Salgado Speaks

The immediate reaction to Spanish finance minister Elena Salgado's caja solvency plan was positive - at least at the short end. Today's auction of 2.5 billion euros of letras saw the 3-month yield drop from December's 1.8% to 0.98. The 6-month portion saw yields tumble from 2.6% to 1.8. Bid-to-cover was 5.48 (vs. 2.14 in December) in the first case, and 5.1 in the latter, about equal to the prior auction.

The secondary market yield on the 10-year may (or may not) be telling a different story. Bloomberg is reporting this at 5.35% - about 10 bps higher than yesterday. The Financial Times, for its part, claims that the figure is 5.18% - 7 less.

Whatever.

As for criticism that the 20 billion thought to be sufficient by the Spanish government in the event that some laggards fail to get their acts together and force the intervention of the Bank of Spain... first, the amount isn't engraved on stone tablets delivered by a burning bush. Second, those in charge of possibly not sufficiently solvent institutions only need to think that it might be them getting intervened to put them in motion. The Spanish government won't be showing its hand on this one.

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