Spain sold 3.16 billion euros of 12- and 18-month bills, less than its maximum target of 3.5 billion euros, the central bank said. The average yield on the 12-month securities climbed to 5.022 percent from 3.608 percent at the previous sale of the debt on Oct. 18. The 18-month bill yield climbed to 5.159 percent from 3.801 percent.

Spain is also planning to auction 4 billion euros of bonds due in 2022 in two days.

Greece sold 1.3 billion euros of 91-day bills at 4.63 percent, up from 4.61 percent at the previous offering. Belgium auctioned 2.73 billion euros bills, less than the 3.2 billion euros it planned to raise. The nation paid the highest yield in three years on one-year securities.

Monti struggled to form a Cabinet yesterday amid concern he will be unable to tame the sovereign-debt crisis. President Giorgio Napolitano offered him the post on Nov. 13, a day after Silvio Berlusconi resigned. He holds a final day of talks today.

Eoin Treacy's view The main question being asked by bond vigilantes is just how much money is the ECB willing to print? The Bank has been expanding its balance sheet since 2008. Initially it made unlimited liquidity available via the discount window to support the banking sector. Then it felt obligated to purchase, Greek debt. It next bought Irish and Portuguese bonds. Last week it purchased Italian bonds. So what's next?

Swap lines with the Federal Reserve were reopened to achieve these most recent purchases without having to call on European governments to supply the ECB with additional capital. Provided the ECB does not have to take a loss on its purchases, the swaps can be unwound and the balance sheet allowed to contract over time. However, if the ECB has to crystalise a loss in its holdings of sovereign bonds and/or the collateral it accepted via the discount window, it will need to sell high quality assets, such as German Bunds, demand more capital from Eurozone countries or print additional currency to cover the loss.

Greece is in the midst of a managed default. Holders, including the ECB, have agreed to at least a 50% haircut on their positions. Governments are wrangling over how the situation is going to be managed. Just about all governments now have to implement some form of austerity. Political upheaval, voter recalcitrance, deteriorating sentiment and slowing economic growth have all led to a situation where investors have run out of patience with the Eurozone.

I have previously posted charts of Greek, Portuguese, Irish, Italian, Spanish, Belgian and French bonds spread over German Bunds. There has been a commonality among these chart patterns with first one then another coming under selling pressure relative to Bunds. However, Austrian, Finnish and Dutch spreads are now also experiencing upward pressure and their chart patterns resemble those of the first group. This is an unsettling development. Compared to Germany these three countries might have smaller economies but they have similar fiscal conditions and their ability to pay their debts has previously been unquestioned. So what has changed?

The ECB cannot opt for quantitative easing without the approval of Eurozone governments because they will need to continue to implement austerity. This will create a transfer mechanism from the core to the periphery and needs to come into being if the potential for an inflationary outcome is to be lessened. At least part of the reason investors are now selling holdings in Austrian, Finnish and Dutch debt is because they are uncertain as to the outcome. In the event that quantitative easing is adopted, they will have to pick up the bill. Germany is currently being viewed as an exception. However, German debt will probably also come under selling pressure since it will need to bear the greatest share of the additional debt burden in a quantitative easing scenario. The potential unwinding of sovereign bond pairs trades could also put additional upward pressure on German yields.

EuroBund futures lost momentum over the last 10 weeks and at least partially unwound the overbought condition relative to the 200-day MA in the process. They have rallied back to test the upper side of the range below 140 and a sustained move above that level would be required reassert the uptrend. A clear downward dynamic would reconfirm resistance in this area.