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European Bond Spreads Tighten As Hope Makes Brief Return
Spreads across Europe are tighter today, and stocks higher, as investors hope that a power shuffle at the top in Greece and Italy, where the placement of two Fed and ECB puppet rulers, would change decades of flawed fiscal planning and destructive habits. Of note, the catalysts inducing a substantial rise in French, Italian, Belgian and Irish bonds, is the expectation of a new Greek government as well as the Italian Senate voting on approving the 2012 budget and passing austerity measures (which it has already done before, and nothing happened) such as increasing the retirement age by 2 years in 15 years. The vote itself is a symbolic ouster to Berlusconi who has previously said he would retire the second the budget is passed. The question remains what happens after Berlusconi falls: elections or a new technocratic consensus government, headed by Mario Monti, and whether the ECB will support whatever course Italy takes. So needless to say prepare for vicious 50-100 pip moves in the EURUSD, and with every pip amounting to 1-3 DJIA point, the volatility in the market today will be significant. Buckle in. In other news, the one fundamental question that needs some answer before all this is over, namely how Italy will fund €300 billion in debt maturities and interest payments over the next year, with the EFSF now a formal dud, remains unanswered, and will, as there is no answer.
Reuters with more exhaustive summary.
Ten-year Italian government bond yields fell sharply on Friday with markets relieved at the prospect of a new government being formed in Italy, but some were sceptical even a passing of an austerity vote would lure investors back into Italian bonds.
Italy's Senate is due to vote on Friday on austerity measures demanded by the European Union to avert a euro zone meltdown, paving the way for a new emergency government to be formed within days.
Europe's third-largest economy has overtaken Greece as the focus of the euro zone debt crisis this week, when yields on Italian benchmark 10-year bonds rose as high as 7.5 percent -- levels considered unsustainable.
Analysts fear Italy's potential inability to fund itself could be a systemic risk given the size of its economy and its government debt, the third-largest in the world.
Ten-year yields fell 27 basis points to 6.7 percent. Traders said they had not seen any ECB buying and that liquidity was thin with some of Europe closed and the U.S. bond market shut for Veterans Day.
"It's a new day, but it's still all the same problems," Rainer Guntermann, strategist at Commerzbank said.
He expected the austerity vote to go through but said this may not be enough to restore market confidence.
"If they would deliver a bit more austerity, even a balanced budget next year or so, it would still be questionable whether this would convince investors to buy again into Italian debt," he said, adding he was sceptical that this selling pressure would go away towards year-end.
The 10-year Italian/German bond yield spread tightened more than 30 basis points on the day to 487 basis points, while the Spanish equivalent was 7 bps tighter around 403 bps .
A third trader said the sell-off this week in Italian bonds had been fueled by real money sellers who have to liquidate their positions beyond certain levels.
"By and large what we have seen here has been ... forced sellers, technical sellers as yields have pushed through the 7 percent handle and the only person who stepped in have been either the ECB directly through the SMP (security markets programme) or the local central banks which are also part of the ECB programme," the trader said.
The punchline:
He was not convinced about the prospects for Italy.
"We need some sort of political consensus -- a technocrat isn't going to bring that to force through the real measures that they need," he added.
We would add, that more than consensus which in Italy is a non-starter for anyone familiar with the domestic culture, we need some math. But we are never going to get it.
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This is what I learnt a long time ago:
The cake is a lie!
What a laugh riot.
Hope made a brief return.
But then something Changed!
Bund in hindi means ass (arse), so bund spreads widening is another laugh.
Overall, a laugh riot, this EU mess.
ORI
Caveat Emptor
Oh it's real...you just don't want to eat it mate.
http://www.youtube.com/watch?v=Wy3ThluwUpI
they better not say anything negative today w/ our bond market closed
I have one question.
With deficit funding and debt rollover how much is required in the next twelve months for Europe/USA/UK?
Anyone got an idea or a link?
http://www.youtube.com/watch?v=ae1RqLvO4a8&feature=player_detailpage
Wow. That much !!!!!!
;))
From article... "In other news, the one fundamental question that needs some answer before all this is over, namely how Italy will fund €300 billion in debt maturities and interest payments over the next year, with the EFSF now a formal dud, remains unanswered, and will, as there is no answer."
The answers are...
1) What cannot be paid will not be paid.
2) The ECB goes rogue and proceeds to print to infinity, similar to the US solution and recomended by tiny timmy to ECB already.
3) If Germany is as smart as I believe they are they will exit this Euro cluster fuck and rebuild their export economy with a new DM. If Germany goes down this road it's likely that their trade ties with Russia will be far stronger than any other Western European country. Russia has the commodities, Germany has the expertise and productivity, and Germany has already proven that it can export even when the DM was strong.
What's wrong with elections? Western countries always very quick to complain of transfer of power in other countries... Present the people with a choice! The outcome might not be what 'some' like, but it does represent what many like
Italy has a strikingly low unemployment rate--especially relative to the US (which is simply scandalous over here.) That means to me "they have firepower" because unlike Greece or Spain Italy has taxpayers. Does NOT mean they have an "economy" per se...nor that they can support trillion dollar debts. HOWEVER...the USA with only negligible employment is supporting trillion dollar DEFICITS.
Employees does not equal taxpayers in Italy and statistics does certainly not equal truth.
disabledvet... Swedish Chef is correct. Italy has some of the highest taxes in Europe...but avoiding payment of taxes is a game that Italians have been playing since the days of Roman Empire. Does anyone believe this is going to change?
From Bill Bonner...
"The unemployment rate for people between 15 and 24 in Italy is 30%. Hospitals are overcrowded. Roads have potholes. And the “country has been spending more than it earns for years….” Italy’s national debt is 120% of GDP. US debt is 100%.
But at least the Italians are civilized. They have some of the highest tax rates in Europe. They just don’t pay them.
Poor Berlusconi. He’s being forced to resign. After so many years of public service. So many years of doing his level best on behalf of the Italian people…to create a better government…a better nation…and a better world. And now they cast him out like an empty cereal box. And the popolo minuto look on…gawk…and gloat.
But at least he has a tender shoulder to cry on…and a warm smile to greet him after a hard day’s work. The Telegraph reports that the aging politician spent the night with Francesca Pascale, 26. The woman is an angel, for sure…descending from the heavens to succor the embattled Italian prime minister in his hour of need."
Some photos of Francesca... https://www.google.com/search?q=francesca+pascale+photo&rls=com.microsoft:en-us&ie=UTF-8&oe=UTF-8&startIndex=1&startPage=1
Read more: Are Markets Finally Heading In the Right Direction? http://dailyreckoning.com/are-markets-finally-heading-in-the-right-direction/#ixzz1dOseRfFl
GERMAN VICE CHANCELLOR ROESLER REJECTS IDEA THAT ECB HAS 'UNLIMITED FIREPOWER', SAYS IF ECB OPENS FLOODGATES IT CAN NEVER CLOSE THEM AGAIN
*GERMAN CDU BACKS MOTION TO ALLOW EURO-MEMBER EXIT, GROEHE SAYS
Here's some hope and change!
The floodgates are already open - ECB already spent almost a trillion...
until the sheeple rise up, hang those responsible, nothing will change! like little sheep, we'll all run and vote for a bigger pole up the arse! WAKE UP ALREADY PEOPLE!!!!!
I think the floodgates are open too...yesterdays Italian bond issue was a farce.....the ECB was there somewhere...we will be up today...back down big on Monday as reality hits..oh well...Got gold
This "...yesterdays Italian bond issue was a farce.....the ECB was there somewhere"
+1
Germany should bail now...and should have bailed when Goldman Sucks involvement in helping Greece hide it's true debt came to light.
Every news site has some variation of the headline: Wall street up as Italian fears ease.
Ohhhhhh, I must have missed the big fix overnight. Some magic ferry showed up with a trillion dollars to pay off the bonds.
> as there is no answer.
Well, there is one answer. Quick and strong inflation increases nominal tax revenues dramatically, allowing interest and principal to be paid back, nessun problema!