Sovereign Debt

Who's Most Afraid Of Contagion From Italy's Bank Meltdown?

Contagion is the reason Italy’s banking crisis is all of a sudden Europe’s biggest existential threat. Greece’s intractable problems are out of sight, out of mind; Brexit momentarily spooked investors and bankers; but Italy’s banking woes have the potential to wipe out investors and undo over 60 years of supranational state-building in Europe.

70% Of German Bonds Are No Longer Eligible For ECB Purchases

The surge in sovereign debt since Britain’s vote to exit the European Union last month has pushed yields on about 70% of the securities in the $1.1-trillion Bloomberg Germany Sovereign Bond Index below the ECB’s -0.4% deposit rate, making them ineligible for the institution’s quantitative-easing program. For the euro area as a whole, the total rises to almost $2 trillion.

With Over $13 Trillion In Negative-Yielding Debt, This Is The Pain A 1% Spike In Rates Would Inflict

There is now $13 trillion of global negative-yielding debt. And, as the WSJ writes, even a small increase in interest rates could inflict hefty losses on investors. With the 2013 "taper tantrum" the Fed sparked a selloff as it discussed ending its bond-buying program known as quantitative easing. A repeat "would be very painful for a lot of people" said J.P. Morgan. This is just how painful.

When Narratives Go Bad

There’s a … tiredness … to the status quo Narratives, a Marie Antoinette-ish world weariness that sighs and pouts about those darn peasants all the way to the guillotine.

The Reason For The Relentless Scramble For US Corporate Debt In One Chart

While the $5.9tr US IG corporate bond market represents only 12% of that global market, it is now responsible for 33.0% of its total (effective) yield payment. In other words, nearly one in three (global) dollars paid out in the global IG broad market is paid to investors in the US IG corporate bond market.

"We've Never Had A Shock To The System Like This" - Global Selloff Accelerates On Brexit, Italy, "Unknown" Fears

The flight to safety following last week's quarter-end window dressing is accelerating, with constant news and flashing red headlines of record low yields across DM government bonds once the norm, and as of moments ago Denmark's 10Y bonds joined the exclusive club of sub-zero yields; gold has soared to fresh multi-year highs above $1,370, the risk-off currency, the Yen, soaring and sending the USDJPY just above 100, while sterling crashed overnight once again below 1.27, levels not seen since 1985.

Price Discovery - R.I.P.!

But the destruction of price discovery in the sovereign debt market is not simply an academic curiosity to be jawed about by the few remaining fiscal scolds in the world. To the contrary, it is already having massive toxic consequences in the arenas of fiscal governance and capital markets alike.

The Italian Job: "How Did Things Go So Bad?"

How on earth did things go so wrong? Could it be as simple as power-mongering and greed? To rob a line from the 2003 Italian Job, “There are two kinds of thieves in this world: The ones who steal to enrich their lives, and those who steal to define their lives.” Could it be that average working Italians, especially those who have been around for a good long while, feel as if they’ve been victims of both of the two kinds of theft, doubly wronged? “Basta!” their voices scream in defiance. Enough is enough!

JPMorgan Lays Out "The Worst Case"

"Longer term the implications for markets could be more serious. Investor positioning during the euro debt crisis can be thought of as the worst case for markets in the current conjuncture.  It would require another 10% decline in global equity indices from here, for the equity weighting of non-bank investors in the world to return to euro debt crisis levels in a worst case scenario. Such a decline would also push the current bond allocation of 22% to above the 23% peak seen during the euro debt crisis."

Stockman: "At Last The Tyranny Of The Global Financial Elite Has Been Slammed"

At long last the tyranny of the global financial elite has been slammed good and hard. You can count on them to attempt another central bank based shock and awe campaign to halt and reverse the current sell-off, but it won’t be credible, sustainable or maybe even possible. The central bankers and their compatriots at the EU, IMF, White House/Treasury, OECD, G-7 and the rest of the Bubble Finance apparatus have well and truly over-played their hand. They have created a tissue of financial lies; an affront to the very laws of markets, sound money and capitalist prosperity.

"Today Is The Appetizer For Monday"

"Monday is where we’re going to see a truer-look at “where the bodies are buried” and a more accurate “price discovery” process than what we’re seeing today (as we’re washing out all the delta one flows which are dwarfing client trading)…lots of discipline being displayed thus far, with low turnovers and folks not chasing.  "