It seems like at some point in the past few years we have talked about almost every single nation in the Eurozone as being the next domino in line for a fall. Austria's banks were a major cause for concern in 2010, and then the fall of Berlusconi triggered fears of a political vacuum in Italy during 2011, while other countries' travails have been more widely focused upon in the time since.
The first issue which was identified as a danger sign for these economies normally revolved around the issue of solvency. Due to the ECB's most recent bond buying announcement this issue can be pushed aside, for now. Mario Monti, the Italian's technocratic Prime Minister, said this week that period of fear that his government is no longer solvent "appears to be over". Debt-to-GDP ratios in developed nations will continue to remain high as growth slows and fiscal consolidation remains tough. However, the market now apparently has the backstop it has wanted since the beginning of the financial crisis.
Although this assertion could well end up being a prime example of "famous last words", I think the laser-targeted focus on European bond markets will decrease over the coming months.
It has always struck me as peculiar that reports of bond auctions were, for a two month period, top-line news material. Of all the events in the world of financial markets, bond auctions have to be one of the dullest. How things change.
My belief that auctions will start to garner less and less attention comes from two specific factors. Firstly, most European nations that have been under the spotlight through the summer have now completed the majority of their funding needs for the year. The most closely watched at the moment is Spain, but they have already sorted out 81% of the funding for the year. The rest is still at the behest of Spanish political intransigence, but recent auctions have suggested that the desire to hold Spanish paper is the strongest it has been for a while.
This probably stems from the second reason. I know people in my profession harp on about the ECB's bond buying program as being a 'game-changer'. The fact is that it has brought the stingiest of central banks into line with most of the others is a defining shift in the crisis, and underlies the ECB's commitment to Europe.
The support of a central bank which is willing to spend money has prevented serious further depressions in the UK, US, Japan and China to name but a few. Finally the ECB has come to the party.
So if bond yields were the 'canary in the mineshaft' earlier this year, then what might be moving into the spotlight next? I would like to volunteer nothing more complicated than humble data from the manufacturing sector.
Of the main three sectors in a developed economy (services, manufacturing and construction) manufacturing is the one to show the signs of a slowdown first. The reason is simple; retailers and wholesalers cancel or reduce orders in the face of slowing consumer demand and work instead from stockpiles of goods. This leaves the manufacturer's machines idle and output slips from there.
Last week saw a wave of poor manufacturing data from the Eurozone as industrial centres slowed through August. Waggish and cynical voices will suggest that this is merely a result of the fact that nobody on the Continent does any work in the summer, in manufacturing or otherwise. And that may or may not be the case. We hope it is. However, if it isn't then expect further chatter about yields of a different sort in the financial bulletins to come this autumn.