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Euro-area Black Magic

June 11, 2012 By Jeremy Jones, CFA

From the lead article in this morning’s Wall Street Journal: “With foreign investors almost completely absent from Spanish bond markets for months, Spanish banks have propped up the government, which is now forced to turn to Europe for help propping up the weaker banks. Meanwhile, the stronger banks are shying away from buying government bonds—for fear they would be dragged down, too.”

Just so this is clear, the Spanish government whose only source of funding is Spanish banks, just bailed out those same banks by taking on an additional $125 billion in debt. Problem solved? Global equity markets have given the bailout a thumbs-up, but bond markets aren’t buying into the euro-area black magic. Yields on Spanish bonds are up and spreads versus German government bonds have widened. The bond market sees this as more of a Ponzi-bailout than a lasting solution to the euro-area’s debt crisis.

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Jeremy Jones, CFA
Jeremy Jones, CFA, CFP® is the Director of Research at Young Research & Publishing Inc., and the Chief Investment Officer at Richard C. Young & Co., Ltd. Richard C. Young & Co., Ltd. was ranked #5 in CNBC's 2021 Financial Advisor Top 100. Jeremy is also a contributing editor of youngresearch.com.
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