In January, we discussed the stunning fact that Spain's social security pension fund was 90% allocated to Spanish sovereign debt. The latest data shows that this farcical epic reach-around has become even more ridiculous as, according to Bloomberg BusinessWeek, the fund's holdings are now 97% weighted to sovereign bonds. The fund purchased about EUR20bn of Spanish debt last year, while it sold EUR4.6bn of French, Dutch and German bonds. More than 70 percent of the purchases took place in the second half of the year, after Draghi's 'promise' to "do whatever it takes" moment.

It appears, since the Spanish government does not explicitly have its own Fed to monetize debt, that it has merely plundered another quasi-governmental entity to do the bond-buying reach-around. The fund, which was profitable last year on this bond-buying in its self-sustaining way, still contributes 1% to Spain's deficit as contributions to the fund are outweighed by the benefits paid.

Rules have been changed to enable this drastic concentration but at 97%, it is perhaps no wonder that Spanish bonds have been more volatile in recent weeks - as the implicit government buyer is now almost all-in. The potential for a vicious circle here is immense - but perhaps that is the point, more TBTF sovereigns for Draghi to deal with.





Via Bloomberg BusinessWeek,