We are afraid, we hope, but we do not believe.

There is lot of said about the recent turmoil in Spanish Government Bond yields. After speech of nearly any European politician, Spanish Bonds are going up or down by quite a large number. For example, after the Spanish prime minister's promise to ask EU/EZ resources to buy their bonds if needed, the bonds went down to 6.84 from being nearly around 7.20, change by around 5%. But how significant  are these movements? How they tell about the price of financing the Spanish debt?

The particular movements are at some degree of very low informative power. When we look at the recent evolution of 10y Spanish bonds, we see very high volatility. In half a month, the bond can easily change the value by around a percent, depending on a particular swing in a mood, and, it seems that volatility is even growing. It means that today value does not say too much for the next bond auction. In addition, the moving averages suggest an increasing trend. I think that these two facts are really worrying. The increased levels of volatility further suggest low market's ability to predict a direction in the solution of the recent debt problems. The high level of yield is a reflection of uncertainty of the Spanish public finance (and, from a big part, also the uncertainty about the direction of the EU/Eurozone), while the growing volatility in the yields further says that even the uncertainty is uncertain.

The recent yield movements say: "We are afraid, sometimes we hope, but most of the time, we do not believe." ...or maybe the explanation is much simpler -- some big players are just speculating on volatility.

Anyway, I would recommend a following rule how to read the uncertain uncertainity: politicians should use the upper bound in yields to be motivated for a solution to the debt crisis, while people should, on the other hand, look on the lower bound to not be worried so much and hope. In reality, the previous rule is rather reversed. The politicians are enjoying a false sense of safety, while many people are losing their patience.

Spanish 10Y Government Bond Yield Index. Source: Bloomberg.