Today's German bond auction reveals how deeply contagion fears have spread into the heart of the euro zone -- and why it is necessary for the Federal Reserve to test U.S. banks for exposure to this side of the world's credit markets. Local analysts call the $8 billion sale of 10-year German bonds a "disaster" because while the flight to relative safety has pushed yields to a low of 2%, relatively few banks were willing to buy. The central Bundesbank ended up eating a full $3 billion of the offering, revealing just how careful European banks have become with their capital. Meanwhile, on this side of the Atlantic, the Federal Reserve is making sure that U.S. institutions can withstand a sustained crisis. The results will not be ready before next year, so whatever happens, the Fed evidently does not think the odds of a full-fledged implosion in the euro zone are big in the immediate term.
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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.