Spainish Bond Yields Are Becoming The World's Economic Barometer

Friday, August 10, 2012 06:02
Spainish Bond Yields Are Becoming The World's Economic Barometer

Tags: European crisis | U.S. economy | world economy

Trading in Spanish bonds has established itself as the bell weather indicator of the Eurozone’s health. Since Spain is the next debtor problem child, everyone watches the yields on its bond auctions to determine if and/or when Spain may approach the European Central Bank (ECB) for a bailout package.

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Yields on the 10-year bond approached 7% once again on August 8 and, despite positive rhetoric from ECB president Mario Draghi, Europe seemingly cannot stop its slide. France joined the misery as its prime minister forecast that the country will slip into a moderate recession during the third quarter.
Germany’s economy is also being hurt, although not nearly enough to put that country in recession. The indications are for recession across Europe. Signs are emerging that core Eurozone countries may be more separate from outlying ones than previously thought.
The recessionary path in Europe is harming the earnings of US multi-national companies. This was reflected in the weaker gross domestic product (GDP) report for the second quarter. The Philadelphia Fed has a measure called the Aruoba-Diebold-Scotti index that shows business activity is flat. Chicago’s National Activity Index reveals business activity is trending downward.
Five years after the crisis in 2008, there seems to be little sign of what will really get the economy back on a growth track. The increasing weakness of economies around the world is a testament to the seeping quality of Europe’s ongoing woes.

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