Consternation ruled today as Germany's planned 6 billion euro 10-year Bund sale received investor bids for less than 4 billion euros, leaving the Bundesbank to sop up almost a third of the tender. "Disaster" was the general view: is no part of the Eurozone now exempt from the crisis?
There may be another way of looking at this. Just a day ago, the Buttonwood column on The Economist's website pointed out that if a Eurozone rescue deal does materialise, investors will rush to dump Bunds and buy Spanish and Italian debt. If you keep that in mind, then today's 10-year Bund auction may indicate that investors still expect that such a deal will be reached. If you really think that Spain or Italy will default, you certainly want to own Bunds; but if you think there's a deal brewing, why would you want to own 10-year Germany at less than 2% yield when you can strap on Spain or Italy at closer to 7%? Looking at the healthy bid-to-cover on Italy's auctions as recently as last week, it seems a good number of investors may be asking themselves just that.
Make no mistake: these are dangerous and scary times. But despite all the panic in the media, even today's market action seems to indicate that there are still plenty of investors willing to take quite a large punt.
A footnote to all this: one of the UK media websites breathlessly reported that the yield on the 10-year Bund had risen by "7 percentage points" (7.0%) today. The actual increase was 7 basis points (0.07%), so they were off by a factor of 100! One of the things that may be making this crisis so scary is that it's accompanied by a 24/7 rolling commentary from journalists who don't have the faintest idea what they're talking about.
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