Official bond buying double-edged sword, says Societe Generale, calling it a major risk event of early 2013 for euro area sovereigns. In the first instance, investors will want to ride the wave of ESM/OMT buying, says SocGen strategist Ciaran O'Hagan. Adds that, as for the ECB's previous SMP program, yields will fall sharply and 3-year Spanish bond yields could fall to close to 2%. Current 3-year Spanish benchmark, maturing Oct 2015, is trading at mid-market yield of 3.61%, according to Tradeweb. "Yields will stay low as long as the authorities indicate their willingness to buy all that investors have to sell," says O'Hagan. This will necessitate in turn a large socialization of sovereign risk, and pose large political risks, he says.
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