Spain was downgraded, get this, from B to CCC+ "Outlook Negative".
Egan Jones cites Spain's 1 year default probabilities at 18% in large part due to their rising yields on debt issuance, the 10 year hit 6.75% today. Remember that Spain's 10 year opened slightly down on Monday as the market opened up, then as the market fell Monday, Spain's 10 year yields sky-rocketted. It is very worthwhile to recall why this happened, the Spanish Banking Bailout announcement which was discussed over the weekend by Finance Ministers from the EU in a 2 and a half hour conversation that ended with a $100 bn commitment, although the facility of choice, the ESM, isn't even active or ratified by Germany. The worst part is the announcement that all other debt is secondary to the ESM loan to Spain, meaning that Spanish debt holders almost certainly will be shafted like the Greek ones and while it took the ISDA about a week to make a determination on whether to activate Greek CDS (insurance for bond-holders in a situation like that), it took the ISDA about a day to let Spanish bond holders know that they wouldn't be covered, CDS wouldn't be triggered. As a result, widespread selling of Spanish debt and the yields sky-rocketting to 6.75%, which I believe is a record high.
So the moral of the story is this great banking bailout that was supposed to restore confidence in the market, actually made it worse by taking Spain from a banking sector failure to a probable sovereign debt failure. Only in the EU!
Most of the day we watch this divergence, then comes the news and the plunge which was already under way, coincidence? I don't think so.
The only question I have is whether the shares were bought up as they dropped? There's some initial evidence that may be the case in ES.
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