Here's Why Italy's CDS Are The Biggest Risk For The Eurozone

Tyler Durden's picture

Much hollow rhetoric has been uttered about the vast existential threat presented by Greek CDS. As we have reported, Greek CDS is the least of Europe's problems. When it comes to the stability of the European dominoes, it is and has always been about Italy, which is not only the second worst country in Europe after Greece on a debt/GDP basis, and also the country with the largest amount of nominal debt, but more importantly has the largest amount of net CDS outstanding. All this is summarized on the Bloomberg chart below.

What the market is most confused by is that Spain, which everyone thought would be the next to fall after Portugal, yet which in the Cajas has the same GSE-type structure that provides a natural buffer to a housing system that is getting destroyed by its own Option ARM implosion (unlike the US' Liebor, Euribor is at 1.593% and making adjustable mortgages quite painful), the bond vigilantes decided to go straight to the gateway to Europe's core. Italy. So ignore whatever the PBoC is doing with the EURUSD, and Brian Sack is telegraphing with his ES ramp into the close: the truth is Italy is on the verge, and with all communicating vessels, the pain is only just beginning as Europe will find out very soon: as the chart below shows, there is a doozy of Treasury issuance about to be unleashed by the Italian Treasury.

Bottom line: the Italian CDS is not so much an aggregator of risk, as a beacon of where investors think risk will emanate from next. Although, to be fully objective, the biggest surge in recent months in net notional has not been at Italy, nor Spain, nor any of the other PIIGS, but.. France.

There is, however, one country that is missing from the Y/Y surge comparison. The United States of America.

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mayhem_korner's picture

So with France in the mix, do we get F-PIIGS...

...and with the US, do we get FU-PIIGS?

camaro68ss's picture

bail them bitchez out! we need to rally on!

Highrev's picture

Nice to see some focus (someone send the rating agencies a note on the subject).

It really helps.

As does objectivity.

Speaking of which, have we seen any ZH mention of the extremely light volume on today's melt "down"?


Don Quixotic's picture

No. I asked about this earlier as well. The slow pace of trading was downright suspicious today. While it may just be coincidental or a problem with my rig I'll also point this out: the most basic (and free) tools are not reporting today's volume right now. This may change momentarily, but shows no volume bar for $spx. Google Finance shows yesterday's volume for .inx. Yahoo Finance will show that volume was bottomed out for the whole day except a spike right at the open but will not show the aggregate volume for the day. Like I said, this may just be a temporary something-or-other and I don't want to get my tinfoil hat out just yet; but, it's annoying the hell out of me since I watched the volume all day and it didn't even come close to being even nearly almost 1 billion shares traded for the S&P. Furthermore, JPM and C (I'm sure there may be others that I didn't catch as well) had volume that was laughably below their averages. 

Someone, please say something about this. Tyler, please tell me what happened today. I don't have the tools to investigate, but I do have the eyes to observe it. It just didn't feel right. Mr. Tyler Durden, I wait for word about this mystery. Please illuminate. I am inthe dark.

Don Quixotic's picture

OK, let me retract that partially. Stockcharts now has volume up there, but it is significantly higher than what they were showing throughout the market day. Apparently, Google Finance and Stockcharts had the same glitchy info. Volume was not actually that bad for the S&P. 


Youri Carma's picture

In Hedge Fund terms Fuck the PIIG's.

old naughty's picture

you left out it is FUUK-PIIGS

snowball777's picture

You left out it is FUUK-US-PIIGS.

Nout Wellink's picture

If you add China and Kameroon as well, you know what is going to happen to Europe :-)

carbonmutant's picture

Berlusconi attack on Tremonti is the tip of the iceberg...


Arius's picture

w/ tremonti's heart condition thats a dangerous game he is playing ... a smart tax guy would call it quit ...

mayhem_korner's picture

At some point, isn't some nation going to just call the whole slow-motion-train-wreck off and go postal via invasion or carpet bombing?

Non Passaran's picture

If they are led by geniuses such as yourself that, sir, is indeed a possibility.

treemagnet's picture

Does each country get their respective "15 minutes" or do the dominoes just start falling?

carbonmutant's picture

They gridlock internally over how to allocate dwindling resources...

and then like a top that's lost its spin they fall over.

Misean's picture

"the bond vigilantes decided to go straight to the gateway to Europe's core."

The allies tried that. It didn't work out so well...

"the biggest surge in recent months in net notional has not been at Italy, nor Spain, nor any of the other PIIGS, but.. France."

Yeah, that route worked out a bit better...just sayin...

AldousHuxley's picture

Euro-peons, don't hate on slant eyed Chinese for now they own you.


the tower's picture

No-one owns Europe... you still do get it do you...

Atomizer's picture

A little background music while your reading article.

Johnny Cash - Ring of fire


Caviar Emptor's picture

But but...can't we lie our way out of this one too?

Say what you will, but we got some of the world's great liars assembled in the ECB and the Fed these days. Hehe even the politicians get baffled! 

So with the combined lying power of the ECB, Fed, IMF, Euro and US politicians, you would think we could just get through another debt crisis one more time

Ghordius's picture

Yes! What is economy: the cooperation of individuals toward a lie: a goal in a future that might exist...
Good liars vs trembling lips...

Caviar Emptor's picture

Yes! But the success of the economy depends on the ability of the liars to stay one step ahead of the truth and the skeptics. So we need really, really olympic level liars to have a great economy. We're in trouble now because these guys started believing their own lies in 2005-2008. "The fundamentals of our economy are sound". And Bernanke thought he could have prevented the Great Depression from his computer, so he got overconfident. Now they realize they have to start lying really well again

coppertop's picture

vague, nonspecific, disorganized

jeff montanye's picture

vague and nonspecific are near synonyms.  redundant.

snowball777's picture

Or just billions upon billions of really stupid sheeple.

GeneMarchbanks's picture

Who were the underwriters on the Italian CDS? I'm actually asking, not being coy. Surely the US banks have some exposure here,no? Tyler?

Milstar's picture

It's almost impossible to say without some entity making an annoucement that they are holding the bag.  That will never happen.  CDS's can be created and then sold to other entities so who knows who has what until they are cleared.

snowball777's picture

The president would like to order a pepperoni and mushroom cloud. ;) (My dad worked at Teledyne back in the day)

baby_BLYTHE's picture

It's hard to keep sinking ships afloat

NotApplicable's picture

I wonder how much of the France CDS increase has to do with failing to conquer Libya?

Caviar Emptor's picture

Look, US consumers, if you promise to max out all your credit cards at the mall this weekend, then we promise you we'll take care of the banking booboos

bobbydelgreco's picture

this is huge!! western civilzation started in italy & its end begins in italy

richard in norway's picture

someone said that about greece last week


anyhow it's so euro centric

THE DORK OF CORK's picture

I always thought Italians had low private debt levels !

Whats the total private debt in Italy ?

coppertop's picture

its tough to engineer cross collateral loans in Bulgarian

Traianus Augustus's picture

I want to give a big round of applause to the Markit team that posts their Peripheral Sovereign CDS Pricing table on FT Alphaville!  They are clearly doing their part by not updating the spreads all day today.  I wonder if they got a call from Timmy to just stale it and call it an early weekend!!!

YesWeKahn's picture

Bernanke will print all that, no worry.