A Global Financial Tsunami Is On The Way As Bonds Fall Lower In Anticipation That The Rating Agencies Will Declare A Default On Greek Debt

Bond market report for June 28, 2010

European newspapers report French banks agree to roll over 70% of their sovereign debt, with 50% to be invested in a 30-year bond, and the remaining 20% to go into a Euro bond. Some German banks have expressed an interest in this scheme; but Reuters is reporting that Deutsche Bank is opposed. And Sarkozy’s campaign against the Socialists is based on his plan to maintain France’s AAA-rating.  He says there are still €5bn in savings lacking in order to achieve the 2012 target of a 4.6% deficit, according to Le Monde. “If we don’t achieve the 4.6% deficit in 2012 there is no chance in getting to 3.0 % in 2013, which would allow us to stabilize the debt and to avoid entering the dangerous zone (of a debt level) of 90% of GDP which would suffocate us with the interest rates”, Carrez said.

The rating agencies have consistently communicated that a rollover constitutes default. And today US Treasuries and Bonds sold off on anticipation that the rating agencies will follow through on their announcements. The global financial techtonic plates shifted today as the bedrock of Neoliberalism, that is US Treasuries turned parabolically lower with the result that a Global Financial Tsunami is on the way. Out of the soon coming economic chaos, that is an investment flameout, Götterdämmerung, a Chancellor, The Sovereign, possibly Jean Claude Trichet,  and a Banker, possibly Mario Draghi, will rise to power in Europe to impose great austerity, and a new seigniorage that is more political than financial.

France and Germany have the most to loose from a Greek default; that is why they are pushing for a one euro government solution to the current banking and sovereign debt crisis. They know full well that the their efforts will not be met with applause, by the rating agencies; their aim is political and not economic. Their efforts are designed to establish themselves as major stakeholders in a new alliance that lead in unified and austere European economic governance that will come as national sovereignty is waived in new Framework Agreements, by state leaders, to preserve the Euro.   
   
Business Insider reports Satellite Images Show Spain’s Expensive New Airports Are Empty Too. (pics) In addition to Spain’s uninhabited housing developments, millions of dollars in unused infrastructure is wasting away. There’s a $213-million airport in the town of Castellon, which hasn’t had any scheduled flights since it opened in March, according to The New York Times. Another white elephant is the privately-held airport in Ciudad Real, which entered bankruptcy last year for lack of traffic. Spain is similarly overstocked with highways — after adding 5,000 kilometers in ten years — and high speed rail — after becoming Europe’s biggest HSR network in December.

Bonds, BND, fell parabolically lower today suggesting that peak credit has been achieved.

The 30 Year US Government Treasuries, EDV, turned parabolically lower yesterday.

And the 10 Year US Government Note, TLT, turned parabolically lower as well yesterday.

The 300% 20 Yr Treasury Bull ETF, TMF, and the Flattner ETF, FLAT, and the 30 10 Demand Curve fell lower, $TYX:$TNX, and as the 10 30 Yield Curve, $TNX:$TYX, steepened. The chart of TMF shows an evening star and an island reversal.

TMF

The chart of FLAT shows a dark cloud covering candlestick.

Annaly Capital Management, NLY, fell parabolically lower suggesting an end to the of profitable securitization of GSE debt.

Mortgage Backed Bonds, MBB, has turned lower and Intermediate Bond Mutual Funds such as PIMCO GNMA Fund, PDMIX, have turned lower.

The chart of the ratio of BLV relative to LQD, BLV:LQD, communicates the end of the age of leverage in bonds.

The Washington Post reports The future of Europe will soon be in the hands of a dapper, 63-year-old Italian economist with a name reminiscent of a James Bond villain and with long experience in the delicate art of economic diplomacy. Mario Draghi is set to take office as president of the European Central Bank in November, making him, along with the Federal Reserve’s Ben S. Bernanke, one of the world’s two most powerful central bankers. He is inheriting an extraordinarily difficult situation, taking control in the midst of a debt crisis, with little time to learn on the job.

The European media refers to Draghi as “Super Mario” for his energetic style. The question is whether he can live up to the nickname. Draghi has won respect among central bankers on both sides of the Atlantic, who view him as a thoughtful participant in international discussions with a knack for guiding groups toward agreement.

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