'Tornado' Warnings Across Europe

Global financial markets briefly celebrated the Pro-Euro election on Sunday in Greece in which New Democracy won and apparently has the votes necessary to form a coalition government that will work to keep Greece in the European Union.

However, the relief was short lived as European indexes put in small gains and the Eurodollar declined (NYSEARCA:FXE)

The new warnings came from Spain and Italy which saw their borrowing costs spike higher as investors worry about the financial future of the two European giants.

In early Monday trading, the Eurodollar (NYSEARCA:FXE) declined to $1.2592 and Spain’s IBEX 35 declined 2.56% with its ETF, iShares MSCI Spain Index (NYSEARCA:EWP) dropping 2.76% at the open on Wall Street.

Major U.S. indexes were underwhelmed with the overnight news as the S&P 500 (NYSEARCA:SPY) opened 0.54% lower on Monday.

Gold (NYSEARCA:GLD) dropped 0.35% in the opening minutes while U.S. Treasuries (NYSEARCA:TLT) opened up 0.50%.

All of the early week volatility was caused by spikes in Spanish and Italian bond yields.

Spanish 10 year bonds spiked to 7.19%, up over 4% and Italy’s 10 year jumped to 6.1%, approaching the unsustainable 7% level. Spanish bonds have also set record spreads over German Bunds which are viewed as the safe haven bond trade in Europe.

Spanish bond yields are now at record highs for the Euro era.

Yesterday the G-20 met in Cabo San Lucas to take another shot at getting in front of this fast moving debt tornado that threatens to destroy Europe.

Bottom line:  A fast moving debt tornado is sweeping across Southern Europe and warnings blare as policy makers try to find cover. Will the markets give them time or will the storm unleash its devastation before the G-20 can find shelter?  The only certainty is that time is growing short.

Disclosure: Wall Street Sector Selector holds a position in (TLT) actively trades a wide range of exchange traded funds and positions can change at any time.