How quickly do the bond market vigilantes appear?


Investors seem to have lost their taste for Germany’s once much sought-after government bonds. At an auction on Wednesday of the country’s 10-year bonds, one-third went unsold according to the German Finance Agency, which manages the nation’s debts. The federal government had initially intended to sell bond issues worth some €6 billion (around $8 billion), but managed to garner just €3.89 billion.

The Germans are being told they shouldn’t try to auction off so many bonds so quickly, further comment here.  Yet don’t the PIIGS have to roll over $100 billion plus by the end of this calendar year?

And who a week ago — or even two days ago –was predicting this for a German bond auction?

I hear the market whispering in the ear of the Netherlands “get out of the eurozone, before it’s too late!”  At this point all bets are off as to which country will be the first to bail on the arrangement.  It could be virtually anyone but France.


I'd bet on a very small country. Not one of the PIIGS or Germany.


The Vatican's gonna rescue the world economy.

Unfortunately, they won't take Euros as payment for the indulgences.

some believe the Vatican has 10,000+ tonnes of gold in its possession. assuming its true, i guess its possible.

What they need is a Central Bank to hoard more than 35% of sovereign debt to drive yields artificially lower. If you could get the Central Bank to buy 100% of the outstanding debt you would have a remarkable 0% YTM as the market shuts down.

Hey, the Fed has fooled Krugman.

When do they hit the US bond market? Or do people really believe Americans are going to vote themselves higher taxes and lower transfer payments?

Is this what DeToqueville's prediction about the fatal flaw of democracy looks like?

Madness in Europe. A couple of days ago when Spanish yields rose, the German press and various European officials started to talk Germany down in the hope of shifting mood and money towards Spain and other countries. Well, they seem to have suceeded in first damaging Germany's reputation as a safe haven. Madness. Sheer madess.

Kyle Bass talking about Germany and France needing to recap banks ,which would also have an adverse effect on the gov's balance sheet, can't have helped either. He is right though, Commerzbank alone needs at least around 5bn€ according to recent reports.

How much do you think a Euro denominated German bond is worth yielding 1.98%?

No wonder it didn't sell.

The question to ask is: because it didn't sell, is this telling you more about the Euro's future than Germany's.

Infection has reached Deutschland. Maybe they'll begin to realize their fate is tied to other Europartners.

Maybe tying their fate to their Europartners is why it didn't sell.

Why not France? For ideological reasons (i.e., not wanting to abandon the "European project"), or for practical ones?

Practical ones. They are on the receiving end of many of the transfers.

At least their women are.

"And who a week ago — or even two days ago –was predicting this for a German bond auction?"

gasp! You mean the markets didn't predict the future just a week or even a day in the future???

Seems to me the markets are clearly signalling the markets are only capable of predicting the past.

Eugene Fama wins again...

You're complaining the markets didn't predict a market event?

It's called updating Bayesian priors. Things change and the market instantly reflects that!

Every country in the euro is vulnerable. Note the BB is "printing money".

I would guess that the German government missed it too. Otherwise they wouldn't have offered.

I'll never understand why so many people think 'efficient markets' is the same as 'no uncertainty'. Do they not actually get the difference, or do they just find it more convenient to argue against strawmen?

Begin countdown for Krugman's article where he shows tha he:
- 1: Predicted the whole thing
- 2: Explains that this doesn't mean what you think it does
- 3: Notes that the actual explanation matches his lefty views perfectly
- 4: Proposes a solution that is ultimately impossible to implement or verify
- 5: Ultimately shows that Republicans are to blame

Agreed: You can summarize 85% of his articles as: If only there was more stimulus...(nevermind Ireland, just talk about Greece). Overlay some numbers from the 1930s to today, find spurious connection, have commentators say, "Professor Krugman, you are like a god with your ex-post facto explanations only if....!"

Here's Krugman's post on Germany. Does it match your prediction?

As for "nevermind Ireland."

Sentence from a future MR post:

And who a week ago — or even two days ago –was predicting this for a U.S. bond auction?

Already happened to the US. The central bank had to buy the excess.

Strange - I remember this happening just a while ago -
'German government's issue of €7bn in bonds could have failed if Bundesbank had not retained 22% of debt issue'
Wednesday 26 May 2010 -

I wasn't going to write about how pissed Merkel (not to mention, apparently, the Bundesdank) was at the EU for providing plans for Eurobonds at exactly the time she was talking to the Bundestag about how Eurobonds weren't going to happen, but the biggest difference between then and now was the amount of bonds bought by the Bundesbank.

Germany is not a country imbued with Anglo-Saxon notions of financial engineering - and there is a serious debate going on about any 'Neuverschuldung' being necessary at all. Where I live, which just elected its first Green-SPD government, the budget contains no new borrowing at all. In other words, there has been a 100% failure in the bond market supported by Baden-Württemberg. (And it looks like a former Ministerpresident - Mappus - is in very deep legal trouble for attempting to put together a stock deal involving the Bundesland and EnBW.) The Greens don't believe in growth - but they are particularly determined against growth involving 'Leben auf Pump'.

Germany has its own belief in what is correct - and considering how that belief arose, they aren't about to abandon it. And for all those Germans who don't want any new debt at all? - Yesterday was a success in the bond markets, not a faillure.

Re your comment: "Germany is not a country imbued with Anglo-Saxon notions of financial engineering"

I don't want to disappoint you, but my niece's husband, a German educated in the US, worked for a US consulting firm in Munich and elsewhere doing financial engineering work in Germany for all the large German banks in the early 90's. In his words, the banks were dead institutions until his consulting firm brought them back to life.

Maybe they're zombies now.

Brought them back to life? To take part in the global financial charade of the last decade or so? And this contradicts the notion that Germans are not good financial engineers how?

Are you insinuating this could happen in the United States? yes or no?

I'm implying that it will happen.

The flight to quality aspect of Treasuries in the face of untenable deficits financed with short-term debt is creating a potential of increased volatility at a breakpoint, sort of like an earthen dam that is being built higher in the midst of a millennial flooding event -- maybe the dirt-layers can keep ahead of the rain, but if it goes, it's going to go fast. And the fiscal forecast is typhoons as far as the eye can see...

This analysis relies on 2 flawed assumptions.

1. Cash and short term treasuries are materially different in function. This is wrong
2. There is something else in the world that can withstand trillions of dollars of flooding into the market in a few days, weeks, or months. This is also wrong.

Was anyone else mentally picturing the scene from Downfall as they read this?

Ha! I wasn't until I read your comment.

This "news" is non-news. The "failure" of the auction is an artifact of the auction design.

This is from january 2009.
"Abstract: in recent auctions of Bunds too few bids have been submitted. It is not a shortage of demand; it is a failure of the auction mechanism to find the price at which there was enough demand. The problem can be solved with a better auction mechanism, "
Find the paper at

Yes, but the situation was markedly (ahem) different in 2009.

This all seems very like the great quote (from Hemingway, I think) about how someone went bankrupt; very slowly; and then all of a sudden. By January 1 one of two things will happen. Either the ECB will assume the true bond buying operations of a real central bank; or there will be unanimous agreement for all counties to exit the euro;perhaps with capital controls by Switzerland and the US to prevent inflows; and bank liabilities settled in the currency of the depositors residence.

I don't understand how this works. Why didn't the interest rate just rise until there were enough buyers?


because it's not a real auction, and that's the only reason that it can "fail". It works more like allotting shares in an IPO, i.e. the price is fixed and investors just tell the quantity.

Thanks. So next time do they have to offer a "better" fixed "price" to attract more buyers? In the meantime does the government have to adjust their budget plans to account for the missing amount? Talk about forced austerity...

Belgium + PIIGS => BIGPIS.
Let's just pray that it's not Slovenia or Slovakia next.

Or England and the Netherlands.

England, Portugal, Ireland, Czech Republic

France, Austria, Italy, Luxembourg

It's a shame that England doesn't issue any bonds, otherwise those would be awesome acronyms.

As a practical matter, the German bond failure isn't very important. The US has had hickups where bond auctions went awry, too.

As a symbolic matter, though, it's probably very important. It probably means the end of the euro. The Germans might in the end have been willing to bail out the rest of europe. But they won't tollerate the rest of europe messing with their monetary operations.

You're a douchebag. Kyle Bass predicted this two years ago in an interview CNBC where he basically said Germany did not recap their banks and didn't have the money to recap them either.

and here you congratulating yourself for predicting this a month a go?!

What do you want? A cookie?

This is nowhere near the same as Krugman's bond vigilantes. They are afraid Germany won't be able to pay in euros and the key desire is more deficit spending by Germany on Greece. These aren't the bond vigilantes. They are the bond doomsayers. They believe (like I do) that we have to fight human nature to save the euro and it's unlikely to happen.

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