The Italian government has not collapsed in a flurry of post-bunga bunga recrimination, at least not yet.
With the ECB standing ready, the debt markets are calm, and investors in the banks are feeling good about improvements in asset quality and the direction of earnings. Read more
The first LTRO repayment opportunity is fast approaching. David has already considered how it may or may not impact European lending rates, including the chances of Eonia rising significantly if the repayment is larger than expected.
Yet as we also noted, this is hardly the key concern. Read more
This pic begs a caption competition:
Something strange is up in the world of ‘General Collateral’. And since eurozone funding markets are increasingly dependent on collateralised rather than unsecured loans, these are important developments that could be influencing rates elsewhere.
Nothing tells the story better than these charts, courtesy of Icap — a key repo market broker. What they pinpoint is a seemingly diverging attitude towards the various bond markets that make up so-called general collateral (GC) in the Eurozone, as far back as July this year: Read more
Silvio Berlusconi looks posed to pass over the rains to a caretaker government lead by Mario Monty, a former European commissioner, rather than continuing to push for early elections, reports the FT. After an announcement by LCH Clearnet SA on Wednesday morning that margins on Italian bonds would be increased, yields on Italy’s 10-year bonds reached record highs as did the spread over German Bunds. On Thursday morning, yields had fallen, but not to a level viewed as sustainable by many economists. Italy’s Senate, meanwhile, is rushing to pass reforms that will see asset sales and an increase in the retirement age in order to rein in public debt, reports Bloomberg. The budget measures had originally been touted at a summit on October 26th as a result of pressure from other eurozone countries, notably France and Germany.
In addition to spiking yields, seems like the critical issue with the Italian bond market on Wednesday (at least as quoted by Reuters) is that there is little to no volume going through some issues.
That would be critical issues like the December 2012 BTPs, the mainstay of MF Global’s ill-fated trade. Read more
… to explain Tuesday’s morning’s price action in European equities, which have moved higher in spite of rising Italian bond yields.
Italian bond yields rose to new euro-era highs as worries about a disorderly Greek default hit sentiment, the FT reports. Italian 10-year bond yields rose to 6.399 per cent, while the extra premium the country pays over Germany jumped to 459 basis points. The growing worries over Greece could undermine key government bond auctions later on Thursday, with Spain due to sell a total of €4bn in 2-year and 4-year notes and France planning to raise €6bn-€7bn in 10-year and 15-year paper. Italian yields and spreads over Germany are around levels at which markets believe make the country’s debt payments unsustainable and could trigger extra margin payments for the use of Rome’s bonds as collateral. Markets consider yields of 6.5 per cent unsustainable on 10-year debt, while spreads above 450 basis points over Bunds have in the past prompted clearing houses to charge extra margin payments for Ireland and Portugal. LCH.Clearnet, for example, considers 450bp over a basket of triple A countries a point at which extra fees may have to be charged.
Silvio Berlusconi failed on Wednesday night to overcome internal government divisions and push through immediate legislation on structural reforms ahead of Thursday’s G20 summit, the FT reports. Italy’s prime minister had hoped to have a decree agreed by the cabinet in his hands to take to Cannes and to calm markets that have pushed Italian bond yields close to euro-era highs. But government sources said disagreements between Giulio Tremonti, the finance minister, who is insisting on fiscal discipline, and Mr Berlusconi, who was backed by other ministers, prevented a deal from being reached. Instead of a decree that would have entered into law almost immediately with the signature of the head of state, officials said the cabinet agreed to introduce certain measures into a financial stability law that is already before the Senate but could take two more months to be approved.
The Chinese are supposedly on their way to rescue Italy from its bond market problems.
As the FT reported on Monday: Read more
Attention algobots, headline traders and French regulators.
In this post we are going to direct readers to some publicly available information about Lyxor’s (Societe Generale’s asset management arm) fixed income ETFs. It’s a point that possibly applies to other European synthetic providers too. This information has been publicly available for a long while. It is in no way unusual or suddenly available. We just thought it might be interesting to highlight. Read more
Spanish and Italian politicians rushed to formulate a fresh response to the debt crisis engulfing the two countries as their borrowing costs climbed above 6 per cent to euro-era highs, the FT reports. José Luis Rodríguez Zapatero, Spain’s Socialist prime minister, delayed a planned summer holiday amid growing fears Madrid could become the latest European government to require a bail-out. In Rome, Giulio Tremonti, finance minister, and regulators convened an emergency session of Italy’s Financial Stability Committee. He is due to meet Jean-Claude Juncker, head of the group of eurozone finance ministers, in Luxembourg on Wednesday. Separately, the FT says the market pressures have forced president Silvio Berlusconi to defend his economic policies, and he will address both houses of parliament separately on Wednesday. Reuters says investors will look past UniCredit’s expected higher second-quarter net profit on Thursday to focus on the reaction of Italy’s biggest bank to the sovereign debt crisis it and other lenders are enduring. Along with other Italian banks which have big holdings of Italian bonds, UniCredit shares have been punished as sovereign debt yields rise.
Because some day you might want a detailed breakdown of how Europe’s banks are accounting for their Greek, Spanish — and even Italian — bonds, here’s a helpful table from Deutsche Bank.
It comes from Mohit Kumar and Abhishek Singhania, who’ve crunched the stress test data: Read more
… is not until a whopping 300 bps rise in interest costs across the yield curve, from today’s levels, according to Morgan Stanley.
In a note out Wednesday MS’s Daniele Antonucci and Elaine Lin ask how sustainable is Italian government debt? Read more
We know that Italian bond yields reached record highs last week.
But did you know that the country made some CDS history too? Read more
Italian jitters, alas, have not dissipated on Thursday. The sovereign was forced to pay severely high yields (some at records) on the sale of nearly €3bn in new bonds, in what many described as a make-or-break test of investor confidence for the eurozone.
With that in mind, it’s about time we got our hands on the now traditional “who’s exposed to xxxx” figures. Read more
Some EU countries are still in the process of preparing remedial measures should their banks fail the latest round of sector-wide “stress tests” when the results revealed to the public on Friday, the FT says. Jacek Rostowski, the Polish finance minister who chaired Tuesday’s meeting of EU finance ministers in Brussels, said afterwards that the so-called “backstops” – plans to address any problems – were “either ready or in the process of being prepared”.
Remember when investors used to think German debt was riskier than Italian debt?
Bank of America Merrill Lynch does: Read more
The benchmark yield on an Italian 10-year reached 5.718 after the largest one-day fall in the bond’s value since 1994.
US hedge funds are placing large bets against the value of Italian government debt, directly shorting the bonds of the eurozone’s third-largest economy, the FT says. The funds have increased the size of short positions in the last month, speculating that investor concerns over the country’s ability to fund itself may spread from Europe’s periphery to Italy, according to investors in the funds briefed on the strategy. FT Alphaville notes that in recent weeks, Italian bonds are reacting more to eurozone stress than Spanish ones. Reuters adds shares in Italian banks, some of the biggest buyers of the country’s debt, are falling again on Monday morning. Meanwhile Bloomberg reports Consob, the Italian regulator, has moved to curb short-selling by ordering short sellers to reveal positions of more than 0.2 per cent.
It’s Europe’s least-loved debt, after Greek, Irish and Portuguese of course. It puts the ‘I’ and ‘S’ in the porcine periphery acronym we’re not supposed to say. It’s Italian BTPs versus Spanish bonos.
And Italian government debt, or Buoni del Tesoro Polianuali, has had a tough time of it lately. Read more
As we conveyed earlier, the single fact which has critically changed the nature of the current European debt crisis is the spread of contagion into the Italian government bond market: