Berlusconi Battered As Bonds Break 6%

Tyler Durden's picture

Presented with little comment as we note BTPs have broken the week's low prices and are significantly off their knee-jerk response highs.  It is clear that investors don't want to be too long BTPs into a weekend which will be full of research and thinking about reality as we broke the dismal Maginot line of 6% yield. Chatter of ECB buying came and went as it is very clear that managers and traders want out. The unintended consequence of banning CDS combined with an EFSF that is both self-referencing and paradoxically weakened as majors deteriorate is certainly not helping here.


And more broadly bonds are losing value in all but the most distressed as the contagion from the periphery spreads to the core:

Charts: Bloomberg

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Everybodys All American's picture

Unintended consequences.

FL_Conservative's picture

Some of the worst things imaginable sprout from the best of intentions.

gojam's picture

"self-referencing and paradoxically weakened"

A bit like a drawing by M C Escher.

eurusdog's picture

Yesterday on my twitter account, while watching the AUDUSD chart 15 hourly candles that can be intersected with a straight line (basically marching straight up) I said, this feels like falling up the stairs in an MC Escher drawing. These markets are nuts.

bob_dabolina's picture

I hear people who voted for Obama say the same thing.

pemdas's picture

Just watch MSNBC for a few minutes!  Everything is OK!!

mynhair's picture

What?  TZA -7.3%, TNA +.37%?

Back to normal.

Rimpinths's picture

I'm not sure where you're getting your quotes, but I think the closing spin on the consolidated tapes were all off last night for some reason. The latest trade prices are fine, but comparisons to yesterday's close (i.e. +/- %) are going to be screwy.

BW's picture

They only bought the bonds at the high prices if the CDS would pay them out.

Rover's picture

Looks like an FUSB

EL INDIO's picture

I think the black swan event that people have been waiting for is here. It is the destruction of faith on the CDS contracts. As zerohedge reported that’s what banks and other market participants use to manage risk and if this tool is now useless the only way to manage risk is by avoiding taking it and by dumping any risky assets (as explained by Tyler).

That’s why I think, this is it, they made their mistake.

Some people said we will not have a Leman moment because everyone is expecting it and they could be right as proved by Dexia going under but the authorities being able to contain it. They also prevented a sovereign default (for now) just like in Greece’s case (kind of). So the black swan event had to be something new which they are not able to anticipate and this CDS fuck up could be it.

Tsar Pointless's picture

Credit event.

What it would always take to drag us down into the depths of hell.

That's what this is. There was a bunch of handshaking going on Wednesday night by Europe's "leaders", because they know, they've been well taken care of and paid, and won't suffer as dramatically from the upcoming global depression and wars as we serfs will.

'Same as it ever was.' - Once in a Lifetime, The Talking Heads

drivenZ's picture

the board of ISDA is made up of the same banks that are using CDS...the ones getting screwed are a few hedge funds around the globe. not a black swan.  

Bringin It's picture

not a black swan - Maybe / Maybe not, but your missing the event.  If a 50% haircut is not a credit event that triggers CDS, then what good is the CDS?  What protection does sovereign CDS provide now?  Answer: None.

This might get interesting.

aleph0's picture

As I said yesterday ... ISDA 'later' announces...
"We have now had a rethink, and now declare 50% haircuts are in fact 'defaults' "

i.e. ISDA holds the blind card

Currently : CDS coverage doubtful = no insurance = dump the CDSs = dump doubtful bonds

Ned Zeppelin's picture

I realize that common sense is irrelevant, but if ISDA is controlled by the banks, and the banks are in fact the issuers of the CD protection on sovereign bonds, then it makes sense that they would be declared "not triggered." Banks, like any insurer, want to keep the premiums flowing, and minimize payouts. But then as this fact becomes known (the "good luck collecting realization" by holders of CDS protection), then you'd think the CDSs themselves would decline down in value, not due to fluctuations in the market's perception of the sovereign risk as to which protection has been purchased, but rather because the product itself isn't what it purports to be - i.e., it is utterly useless for hedging purposes. If it's not useful or meaningful for that purpose, why own it?

The answer I guess is that it is not seriously used for hedging purposes by owners of sovereign bonds. Rather, it is purely a casino game, or a tasty filling for synthetic CDO type arrangements.  But if the House never pays, why play? The ultimate casino - never a payout. Not only does the House win in the long run, it wins in every event.

aleph0's picture

Yes, that was part of my point .... Clear the CDSs out of the system.
How convenient .
AFAIK, that first statement by ISDA was an opinion and not an "official" announcement; hence the doubt und uncertainty (FUD).
i.e. they could still change their mind if it suits them.
When would it suit them ? ... when the 'right' institutions (LOL) are holding the right cards ( cheaply bought ´CDSs in this case ).
Could/Would that happen .. we'll see ... I am more than curious !

Addendum : will we get 'legal' action from the holders/losers of CDSs ?

slackrabbit's picture

Bang on!

In fact in someways the 'uncertainty' of cds is worse.

If you ban short selling, then that is bad enough, but  you know where you stand. However, when your cds 'depends' upon the whimsical decision of whether the default was 'voluntary' - its becomes a complete unknown.

Chaning the rules is on thing, having the rules made up by them as you go along is just complete chaos / uncertainty

StychoKiller's picture

Time to take your CalvinBall and go home...

K_I_T_T_Y's picture

and Italy's debt is not the worst one if we consider debt of the private economy.... Berlusconi simply had to shut up and not criticise Tremonti...


Ghordius's picture

"if we consider debt of the private economy"

are we still about Italy? Are you sure you have the correct data about private debt in Italy?

Both corporate and private households? And of course mortgages?

bania's picture

looks like the profile of berlusconi at a "bunga bunga" party

Deep's picture

Why is spy up, and SP 500 down?


Can someone explain



Rimpinths's picture

See my comment above...the closing spin on the consolidated tapes were all off.

vote_libertarian_party's picture

It had a goofy last trade yesterday at 3:59:59.


There seems to have been several ETFs with similar odd ending trades yesterday.

slackrabbit's picture

Which is exactly what I and everyone else said was going to happen.

If you cant hedge your risk e.g. lending, then more people don't lend which leads to higher interest rates.

I know they were morons, but they're now more off than on

gianakt's picture

Chinese spotted sell Euro's. Every bounce is being sold into!!!

abugarance's picture

Right, but equities are holding very well considering yesterday raging melt-up...why, does not smell like a hangover

jdelano's picture

window dressing.  profit taking will be done next week.

Implicit simplicit's picture

Sentiment is tertiary to algo eating fear driven exposed stops. They will eat the stops whereever they find the most. The put/call and advace/decline are the things to watch. Stops are better off hidden, and mental if possible.

abugarance's picture

fuck me lord...I thought all positions got stopped yesterday, and that included massive underweight bridging at leafy asset gatherers especially in Financials and Materials. Equally in the Zeuro, Oil and Copper. If you guys believe more stops still out there, means more pain to the upside. Totally agree, stops should be mental.

jdelano's picture

Was listening to Tom Keene, he goes "Greece bonds, better; Portugal; better; the rest....uh...uh...well, I"m not gonna make a big deal out of this..."  [immediate subject change]

Be interesting to see how long they can ignore this.

slackrabbit's picture

not much can see the panic in their eyes, and the hidden despair that they have no principles on their faces when their conscience rears its ulgy head...followed by a blank-out and then a trite remark

lolmao500's picture

And please someone remind me what happens if the yield breaks 7%??

bob_dabolina's picture

The EZ experiment is finished

abugarance's picture

why, the ECB joins the QE bonanza and another risk melt-up cleans the shorts dry

if there is one lesson from this fucking mascarade is to always trade on the same side as the statu quo

they're out there to get us bitchez

e2thex's picture

It's all about France.

Forget Greece and Italy.

trampstamp's picture

downgrade that beast already!!! Isn't this why the melt  up that makes no sense? Same shit that happened right before the leg down this summer.

Tsar Pointless's picture

A long-time commenter on TickerForum started a thread in the "Rumors" category that a friend of his who works for Merrill Lynch said that France indeed will get downgraded after markets close on Friday - that's today.

I fully expect it. I fully expected it once I saw that Greco-EuroTARP was approved.

Let the downgrades resume. This time, it WILL be different.

disabledvet's picture

Who is this Trichet guy anyways? I mean "talk about a hand-off" to Super-Mario. "Here you go man, i blew the whole thing up. Damn proud of it too! Good luck!"

stika's picture

The idiotic plan opens up the doors to the room with the cake at the centre of it: Italy is THE BIG CAKE anybody wants to eat! and the room is finally getting seriously crowded by very hungry people!

The Big Ching-aso's picture

'Let's Make a Deal!'

Is it just my imagination or does Berlusconi from afar bear a striking resemblance to Monty Hall?



eurusdog's picture

Schumpeter economic theory: rapid changes and product or manufacturing can only be imperfectly anticipated. The only way to manage risk on bonds now is to not own them, this will IMO be the beginning of a long slide in bond purchases as no one will want to own them.

Belarus's picture

Well, one thing is certain: the easy money for longs based on the melt-up of the EUR/USD ramp is over, any more money on that trade will be harder to come by now that the EU bank liquidations on liquid assets must be near an end.

But I'm starting to believe the market gets another year-end rally depsite much noise that will come in the interim; unless bond yields really blow out between now and then on French and Italian bonds and the "plans" continue to proceed, however weak they are, I think the market will just wholly ignore any small upticks in yields and small movements in the EUR/USD into year end as ALGO's continue to ramp things...

In other words, if you disappear and come back in two months I don't think much of anything will have happened other than another move higher on the DOW. It likely won't get messy until 2012. These things always move very very very very slowy, then quickly. Witht the huge 20% surge in EU banks, with asset sales are Euro scramble, with nationalizations that go unnoticed by the market, it seems like there will be a lot of headlines without a lot of price pressure. 

Remember, the minds at ZH work very quickly, and for traders types they have very long-term strategic viewpoints on the structural damages that have taken place. But almost ALL Americans view all this as hard cyclical adjustmetns, which means the same mantra over and over again: corporate balance sheets are strong, earnings are gernrally good, multiples are cheap, blah blah blah.....and since the national debt will mostly go unnoticed for the rest of the year, and everyone believes there is "resolve" for the union in Europe.....

Well, may be a tough end of year after missing the mother of all rallies. 

Ned Zeppelin's picture

Holding out on the sidelines is painful, but will be proved correct in the longer run. Just as an equities investment over the last 10 years (or longer ) will be shown to be a losing proposition before long.  Time to buy treasuries - soon this bit of nonsense from Euroland will break down and the 10 yr will resume its hold pattern at 1.65%

Mutatto's picture

Can't ask for more new money if you still have some of the old money left....

(one of the few things I remember from US Gov't class in college.  Even then, it expalined so much to a 19 year old)