Italian Bonds Back In The Crosshairs

Tyler Durden's picture

10Y Italian bond spreads are surging wider intraday as it appears Europe's bond vigilantes (otherwise known as portfolio managers executing some level of due diligence to cover their fiduciary duty) have rotated their attention to Italy. After a few days in a row of Italian bank stock halts, the implicit LTRO-driven relationship between banks and sovereign is snapping 10Y yields above their Aug 2011 crisis peaks - at almost 5 month highs. A 20bps jump from the intraday lows this morning in spreads, underperforming any other European sovereign, seems to reflect our earlier concerns of Italy's lifeline running short. 5Y CDS are also pushing higher - near record wides but do not forget Spain which is also now legging higher in yield and wider in spread after some relief earlier in the day.

Italy is rather notably underperforming its peers intraday...

as 10Y Spanish yields and spreads are re-accelerating higher - notably back above the August 2011 crisis peak of last year...

Charts: Bloomberg

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AssFire's picture

Hey, isn't the NEW Dallas coming on tonight?? Anyone know if the old cast is coming back?

Life is great- no worries.

EscapeKey's picture

And the new Mac Pro has 4x the pixel density, but only costs 15-20% extra, hence BLS statisticians are celebrating as if it's xmas, considering all the imputations which will be racked up in future GDP calculations.

HD's picture

I still don't know who shot J.R...but I'm pretty sure Jeannie had something to do with it.

AssFire's picture

If only we could all wake up to find out the last 40 years was a dream.

A fucking nightmare in fact.

Croatian Patriot's picture

Italy 6.25

Spain 6.78  


tick-tack, tick-tack

jover's picture

Bullish, more QE coming.

ECB will have to restart it purchasing program

HarryM's picture

It is fucking amazing - gonna be another green day


But no QE until vix 35

warezdog's picture

Any bets on how the slaughter will last once the Italian truth is revealed? Or better yet who will financially fail first, the vatican or italy?

Whatsoever's picture

and if so, how would you try to interpret the truth as you obviously neither can't read nor understand figures.


Italy has a primary surplus of above 4% and a deficit 2012 below the inflation rate.

I guess you're weight to 150 kg, greedy of more dollars and burgers.

Typical us-bankster from the country which is living from the earnings of others.

greetings from vienna, austria

Satan's picture

The official interest rate or the real one?

Whatsoever's picture

underlying the actual average interest rate, of course.

RoadKill's picture


1st this arguement about PRIMARY surpluses is BS.  A deficit is a deficit.  You have to fund it.  Furthermore, this isn't about wether you are spending too much, its about what the market is demanding to fund you.  You have MASSIVE refinancing needs, and right now you are being asked to pay 6.20% to fund those.  YOU CAN'T PAY THE VIG.

Maybe its unfair, maybe its extortion.  But its A BIG F'IN DEAL.

I'm not saying the US is perfect or that Italy is a delinquint, but the US doesn't have this problem because its NOT IN THE EURO!

Whatsoever's picture

might be true: as long as the US are printing their 16 trillion debt.


A Deficit beyond inflation rate (2012) is a real surplus. this might not be understood by american banksters, nonetheless its true.


And yes, this is extortion based upon greed und dumbness. if italy fails, the us will fail too.

Curtis LeMay's picture

Odd how you forgot to mention that Italy lives or dies, every single week of the year, selling - or not - bonds on the markets. 

In these times, that is a fatal flaw. Italy will be a field day for the "bond vigilantes"...

Got Schillings?? You're gonna need 'em damn quick like...


bigwavedave's picture

Vatican has cash flow and lots of it. They also have a few assets they could list on Ebay. Just saying

RobotTrader's picture

The time to buy stocks is when spreads like this are reaching record wides.


I'm shocked that the Dow is so strong, we are still over 12,500.

You would think we would be below 9,000 by now.

And don't even get me started on Under Armor, Whole Foods, ULTA Salons, still pinned at record highs.

EscapeKey's picture

Hey, where were you the other day when the DJIA folded while Gold shot up? You semt to disappear.

Surely some mistake?

AssFire's picture

Robo, shouldn't you and Leo be snuggled up under a solar panel somewhere?

I'll take Remington Typewriters over your Armor.

surf0766's picture

How many threads will you be pumping Under Armor on today? Twice already.

RiverRoad's picture

Uncle Ben took it up to make a big , fat cushion for the fall.

HarryM's picture

How do they expect QE when Dow 12500 ?

junkyardjack's picture

Then isn't the question, why are stocks so high if no one expects QE?

HarryM's picture

Then I guess the answer is stocks will not go down for a long. long time

GMadScientist's picture

How do you piss with morning wood?

cbxer55's picture

Stroke until the wood is gone, then piss.  ;-)

RoadKill's picture

You would be right if stock prices REFLECTED the credit spreads.  But what we have is people buying on the Bernake put and the SPX at 1,320.  Last time spreads were this high we were at 1,100.

And this isn't speculation.  I've got my own e-mail chain going on the subject with a dozen+ big money managers.  I sent out a big analysis yesterday on the Spanish bailout and how the collateral seizure inherrant in the bailout GUARANTEES Spain goes the way of Greece, with upwards spiraling debt costs and the need for a full bailout.  I asked for pushback, and what I got was that people like David Tepper were buying hand over fist, betting on a massive global policiy response...  Below is that chain.


I agree with Yair and David Tepper.  In fact I went ballz to the wall in early 2009 too. But there is a key difference.  The massive policy response we saw in 2008/2009 was with the SPX cratering to 666 and the VXX 20x where it is today. Their is NO case for massive coordinated policy action with the SPX at 1,300 and VXX at 20.  Last year we had SPX 1,100 and VXX at 80 and all we got was QE 2.5 in twist. In fact you can argue things need to be worse then 2008/2009 before we get a massive coordinated policy response.  2008 had no encumbant running and even then the bailout was done after the election during GWBs lame duck session.  Going into an election Bernake has to be VERY careful particullarly with the OWS and Tea Party bitching about banksters being bailed out.  Also, its Europe.  It will take a few weeks for the contagion to bleed over here, and then it will be too late. I talk a big game about armmageddon, but I probably dont have the ballz to play to the end game.  In 2010 I went long when we hit 1,000.  I sold at 1,350 and went cash.  When we fell to 1,100 I went long again. This time I'm $2.5mm short here above 1,300.  At 1,250 Ill probably be down to $1.5mm.  At 1,100 Ill be lucky if I have the ballz to have a few hundred k in triple levered shorts, and below 1,000 Id start buying, potentially aggressively. I have my eyes on a LSE traded ETF that's double levered DAX exposure.  At 5,000 and USD parity, Id jump into Europe. RESPONSE   the push back I am hearing to ROADKILL's thesis is that since Doug is probably right on yields, etc....a lot of "smart" people are counting on a huge policy response out of Europe and US combined, etc.  David Tepper is buying the market hand over fist today.  He made a huge bet in early 2009 and again late last year on the same thesis.  So the real question is...why is this time different?  MY ORIGIONAL MESSAGE
I think I've mentioned to all of you that Spain's bailout over the past weekend GUARANTEES it goes the same way as Greece but at a faster pace.        The fact is that the E100bbn Germany is giving Spain to rescue its banks is super senior secured debt.  This means bonds held by the public are now subordinate.  In any restructuring, Germany is GUARANTEED to get E100bbn Euros back before the remaining bond holder’s get to split up what’s left.     This math isn’t perfect but going into the weekend Spain had roughly $732bbn of federal debt vs GDP of approximately $1,178bbn.  If we assume $1 of GDP = $1 of collateral we get a coverage ratio of 1.61x.  If we give Germany a claim on the 1st $125bbn of collateral, the coverage ratio falls to 1.44x.   Going into the weekend, Spain’s 10 year yielded 6.1%.  6.1%*(1.61/1.44) = 6.82%.  Today Spain’s 10 year hit 6.72% and right now is at 6.65%.  Why are people surprised?   I’ve made the further claim that within the next few days/weeks we are going to 8%-10%.  That is because if Spain felt 6.1% was to expensive, and preferred to take 3% Super Senior Secured German money – what do you think happens when Spain goes to the market to fund the E186bbn of debt issuance it plans in 2012?  BTW the E186bbn represents both new issuance to fund the deficit AND refinancing maturing debt.   Assuming Spain is half-way through its issuance for 2012, and needs to issue a like amount of debt in 2013 (E186bbn x 1.5 (2012 & 2013) x 1.25 (USD/EUR) = $350bbn).  If that’s Super Senior Secure 3% German money, then the coverage ratio falls to 0.96x ($1,178bbn - $125bbn (bank bailout) - $350bbn (new debt issuance) / $732bbn).  6.1%*(1.61/.96) =10.2%.   This math is being done by the markets, just like it was in Greece – but FASTER.  Let me remind you that in the Greek bailout, the ECB and IMF exchanged their bonds for super senior secured bonds days before the public markets were forced to take a 75% haircut to face value in notes that are worth $0.50-$0.75 per dollar today (80%-90% total haircut).  No one should fault the ECB or IMF for doing this – DIP loans are always super senior.  But DIPs are for bankrupt entities, which implies existing bond holders are heavily impaired.   Now also remember that in Greece, EU officials came out full of bluster and bravado claiming that if the private sector didn’t VOLUNTEER to take the haircut, holdouts would get $0.  They also CLAIMED CDS would not be paid.  But at the end of the day, that was a LIE.  CDS was triggered and paid AND holdouts in bonds that were adjudicated under foreign law (UK) were paid 100% of face value.   The markets aren’t dumb.  Several small hedge funds that were willing to read every letter of every 500+ page prospectus for every issue of Greek debt, bought tens of billions of dollars of UK law bonds for pennies on the dollar, and shorted normal Greek bonds or bought CDS on them, resulting in a trade that was risk free in the worst case scenario, and that paid out on both sides in the scenario that actually occurred.  This time around everyone knows the game plan and instead of 2-3 small hedge funds, dozens of larger funds are jumping in.  See the attached graph for proof.   Thus, it is my contention that Spain is going the way of Greece in short order.  Spain has to go to the market virtually every other week to raise debt.  As the cost of that debt rises, the siren song of 3% German money sounds better and better.  But every issuance of super senior secured debt to Germany, seizes collateral from public debt holders and raises the cost of borrowing on the public markets.   Furthermore, this analysis ignores the fact that Spain’s bankrupt regional governments have $183bbn of debt that the federal government will ultimately have to pay.  And the Federal government has GUARANTEED $175bbn of bank and corporate debt.  So the 60% debt to GDP is really 100%.   As Spain’s rates rise to 8%-10% over the coming weeks, Italy’s will rise in concert/sympathy, and Italy will be forced to take a bailout as well.  And there isn’t enough money in Europe to bail both out.   And there are rumors that Cyprus will be asking for a bailout in 2-3 days.   On top of this we have the Greek election on Sunday that will result in hardline communists taking over and demanding a change to the terms of their bailout, which will only intensify clamors by the Irish for changes to the terms of their bailout.   I’m only being SLIGHLY hubristic when I say there is a 50% chance the EU doesn’t survive the summer.
NoClueSneaker's picture

Thx fer  the info. But, how can u be sure that the holders of Greek Sovereign Junk ( issued on UK law ) CDS got their money? ISDA insider ?


New BIS report when ? ( Srry if i missed some Tyler's announcement ).

Dapper Dan's picture

Don't tell anyone but the Under Armour products....... they are only cotton tee shirts with a cool logo on them,

$39.99 for a cotton tee!!  absolutely brilliant

LongSoupLine's picture

...and EUR/USD  IBEX

You can't make this shit up.

mayhem_korner's picture



contagio crescente, muppetiaz

asteroids's picture

There comes a tipping point where the amount of money owed by the PIIGS can't be paid by everyone else. The math won't work out. The politicians will wake up to the fact that the bankers have been lying to them. They will realise that while the bankers get away with the gold the politicians will drown with everyone else. I think we are coming to that day soon.

Village Smithy's picture

I think that day has come and gone. The lies are being told by the bankers and the politicians who have been promised that "they will be taken care of".

RobotTrader's picture

I challenge anybody on this board to walk down Madison Ave. or Ventura Blvd. with a microphone.

And ask at least 50 people on the street if they know what "PIIGS" or "LTRO-Stigma" means.

Guarantee you that 100% of the answers will be "I have no clue".

On the other hand, they will know everything about Kim Kardashian, America's Got Talent, Justin Beber, and Jimmie Johnson.

As they rush into the nearest Lululemon, Nike Store, or grab a burrito from Chipotle.


mayhem_korner's picture



What if you ask them what PIIGS means and they answer Kim Kardashian?

I would call it a push

NoClueSneaker's picture

... well informed ? ( low level ).

Whatsoever's picture

If you think there are PIIGS in Europe, then be happy to find the shit of such in your 3rd world home country.

ceilidh_trail's picture

Austria, huh? Are you Hitlers long last runt child? You may not like USA, but, remember that we kicked your a#@ when it mattered. The world is a better place for it. Say something useful here or go to bed already.

Whatsoever's picture

useful enough for analphabets.


greetings from 1st world

ThirdWorldDude's picture

Dude, I've always wondered about the name of your country, it means 'The Eastern State', right? But there are countries far more eastern than you, so it's kinda confusing...

Until my mentor once told me that it would've been embarrasing to name your country 'Germany's Keychain'.

Whatsoever's picture

So I'm right with my opinion of major education deficits in the us, also in the realm of history, you're giving another good example, right ?

btw, like you're self esteem (nick)

ThirdWorldDude's picture

What makes you think I'm 'Merican? Besides your self-righteous arrogant reasoning, that is...

CommunityStandard's picture

The US is certainly deserving of trash talk, but Europe is also far from innocent.

GMadScientist's picture

How about if I just ask them if they know that they're about to be fucking homeless, if not hunted down by the 99%?

Solve the energy crisis: tap a well in one of Kardashian's thighs.

How many of them will pay cash?

pods's picture

Jimmie Johnson?  Is he back with the Cowboys?


my puppy for prez's picture

It's the answer!

Al Huxley's picture

If they're running short of cash, maybe they can borrow some from Spain.

GMadScientist's picture

They are ready and able to provide Italy as many Spiderman towels as might be necessary to avert this funding crisis.

CommunityStandard's picture

But they're already borrowing at 6% to lend to Spain at 3%......

pods's picture

Well Spain is going to borrow from Cyprus and then Cyprus will borrow from Italy.  So it's all good.

At least for the parasites making their living off the interest.