Spanish Yield Analysis

Spanish Yield have been very strong in recent days and weeks and have touched a long term trendline which looks like it will be a decider in direction for the next few months.

Currently they have a coupon of 5.85% on the 10Y duration, but currently bid at 104.08, leaving a yield of 5.27%

With little development coming from Eurozone and none scheduled for a few weeks with major impact the fiscal cliff is the most likely risk mover. That being said no-one knows how that is going to end so its best not to speculate on that but technicals stand tough.

Spanish Yields, Daily 10Y. Thomson Reuters

From this a move to 5.8% is clearly possible if risk was to waver soon. but the main point of this is due to the correlation with many risk assets. Such as the IBEX which when inverted is very correlated.

IBEX, Orange (LHS) Inverted ES10Y, Red (RHS). Thomson Reuters

Furthermore there is another strong correlation to EURUSD rate when compared with the Spain  - German 10Y spread. A reasonable move from 5.3% to 5.8% would correlate to a move to 1.2820 EURUSD rate.

USDEUR, White. ESDE spread Blue, (RHS). Thomson Reuters

So here it goes, the Fiscal cliff is very important and the movement of Spanish yields can be very important for a variety of makets and as such are crucial to pay attention to.