Chart of the Day: LTRO2 weakness

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Todays chart follows from the one I posted pre-Easter on the ECB (European Central Bank) LTRO (long term refinancing operation).

This comes from a great piece of research from Nomura (h/t Delusional Economics – see below) and charts the weakness in 5 year Italian and Spanish bond yields since the introduction of the 2nd tranche of the LTRO – LTRO2:

As I noted in links this morning, Bloomberg reported about the growing wariness of investors in the big PIIG states:

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Competition between Italy and Spain for international investors’ funds will heat up this quarter as domestic buying stoked by the European Central Bank fades.

Italian and Spanish bonds slumped last week after demand dropped at a Spanish bond sale and Prime Minister Mariano Rajoy said his country is in “extreme difficulty.”

The decline reversed a first-quarter rally sparked by more than 1 trillion euros ($1.3 trillion) of ECB loans to the region’s banks via its longer-term refinancing operation. Spain’s 10-year yield spread to German bunds widened to the most in four months, while Italy’s reached a six-week high.

Looking closer at the 10 year notes, it appears that even though Spain is “winning”, as the yield has accelerated to nearly 6% from 5%, the spread with Italy remains close:

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Here’s the Nomura report:
ESM and ESFS by Nomura