offer, compared with 1.33 times. In six sales of 10-year bonds this year, the average bid- to-cover ratio was 1.42 and the average yield was 4.81 percent.

“With Italy investors have recognised that the debt ratio is 120 percentâ€