Saturday, November 26, 2011

Italian bonds reach 7.26% yield/record levels for Belgium and Spanish bonds/raid on gold and silver

Good morning Ladies and Gentlemen:

Before commencing, no banks entered the morgue ahead of the long Thanksgiving holiday weekend. The FDIC decided to give the boys an extra week's holiday due to their strenuous activity for the past year.

The price of gold finished the comex session bat $1685.50 down $10.20 on the day.  Silver continues to be a punching bag closing down 86 cents to $31.02.  The bankers are putting on quite a show preventing gold from breaking the 1700 dollar level.  First day notice is on Wednesday so we will have to see how many gold ounces are standing and silver as well.  December is a delivery month for both gold and silver.

The total gold comex OI fell by a huge 14,429 as many of these pitched their contracts probably afraid to take delivery because of the MF Global heist by JPMorgan and friends with the full blessing by the CFTC regulators and FBI folk.  The OI going into the weekend rests at 442,641.  The front options expiry month of November saw its OI fall from 21 to 16 for a loss of 5 contracts.  We had 11 deliveries on Wednesday so we gained 6 contracts or 600 oz of gold standing.  The big December contract saw its OI fall precipitously from 151,207 to 120,623 as many longs pitched instead of playing in the crooked casino.  The estimated volume at the gold comex came it at a relatively large 212,615.  The volume on Wednesday was monstrous at 250,056.

The total silver comex OI fell by a rather large 3859 contracts. The total silver comex OI stands tonight at 104,689 as some of the new longs who decided to try their luck against the casino dealers withdrew as they knew the casino was rigged. The front options expiry month of November saw its OI fall from 52 to 5 for a loss of 47 contracts.  We had 48 deliveries so we gained 1 silver contract or 5000 oz standing.  The big December contract saw its OI fall almost 7000 contracts from 25,979 to 18,944. This level is very low so it looks like the MFGlobal scare had its effect on the silver comex as many fear that the bankers will confiscate their metal. The estimated volume on the comex on Friday was 75,040.  The confirmed volume on Wednesday was superb at 99,140.

Inventory Movements and Delivery Notices for Gold: Nov 26.2011:

Withdrawals from Dealers Inventory in oz
Withdrawals from Customer Inventory in oz
385 (HSBC)
Deposits to the Dealer Inventory in oz

Deposits to the Customer Inventory, in oz
5300 (Scotia)
No of oz served (contracts) today
9  (900 oz)
No of oz to be served (notices)
7 (700)
Total monthly oz gold served (contracts) so far this month
564 (56,400)
Total accumulative withdrawal of gold from the Dealers inventory this month
Total accumulative withdrawal of gold from the Customer inventory this month

Again no gold was deposited to the dealer and no gold was withdrawn by the dealer.

We had the following customer deposit of an exact round 5300 oz and this time for the first time
the vault was not Brinks but Scotia.  Maybe Brinks taught Scotia.

We had only one withdrawal and that was 385 oz from HSBC.
We had one adjustment of 1 oz out of a vault.
The total registered gold remains at 3.34 million oz.

The CME notified us that we had 9 deliveries for 900 oz of gold.  The total number of gold notices standing so far this month total 564 for 56400 oz.  To obtain what is left to be served, I take the Oi standing (16) and subtract out Friday's deliveries (9) which leaves me with 7 notices or 700 oz of gold to be served upon.

Thus the total number of gold oz standing in November is as follows:

56400 oz (served)  +  700 oz (to be served)  =  57,100 oz or 1.776 tonnes which is very high for a November (generally a very weak month for gold oz standing)

And now for silver 

First the chart: November 26rd

Withdrawals from Dealers Inventorynil
Withdrawals fromCustomer Inventory3034 (Delaware, HSBC)
Deposits to theDealer Inventorynil
Deposits to the Customer Inventory 2,395,835 (Scotia)
No of oz served (contracts)2 (10,000)
No of oz to be served (notices)3  (15,000)
Total monthly oz silver served (contracts)311 (1,555,000)
Total accumulative withdrawal of silver from the Dealersinventory this month1,232096
Total accumulative withdrawal of silver from the Customer inventory this month6,207,433

We did not have a deposit into the dealer nor a withdrawal by the dealer.
However we did have a massive 2,395,835 oz deposit into the customer at Scotia.

We had the following withdrawal by the customer:

1.  999 oz out of Delaware
2.  2034 of out of HSBC

total withdrawal:  3034 oz

We had another massive adjustment of 613,738 oz from the customer to the dealer.
The registered silver rises to 34.05 million oz.
The total of all silver rises to 107.94 million oz.

The CME notified us that we had 2 delivery notices filed for 10,000 oz.  The total number of notices
filed so far this month total 311 for 1,555,000 oz.  To obtain what is left to be served I take the OI standing for November (5) and subtract out delivery notices (2) which leaves us with 3 notices left to be filed upon or 15,000 oz.

Thus the total number of silver oz standing in this non delivery month of November is as follows:

1,555,000  (oz served)  +  15,000 (oz to be served)  =  1,570,000 oz. (we gained 5000 oz of silver standing)


Let us now proceed to our ETF's SLV and GLD and then our physical gold and silver funds:

Sprott and Central Fund of Canada.

The two ETF's that I follow are the GLD and SLV. You must be very careful in trading these vehicles as these funds do not have any beneficial gold or silver behind them. They probably have only paper claims and when the dust settles, on a collapse, there will be countless class action lawsuits trying to recover your lost investment.
There is now evidence that the GLD and SLV are paper settling on the comex.

Thus a default at either of the LBMA, or Comex will trigger a catastrophic event.

Nov 26.2011:

Total Gold in Trust



Value US$:70,407,096,291.78

Nov 23.2011:




Value US$:70,095,810,234.53

no change in inventory at the GLD.

And now for the SLV for Nov 26;2011

Ounces of Silver in Trust309,543,471.900
Tonnes of Silver in Trust Tonnes of Silver in Trust9,627.88

Nov 23.2011:

Ounces of Silver in Trust311,391,769.100
Tonnes of Silver in Trust Tonnes of Silver in Trust9,685.3

we lost another 1.848 million oz of silver from the SLV.
The movements in silver out of the SLV vaults have been quite dramatic lately which generally means
that the authorized participants need this silver in other jurisdictions.

And now for our premiums to NAV for the funds I follow:

1. Central Fund of Canada: traded to a positive 2.2 percent to NAV in usa funds and a positive  1.9% to NAV for Cdn funds. ( Nov26.2011).
2. Sprott silver fund (PSLV): Premium to NAV fell dramatically to  a   positive 10.21%to NAV Nov 26/2011
3. Sprott gold fund (PHYS): premium to NAV fell to a 3.28% positive to NAV Nov 26.2011).

The fall in Sprott's silver fund is due to the fact that he will try and buy 1.5 billion dollars worth of Sprott units for silver.  If Sprott does obtain this silver he removes forever this silver from the bankers and should be a plus for us.


The COT report will be filed on Monday due to the Thanksgiving holiday.


Let's see some of the big stories which will have an influence on gold and silver.

Before I commence, here is a snapshot of all of the important 10 yr bond yields:

Italy:  7.26%
Spain:  6.70%
Belgium:  5.86%
France:  3.69%

Italian 10 yr bond yield:  7.26%


Value7.26One-Year Chart for Italy Govt Bonds 10 Year Gross Yield (GBTPGR10:IND)

Spanish 10 yr bond yield:  6.70%



Belgium 10 yr bond yield:  (the yield is almost 6%)


France 10 yr bond yield:


Value3.69One-Year Chart for France Govt Oats Btan 10 Yr Oat (GFRN10:IND)


First a story on huge ramifications for continued high Italian yields above 7%:

(courtesy Bloomberg, Andrew Davis and Jeff Donovan)

Italy Borrowing Costs Rise as Euro Tumbles

By Andrew Davis and Jeffrey Donovan - Nov 25, 2011 5:32 AM MT

Italy had to pay almost 7 percent to sell six-month bills at an auction today, fanning investor concern that the world’s fourth-biggest borrower may struggle to finance its debt. The euro fell to a seven-week low.

The Italian Treasury paid 6.504 percent to auction 8 billion euros ($10.6 billion) of the six-month debt, almost twice the 3.535 percent a month ago and the highest since August 1997. Italy’s two-year bonds yielded a euro-era record 7.82 percent, almost 50 basis points more than 10-year notes.

The euro extended declines, shedding 0.9 percent to $1.3231, the lowest since Oct. 3. European stocks declined for a seventh day, the longest losing streak since August, with the Stoxx Europe 600 dropping 0.6 percent to 218.61. Italian banks tumbled with Banca Monte Paschi di Siena SpA (BMPS) losing 5.1 percent.

The sale came as Italy’s new prime minister, Mario Monti, met his Cabinet to advance additional budget measures that aim to cut a debt of 1.9 trillion euros and boost the economy in a country where growth has lagged the euro-region average for more than a decade. Spain is also facing surging costs. The Treasury in Madrid paid 5.11 percent on three-month notes this week, more than twice that previous sale and higher than Greece pays.

‘Damaging Concessions’
“For all the periphery issuers, each auction brings such damaging concessions,” Luca Jellinek, head of European interest- rate strategy at Credit Agricole Corporate & Investment Bank in London, wrote in an e-mail. “Monti and his new Cabinet better engage a faster gear but the periphery and Italy in particular face a very long, very hard road.”

Two years into the region’s debt crisis, European leaders are struggling to stop its spread and prevent contagion from affecting core countries such as France and Germany. The yield difference between French and German 10-year bonds reached an 11-year high on Nov. 17 and Germany failed to sell 35 percent of 10-year bonds on offer at a Nov. 23 auction

Monti joined German Chancellor Angela Merkel and French President Nicolas Sarkozy yesterday at a meeting in Strasbourg, France in calling for greater European fiscal coordination. Merkel again ruled out joint euro-area borrowing and an expanded role for the European Central Bank in fighting the debt crisis.

The ECB has been buying Italian and Spanish debt since Aug. 8 in a bid to stem surging borrowing costs. The yield on Italy’s benchmark 10-year bond was 7.3 percent after the auction, up 19 basis points. Spain’s 10-year yield rose 6 basis points 6.689 within 10 basis points of a euro-era record.

The soaring borrowing costs won’t have a lasting impact on Italy’s debt even as the Treasury prepares to sell 440 billion euros of bonds and bills next year, Maria Cannata, director of public debt at the Treasury, said on Nov. 16.

The amount “sounds prohibitive, but it’s not, even if things have gotten more complicated as investors are frightened by the volatility,” Cannata said at a conference in Milan. Italy’s first bond redemption comes on Feb. 1, when it must pay back 26 billion euros for debt sold 10 years ago.

To contact the reporter on this story: Andrew Davis in Rome;Jeffrey Donovan in Prague at


Belgium just got downgraded by S and P due to the Dexia mess:

(courtesy zero hedge)

And (Long Overdue) Scene: Belgium Downgraded By S&P From AA+ To AA, Outlook Negative

Tyler Durden's picture

The dominos are now falling daily, if not hourly. We give AustriAAA a few days at the most.
Just as we hinted earlier in the week when the Dexia deal started to crumble, it seems a major driver of the downgrade is the country's financial sector risk.
The spread between Blegium and France has legged wider as Dexia has deteriorated - its seems if there is any risk transfer this will change but at this rate, only France will be capable (and even then not really).
And as a comparison, here are the German, French, Belgian, and Italian yield curves.
Chart: Bloomberg


Problems in Spain, as this sovereign nation cancelled its 3 yr bond auction because nobody wished to buy the crap:

(courtesy zero hedge)

Spanish Treasury Cancels New 3Y Auction

Tyler Durden's picture

Given the recent market reaction to short- and mid-dated bond auctions in the European sovereign space, it seems the Spanish have blinked and decided to cancel the planned 3Y auction for next week. Reuters is reporting that instead of a single 3Y new issue, they are reopening 3 existing deals in the hope it will be easier to garner demand across several maturities and potentially more fungible for managers to add to existing positions than create new ones. Of course, it really doesn't matter too much as what we are concerned with is the secondary-trading 2015, 2016, and 2017 bonds will now be perfectly repriced at whatever is marginal demand for new risk positions - which we suspect will not be positive. The main reason for the shift to off-the-run, we suspect, is that the ECB is now allowed to 'buy' the bonds (not at re-issue but in the secondary pre-acution) as it is not allowed to buy primary issues. Once again - it smacks of desperation.

The shift to re-opening existing bonds is very much we suspect about the assistance they can garner from the ECB SMP. Theoretically the ECB can enter the existing market and put a bid into those specific bonds, new money bids for the new issues at marginally elevated levels from the secondary and could potentially flip the new issues right into the ECB's pleading hands. Euther way, re-opening as opposed to pure new issuance does have benefits from the central bank's 'visible' hand.
The WSJ reports here.
Reuters: Spain to sell 3 bonds instead of new 3-yr paper Dec. 1
* Bonds have 3 pct, 3.15 pct, 3.8 pct coupons

* Average yield of new 10-yr issued Nov. 17, 6.975 pct (Adds comment, details)

MADRID, Nov 25, (Reuters) - Spain's Treasury said on Friday it has replaced a planned new 3-year bond issue due Dec. 1 with three off-the-run bonds maturing in 2015, 2016, and 2017.

The announcement came after short-term debt yields in Italy - already struggling with higher borrowing costs than Spain - surged to levels regarded as unsustainable for public finances at a tender.

"It seems a sensible thing to do as there is a lot of pressure on the front-end right now," said Peter Chatwell, strategist at Credit Agricole.

"Also, Italy will sell a new three-year issue too so it will make it easier for the market to absorb by issuing at different maturities."

Spain has been under intense market pressure amid concerns euro zone leaders are not moving fast enough to resolve the debt crisis and yields on a new 10-year bond last week came close to the 7 percent level widely considered as unaffordable.

The bond maturing April 30, 2015 has a coupon of 3.0 percent, the bond maturing Jan. 31, 2016 a 3.15 percent coupon and the bond maturing Jan. 31, 2017 has a 3.8 percent coupon.

The Treasury is due to announce target amounts for the auctions on Monday around 1300 GMT


The following two commentaries are critical as the new 25% NPV for Greek bonds would surely implode all of those Greek Credit Default Swaps:

(courtesy zero hedge)

Market Already Pricing In Greek 25% NPV 'Haircut'

Tyler Durden's picture

As we just reported, Reuters has broken news that Greece is starting to grow a pair and negotiate directly with debtholders on a much larger haircut on its debt than Dallara's IIF is hoping for. This is significantly bad news in terms of both the powers-that-be losing control, banks capital raising and writedowns, CDS triggers, and EUR stress. Given that GGBs are generally trading at 25% of Par out past 1.5 years, the market had begun to discount this already but it is clear that the game of chicken just escalated and the fact that European financial credit closed only marginally off its lows while stocks soared into the green once again tells us where professionals are trading. US financials are losing gains now and ES is pulling back to VWAP as EUR sells off.
Peter Tchir, of TF Market Advisors, offers some more color on this next leg down in the SANFU that is Europe.
The good news is that the head of the IIF probably had his 15 minutes of fame and it can go back to being a cushy lobbying group rather than pretending it has real influence over the banks.
The bad news is generally bad though.  This goes back to being a very piecemeal and bank by bank, country by country situation.
With Greece being directly involved it increases the risk of a Repudiation/Moratorium Event for CDS.  That merely extends the maturity of existing CDS trades, but should scare the heck out of anyone who is long Greek risk to Dec. 20th.  The threat of not paying may be enough to trigger that.
While the IIF or EU was handling the negotiations, it was hard to trigger a repudiation/Moratorium Event.  As a short term CDS seller, I would be horrified by this development (though you should have expected it).  If they say anything that triggers, then CDS maturity is extended.  You would still need a Failure to Pay or some other Credit Event to trigger settlement.
The Failure to Pay Credit Event is also much higher.  This will be like herding cats.  Getting banks to agree to something "voluntary" was already hard, this will make it virtually impossible.  Greece will find that every bank tries to wiggle out of the risk.  That the ones with paper maturing in the near term will delay the most in hopes of getting paid out at par.  I think risk of a Credit Event has increased, and with Repudiation/Moratorium on the table, the cost of Dec. 2011 and March 2012 CDS should have increased a lot.
This is not good for bank share prices.  We saw have seen how bank liquidity has dried up even more after MF Global went under, and I have to admit I didn't think it would impact the market as much as it did.  I think fears of derivative losses cascading through the system are overblown, but I definitely have likely underestimated both the risk of that and the immediate hit to liquidity from those fears.  This is another clear risk-off change in European policies, and a complete embarrassment to Merkozy (though I could never understand why they felt the IIF could deliver).

Greeks Restart Bond Haircut Negotiations, Demand Lower NPV, Bypass IIF In Creditor Discussion

Tyler Durden's picture

And so the one thing that was supposed to be set (if only briefly) in stone, the terms of the Greek creditor haircut, has now fallen apart. From Reuters: "The Greeks are demanding that the new bonds' Net Present Value, -- a measure of the current worth of their future cash flows -- be cut to 25 percent, a second person said, a far harsher measure than a number in the high 40s the banks have in mind. Banks represented by the IIF agreed to write off the notional value of their Greek bondholdings by 50 percent last month, in a deal to reduce Greece's debt ratio to 120 percent of its Gross Domestic Product by 2020." And confirming that the IIF has now lost control of the situation, "the country has now started talking to its creditor banks directly, the sources said." And because the NPV is only one component in determining what the final haircut really is, this means that the haircut just got higher or the actual coupon due to creditors will be slashed, a move which will see Sarkozy balking at this overture in which Greece once again sense weakness out of Europe. We can't wait to hear what France says to this latest escalation by Greece, which once again has destroyed the precarious European balance.
More from Reuters:
Banks represented by the IIF agreed to write off the notional value of their Greek bondholdings by 50 percent last month, in a deal to reduce Greece's debt ratio to 120 percent of its Gross Domestic Product by 2020.

There are 206 billion euros of Greek government bonds in private sector hands -- banks, institutional investors and hedge funds -- and a 50 percent reduction would reduce Greece's debt burden by some 100 billion euros.

But key details determining the cost for bondholders, such as the coupon and the discount rate, are still open.

"The battle lines are being drawn," the second person said.
And since there will be debates about this being voluntary, it appears that Greece now has considered a squeeze out option which "forces" everyone to agree to the same terms.
It is increasingly likely that Greece will force bondholders who do not voluntarily take part in the bond swap to accept the same terms and conditions, something that is possible because most of the bonds are written under Greek law.

"Ask yourself the question. After launching this, after having told the private sector involvement is essential, are (the governments) going to be prepared to lend money (to Greece) to pay hold-outs?," the first source said.

European Union leaders from the outset had stressed the voluntary nature of the deal, in order to prevent a disorderly default of the country, which they feared could have a calamitous impact on financial markets.

Athens could squeeze out bondholders by changing the law so that any untendered bonds would have the same terms as the new ones, if a majority of debtholders -- for instance 75 percent -- voted in favour of the exchange.

The European Central Bank (ECB) and the French government, who had originally been fiercely opposed to any form of forced squeeze-out, are not so against it now, even if this could trigger a pay-out of Credit Default Swaps (CDS).

One market participant said that the take-up might well be high even if the conditions were unfavourable.

"There aren't many alternatives. If I were an investor, I'd think it was about time to take my loss. I don't see much more money coming in out of Europe, so that's where it stops," this person said, asking not to be named.

"Every time (the plan) fails, something else will need to happen. And it's going to be a harsher step every time."
And so Greece has just called Europe's, America's and of course ISDA bluff all over again.
Back to square one.


The following is a great story on the European banks who are frantically trying to dump over 7 trillion dollars of worthless sovereigns:

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