The Italian Bond Maginot Line Has Just Been Pushed Back By 100bps

Tyler Durden's picture

We commented earlier on the precipice of LCH.Clearnet's margin rules for Italian debt and the 450bps spread Maginot Line. Well, as always, there is some wiggle room in here and instead of using what seems 'obvious' as a benchmark (Bunds), LCH uses a blended AAA sovereign benchmark (consisting of Germany, France, and Holland). This makes a significant difference, obviously, and with Bunds massively outperforming today (now 86bps tighter than this archaic benchmark), ITA 10Y bonds ended the day at a spread of 355bps (not 440bps). So as long they keep France or Holland 'weak' then ITA margin calls should be safe for now.

The benchmark used by LCH is increasingly lacking any sense of reality when judged against the only true AAA (for now) nation in Europe. This leads to a notably lower ITA bond spread:

Charts: Bloomberg

h/t groditi

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ZeroPower's picture

Looks like a FRA dgrade would indeed be the end of the road for Italy in the case of this blended AAA benchmark.

Ruffcut's picture

The only thing that is truly AAA is the full amount of utter and uber bullshit.

The Ruffcut Rating System has now established that major stool sits and shits are all granted full AAA ratings. ANything is everything and everything is a whole lot of shit.

UK debt marsh's picture

Nope, it would narrow spread.  Therefore all good!

lapedochild's picture

rules are annoying, got to change them when it suits your purpose better

101 years and counting's picture

so, they changed the target so when its met, its even much more painful.

lolmao500's picture

How come :!IT10:IND

Italy 10-year spread .IT10:IND  442.20

Anyway this is total BS.

vote_libertarian_party's picture

It depends on what your definition of 'is' is.

(Was that the Clinton quote?)

nonclaim's picture

Whoever proposed this "blended AAA sovereign benchmark" should be getting at least a thank you note from Merkozy.

bluehorsesandal's picture


So now the way save Italy and make a 'shock and awe' impression is to sell short France and Dutch bonds...

What a joke 

France is AAA exactly in the same way as MF Global was investment grade not too long ago...

Belarus's picture

they''ll add someone else to the mix if yields on French and Holland bonds continue to go higher. Perhaps they'll add.......hmmmmmm, let's see, just perhaps Japanese bonds or USA's at 1 or 2% respectively.

Ah....doesn't matter, the market will call them out anyway. 

Belarus's picture

Shit...I had that backwards, they'll add Spanish and someone else that is junk. 

knukles's picture

Add MF Global.  Just call 'em sovereign and that should do it.

Dr. Engali's picture

Keep moving the goal posts.

knukles's picture

Fucking Fraud


Ya' realize that all this rule changin' shit bein' done with the blatantly tacit approval of the "Gubamints of the Wole Woild, Augie" meanin's best be gettin' short all them Ponzi Fiats, folks.

lolmao500's picture

Save Italy... make the interest on the bonds of France, Germany and Holland go up... BRILLIANT.

What happens when France is downgraded? It'll only be Germany and Holland?

floor's picture

Maybe they should go up, Germany has got an enormous amount of obligations in the form of pensions that are not mentioned anywhere and Holland has got his own private crisis in the form of being the country with the most morgage debt of the world.

The fact that the people in Holland have to contribute most, apart from Luxembourg, per person to the ESFS because we are supposed to be wealthy, is ridiculous, we are loaded with private debt.


Belarus's picture

Oh....don't forget the power hour ramp by the ALGO's. All is well...

Cone of Uncertainty's picture

Upvote if you too can't pronounce "maginot."

qussl3's picture

When are we going to trot out the Draghi put?

Is it time yet, or is Ben still the man?

Schmuck Raker's picture

I'm starting to get confused.

Could someone please tell me: Is this 'Smoke'? Or is this 'Mirrors'?

Cluelesscitizen's picture

absolute last minute puff up, exactly what you'd anticipate from these scams

Bam_Man's picture

Slowly but surely the ECB balance sheet is becoming loaded with PIIGS debt.

IMHO the Euro at its current level is preposterously over valued. The "adjustment" to fair value - when it happens - is going to be spectacular.

Buck Johnson's picture

The PIIGS are going to take down the Euro, just you wait and see.

oogs66's picture

They should quote as a spread to EFSF

oogs66's picture

They should quote as a spread to EFSF

Vengeance's picture

Although the use of the term Maginot Line is correct, Alpine line  would have been more apt...

K_I_T_T_Y's picture

Just had a couple of thoughts about Italy's debt

courtesy of Bloomberg...

Total of Bank Holders

1. Intesa San Paolo 64,4 bio EUR (4.06% of total outstanding)

2. UniCredit 38.5 Bio EUR

3. BNP Paribas 22.7 Bio Eur

4. Dexia 13.3 Bio EUR

and so on (Banks only have 11.46% of total outstanding debt).

Theoretically if you book Market to Market you would have a loss of around 10% since End of June (Q2)... or are they booking on a nominal value?

And I cannot get figures on Portugal, Spain, France,.....

No wonder the ECB is buying so aggressively those government bonds....