Right you are, Dave. No new news here — remember some of Ita;y’s auctions in the ‘90s? (chortle!!)
The significance I take away from this is the trend - the seven failures of Bund auctions started in the latter half of the year. Before that, we have to go back to 2000 for a failure of the Germans to auction off their paper at the rates they’re trying to achieve. Now we see the Bundesbank taking back about one-third of the auction, rather than allowing the rates to rise. They can’t do that for very long in their situation - they no longer mint their own currency.
They were peddling Bunds at something like 4.68% in June and as rates have come down, they’re having bigger shortfalls and auction failures. What I take away from that is the market is telling them that they’re going to have to expect higher interest rates if they want to peddle their paper - probably signifying that the market perceives more risk in the German banking system than in the US, where we’re able to have over-subscribed auctions at much lower rates.
Since the Germans are the lynchpin of the Euro, this now becomes more complicated. They can’t follow the model of Bernanke. They don’t own their own currency, and there are political implications in the rest of Europe that constrain what the Germans can do.
People are finding out in a hurry that the Euro has a problem and it is this: it is a fiat currency with no clear, single decision making sovereign behind it. Instead, it is backed by this confederation of people who like to talk, talk and talk some more about their problems.