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Going bust is painful. But when you are a country it is particularly awful.
While people and companies have recourse to established legal frameworks that govern their bankruptcies, struggling countries have to tackle debts in what is close to a legal limbo.
As a result, both countries and their creditors are uniquely vulnerable. The former have no formal bankruptcy protection that it can use for an orderly restructuring of its debts, but the latter have few ways to compel a stubborn state to heel (at least in the post-gunboat diplomacy era). The result is a delicate balance — and when it breaks down, it can lead to an unholy mess. Read more
The presentation deck for the €5bn plan to prop up Italy’s weaker lenders has leaked to Economia Il Messaggero. Click to read:
Spoiler alert. In this guest post, former IMF staffer Peter Doyle, argues that some participants in the on-going Greek crisis might be suffering from anosmia…
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Take a good long look at this map:
Handy chart from CreditSights illustrating the changing fortunes of euro area households over the past couple of years:
Ahead of the announcement of details for next week’s Italian Treasury auctions later on Wednesday, a reminder that the debut of the 7 year Italian BTP may be worth keeping an eye on.
Launched in October, sales have been by syndication so far, so it will be the first auction for the maturity. Details of size will be out tonight. But in advance of that, Barclays note a small technical positive on the timing. Read more
Presenting Italy, a central plank in the argument for a new vLTRO or at least an extension of what we already have:
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
Nothing like taking the long view – such as this snapshot of Spanish, Portuguese and Italian 10 year paper, over 150 years. Click to enlarge
Bond yields in the eurozone are hitting new lows not seen since 2010…
File under: Argentina’s battle with its holdouts and the effects thereof on pari passu clauses in sovereign bond contracts elsewhere in the world — with a special crossover to the changing legal status of official lenders in the eurozone crisis.
Spot the difference edition. Read more
William Porter at Credit Suisse has been mulling the market’s muted reaction to the Italian elections. Increased stress is no longer finding its way into widening spreads, thanks to the Draghi “put”.
This credit strategist is concerned. A dampened signaling mechanism increases the risk of something going badly wrong — a market crash, even. Read more
Some thoughts from Beppe Grillo (really):
I’m here on the settee at home. They’ve made me lie down. They don’t want me to have any upsets. They’ve covered me up with one of those checkered rugs. Outside there are the floodlights beaming in through the bathroom window. I don’t know what they want to see. This adventure that we’re having is fantastic…
The political picture in Italy is looking deeply uncertain. We all know that.
But what’s possibly more interesting is the scale of the market reaction to that uncertainty. Read more
In terms of providing certainty, it’s hard to see how the Italian election outcome could have been worse.
From the FT: Read more
No sooner had Italian stocks soared and bonds tightened (sic) on early exit polls suggesting Pier Luigi Bersani’s centre-left Democratic party might have secured victory in both the lower and upper houses of the Parlamento Italiano, than…
World’s oldest bank puts out a late-night statement confirming “the presence of errors” in three structured transactions. Click for the full release… (it’s in Italian)
On a generally crappy day for equities and bonds across all the big western markets, Italian stocks stood out:
A riddle, wrapped in a mystery, inside an enigma, inside a pari passu clause.
Here are some terms from Italy’s 2015 US dollar bond, which it issued under New York law in 2010. It is a pari passu clause, even though you won’t find the words ‘pari passu’. Read more
Mario Monti, the saviour of Club Med, is walking and Italian bond yields are waving him off. Here are the 10-year and 30-year BTPs, with dramatic spikes:
Another day, and another confirmation that the eurozone economy is struggling to gain traction. And it’s not just the small peripheral economies that are seeing factory activity slowing.
Markit’s Eurozone Manufacturing Purchasing Managers’ Index (PMI) fell to 45.4 in October from September’s 46.1. The October figure was just up from an earlier reported flash reading of 45.3. The index has been below the 50 mark that divides growth from contraction since August 2011.
That’s Spain’s 10yr spread over German Bunds dropping below 400 points for the first time since the start of April:
Spanish 10yr fell to 5.547 with Bunds touching 1.5864.
Probably something to do with Moody’s qualified endorsement: Read more
That’s the FTSE 100 down 1.2 per cent:
How much longer does this go on?
Spanish 2-year bond yields at 2.9 per cent – down from 6.6 per cent when we first said there was something to what Draghi was saying about convertibility risk. The Italian 2-year’s at 2.3 per cent. Longer-maturity debt has also rallied, despite falling outside the remit of the European Central Bank’s OMT purchases. Read more
“Was today the day that the Portuguese PSI began?,” Macro Man asks, of the OMT.
They’re noting something curious about ECB seniority in light of Thursday’s revelations about the OMT. The ‘technical features’ confirm that the OMT will receive equal treatment with ordinary bondholders if a eurozone sovereign restructures its debt. But, in the Q&A, Draghi also confirmed that the old SMP bond holdings will remain senior. It will be first in the queue, ahead of bondholders and the OMT. Read more
Let’s start on a positive note on the volley of Markit PMI released Monday.
Spain’s PMI rose during August to 44, versus 42.3 in July… Read more
Steven Major, fixed income strategist at HSBC, has a remarkably sunny note out on the prospect of unlimited bond market intervention by the ECB, driving short term sovereign yields significantly lower.
Here are his seven steps to a definitive crisis solution… Read more