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Italian Banks Underwater On LTRO2 After Just One Month
As 2Y Italian Bond yields nudge back up against 3% again, the sad euphoria of an ECB-funded cheap loan Sarkozy-Carry-trade in short-dated Italian debt is now a losing proposition for Italian banks. Even accounting for the month of carry earned on the position, the Mark-to-Market on any short-dated (less-than-three-year maturity) Italian government bond purchased with LTRO funds is now a drag on Italian bank balance sheets. Spain, of course, is even worse. The somewhat dashed hopes for an LTRO3, given the ever-diminished pile of performing collateral (and the Bundesbank/ECB split on acceptable collateral), suggests the situation is likely to only get worse leaving the defection-strategy - sell yr BTPS - (no matter its contagious impact on the sovereign itself) as optimal for Italian banks to avoid further forced balance sheets losses (which of course it won't since these bonds are never MtM'd and accrued at Par in the banking books we are sure).
2Y Italian Bond Prices are now below any price after LTRO2 meaning losses on any Italian bank holdings in this carry-trade...
And 2Y BTP yields are testing 3% once again...with similar euphoria/dysphoria reaction as in the summer of 2011...
Charts: Bloomberg
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merkel (oink oink) will just tell us the rising yields are not representative of the real italy............
Zero interest rates forever.
Hold on.....let me find my shocked face.
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Put'em over there, next to my perpetual-motion devices... :>D
Can't the mafioso just come in and extort the workers who set interest rates? You know a horse head appears in a bed kind of stuff. Problem fixed.
LTRO to infinity, bitchez!
Que for Bernanke's Jackson Hole anouncement post May-July market downturn, since all that kept the rally until now was Central Banks' liquidity pump.
After 2 LTROs one might presume that is time for good ol' QE by the Fed, which could perhaps provide a chance to match ECB's balance sheet expansion.
But I thought the Europeans couldn't print (headslap).
Banking stocks getting bitchslapped
Demand creditors take a 75% haircut like Greece. The bigger the debt the more control you have. Threaten the banksters you'll take the whole system down if they don't agree.
Just keep demanding more and more bailouts. The ECB and IMF is afraid of failue so the game will continue.
The political/banking bed is so sweetly made, it can't be put to rest, but give each a chance to find a way out, and history is all that is left. They're buggered. But they're gonna' try to fry this fish on one-side only and the regular folks are the fish.
fungible means friendly!
L0Lllllike on zH!
a $ Tril a month is all we ask & we're gonna get it, too!
Well, in that case they just have to ignore mark-to-market and hold the bonds until maturity. At one pct they will make a nice spread on the LTRO loans.
Mark to market????????? Man, that is so 90's.
So much for Monti