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Today the PIIGS are back at the ECB subsidy trough with Portugal taking center stage with its E500 million 6-month bill auction. The next country to implode sold E500mln of 6-month Bills, and while the bid to cover was just a slightly better 2.6 compared to the 2.4 before, the yield again surged, hitting an unsustainable 3.686% versus 2.045% previously. The net result of this jump in yields is that peripheral spreads have once again commenced leaking wider, with the Greek spreads to Bunds pushing to a new record wide at 974 bps, a 10 point move. This is hardly the last we have seen it, and while it is very feasible we will see a four digit spread in the next few days, who really care anymore. After all it is just the ECB that will end up holding the toxic paper.

Elsewhere, Germany also proceeded with its first bond issuance of the year, selling nearly E4 billion in 10 year bonds. From Market News:

The German federal government topped up its 2.50%-coupon, January 2021 Bund by E3.916 billion at a minimum price of 96.79 the Bundesbank announced Wednesday.

The average yield on the top-up of the 10-year Bund was 2.87%, up from 2.59% at the bond's initial auction November 24.

The weighted average price came to 96.81, and the government accepted 100% of bids at the minimum price.

There were a total of E6.290 billion in bids for today's sale, resulting in a bid/cover ratio (excluding Bundesbank retention) of 1.6 up from 1.2 on November 24. It was the first covered (i.e. total bids exceeded the announced volume) capital market auction since November 10.

A spokesman for Germany's Federal Finance Agency wrote after the auction that the results were a "robust start" for the year.

Total bids included E2.87 billion in competitive bids and E3.42 billion in non-competitive bids. The German government accepted 80% of the non-competitive bids. The bonds mature on January 4, 2021 and are strippable.

The government retained E1.084 billion (or 21.7%) of the issue for its open market operations, bringing the total volume of the latest tranche to E5 billion, as expected. Including the E6 billion of the bond outstanding, total issue volume is now E11 billion.

And as we have been disclosing for the past few months, the big race in Europe this year will be between banks, which have trillions in debt to roll or refinance, and countries, which, amusingly, also have trillions in debt to roll and refinance.... and both have a very limited purchasing audience. Bloomberg has put together a good summary on the game theory considerations in a year in which very soon everyone will migrate to the "Defect" field.