Following the report in the UK’s Guardian late yesterday on the possibility of a 2T euro EFSF on steroids, the prospect of a deal was denied and the FT Deutschland is reporting that the German Finance Minister Schaeuble said the leveraged EFSF will be 1T euros max. Either way, the prospect of a deal by the weekend has the euro and European markets higher. Keep in mind, if the crux of the problem is too much sovereign debt, the markets are cheering the prospect of the region taking on even more debt responsibilities. Buying time though, again, is the main goal. Olli Rehn said the talks are a “work in progress” and “I trust we will have results” this weekend. They better. Moody’s downgrade of Spain to A1 has them 1 notch below Fitch and S&P. While CDS in Spain and other European countries are narrower in response to the ban on naked CDS (will they ban naked put buying next?), yields are higher with the Spanish 10 yr yield up for an 8th straight day and the French 10 yr at 3.2% for the 1st time since early Aug. The Italian 10 yr is just 10 bps from 6% again. The Greek 1 yr is up 600 bps to a new high of 186%. Operation Twist This, the MBA said refi’s fell 16.6% to a 5 week low and purchases dropped 8.8% to a 6 week low as the avg 30 yr mortgage rate of 4.33% has now gotten back all of its OT excitement drop. II: Bulls 35.8 v 34.4 Bears 41.0 v 46.3
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