Italy Succeeds Placing 1 Year Bill As ECB, China Buying Bonds In Secondary Market

Tyler Durden's picture

One of the main catalysts for today's European market action was the Italian 1 year Bill issuance which was supposed to set the tone for Italian bond demand, especially since thanks to ISDA's stupidity (which had made it clear CDS will not trigger in any event as the organization is completely spineless), there is no reason to any longer hedge a negative basis at issuance. Well, Italy did pull it off, although at terms that a month ago would have inspired shock within the market.  "The 6.75 billion euro sale was the first test of appetite for Italian paper since a surge in nerves that it will be next to fall in the euro zone's debt crisis due to domestic political tensions and a combination of high public debt and low growth. The gross yield on the 12-month BOT bills rose to 3.67 percent from 2.147 percent at a previous auction in June. This was the highest level since September 2008, according to Reuters calculations on Italian Treasury data. The bid-to-cover ratio fell to 1.55 times from 1.71 in June, when the treasury sold a slightly lower 6 billion euros in total." However, even this data was very suspect after 10 Year Italian-Bund spreads hit a new record wide of 355 bps earlier as the Italian contagion is now fully on. In response, both the ECB and China are now rumored to be scooping up all peripheral bonds in the secondary after a long hiatus as the ECB is on the verge of panicking, side by side with European bond investors, following remarks by Dutch Finance Minister De Jager who said, as predicted yesterday, that a Greek selective default "Is not excluded anymore."

Some comments on the bond auction from Reuters:

"Italy has sold the target amount, which should give the market some relief in the very short term," said Peter Chatwell, a rate strategist at Credit Agricole.

"The yield is much higher than June's auction, reflecting the recent hammering the Italian credit has suffered."

Elsewhere Greece raised 1.625 billion euros in an auction of six-month T-bills on Tuesday to roll over maturing short-term debt, paying lenders a slightly lower yield than in a similar sale in June amid rising debt concerns. There were less foreign investors participating in the sale than a month ago. In other words, the ECB just got more pregnant as more Greek banks "bought" debt only to immediately pledge it back to the ECB in exchange for much needed par capital (despite that the CTDs are trading below 50 cents).

Bottom line: this is just the beginning. And to antiparaphrase Cramer, "Europe is not fine."

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Broomer's picture

Advice to Italians: get long 500 lire silver coins.

Gandalf6900's picture


hahaha I still have them from the pre 2000 era

Durchbruch's picture

this morning I was in a small italian bank in a small village, and there were lay people - Average Joes - buying hundreds thousand euro of banks stocks. 

Josephine29's picture

The problem with the European Central Bank firing up its Securities Markets Programme is that it spent 77 billion Euros last time and even then things got worse... As for Italy this analysis explains her basic problem.

The Italian problem


If we go back to the inception of the Euro it was Italy that was always expected to be the problem child. This problem was often expressed by describing Italy as a high debt-low (economic) growth economy which if you think about it had the implication that sooner or later the growth would prove insufficient to support the debt. If Italy was a boat it would be one with a high waterline prone to being swamped by waves.


If we break that relationship down and just start with the debt side of the argument we see that the gross Italian national debt is nearly 120% of its economic output as expressed by its Gross Domestic Product. The benchmark for a country which has issues in this area is usually considered to be 100% so, as I replied to a comment over the weekend, the surprise is not that Italy is under pressure now but that it has not happened before.


Also the debt has arisen because Italy’s government has simply spent a lot more than it has received in taxes. Before you point out I am stating the obvious what I mean by this is that there has been no specific cause such as a housing crisis (Spain and Ireland) or bank blow-up (Ireland) but a generic one of over-spending. If there is a similarity to the countries in trouble right now it is with Greece’s inability to fully collect its taxes as Italy has issues too in that area.

Broomer's picture

Italian national debt is nearly 120% of its economic output as expressed by its Gross Domestic Product. The benchmark for a country which has issues in this area is usually considered to be 100% so, as I replied to a comment over the weekend, the surprise is not that Italy is under pressure now but that it has not happened before.

Well, they have a lot of gold. Now that they no longer control their money, their gold is in line for confiscation.

Sudden Debt's picture

whenever the 10yr goes over 5% it's over.

It's at 5.733%...


European authorities need urgently to increase the size of resources available to indebted European countries faced with liquidity problems if they want to avert disaster

Why not just burn the money and get it over with?


Ghordius's picture

This month is only a warmup.

30bn in August, 60bn in September.

Once (oh, in ZH I'm supposed to say IF) this is rolled over the "Italian Crisis" is over for a while...

Sudden Debt, what if in a few years 8% for a 10y looks "normal"? ;-)

ZeroPower's picture

"We have time on Greece. The next tranche is due in September," German Finance Minister Wolfgang Schaeuble told Deutschlandfunk radio.

Was good for the boost back above 1.39 his morning. lol.

Oh regional Indian's picture

And also does a great, perceptual can-kick ZeroP/

Italy is off the table till Spetember.

Now let's all watch Spain as it first bankrupts South America, starting with Argentina, via Santandar.... then folds at home! And all this is probably weeks away.

As is September. What a show!



Sudden Debt's picture



50$ for a front row seat*

40$ for a back row seat*

6000$ for a seat in the Italian loge*

500$ for a ticket to LaLaLand


*no payments in euro's are accepted due to technical difficulties with the payment terminals.


PaperBear's picture

Silver get whacked again down to $34.79/oz from $35.97/oz.

Keep stacking the physical silver, this is only the paper price.

Sudden Debt's picture

In Europe, silver is up 1 euro.


Zero Govt's picture

the ECB buying Bonds in the secondary market could not be construed as a bailout because that's illegal under the EU Constitution

..and indeed we've had no Euro-bailouts because it is illegal under the EU Constitution

Glad we're crystal clear that nothing illegal is going on (Govts cooking books, exceeding their EU committed deficit to GDP ratios and illegal bailouts aside)'s looking good here in the Euro-Crime Zone

Sudden Debt's picture

I have to appear in court next week because I drove 164km where 120km was allowed.

the justice system works...



Zero Govt's picture

are you referring to Spains new "save fuel" lower motorway limits?

F1 driver Alonso said people would "fall asleep"... we buy petrol out of our own pockets and can presumably burn it how we see fit.. the capacity of politicians to patronise, mangle and talk undiluted crap is limitless ...Spains traffic management is the worst in Europe, control-freak fascism-Marxism

Sudden Debt's picture

You can never claim to be the worst in Europe...

Whenever you think you're the worst, there always jumps out of a box who is 10 X more worse.


Oh regional Indian's picture

And don't forget that the hand of God is behind italy.

The Vatican will back-stop and string pull and fund raise for Italy. They cannot watch their own festering house of "God" get harmed can they?

Whack whack. And to think a few of Gaddafi's agent provocateur's are in the EU right now.

Not pretty thoughts or times.

Ghordius's picture

ISDA Stupidity? ISDA Stupidity?? ISDA Stupidity!

Come on! The whole concept behind those derivatives is deficient! Sorry, I would outlaw every product on their list...

YHC-FTSE's picture

Perhaps my gin and pimms soaked grey matter is too addled during our short Summer to properly engage with the problems of ponzi economics, but WTF? Looking at the convoluted debt dance around the PIIGS maypole, one has to wonder where the hell did the Italians spend 120% of their GDP? I haven't seen any grand engineering projects, new investments in industry, or social engineering strategies to improve the average Italian life. Where the hell did it all go? Surely Burlosconi's teen prostitutes cost no more than a couple of grand a pop. 


(Talking of prostitutes, what's with the constant elitemeeting adverts on ZH? It's a bit downmarket and you would have to be mad to sign up with a dating agency that positively encourages gold diggers.)


Anyway, it's a global game of musical chairs where the winner ends up holding the bag of worthless debt while everyone defaults. The whole thing is so crazy, the old Monty Python team should make a film about it.

papaswamp's picture

3.6% for a 1 yr?! wowza....Germans are going to be pissed when they are the ones that will have to pay that off. No way the Italians will have the ching.

oogs66's picture

saved by the ECB and China? 

Gandalf6900's picture


pasta anyone?!?!

steve from virginia's picture

Tyler, you left out the, 'from the 'Throwing good euros after bad' department' part.