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Italian Debt - Not Kicking The Can Too Far
Via Peter Tchir of TF Market Advisors,
Italy has issued €157 billion of debt between November of last year and the end of last week. This is direct Italian government issuance and doesn’t include any of the debt the government has guaranteed in the meantime, which seems to be at least €70 billion more, but hey, who counts guaranteed debt.
Of the €157 billion that has been issued, about €122 billion matures within the lifetime of LTRO. So over 77.5% of Italian new debt is 3 years and in. In fact, at least 56% was issued with maturities of less than a year. So in spite of LTRO, in spite of a big rally in Italian yields, in spite of having a technocrat in charge of the country, they continue to issue well over half their debt so that it will mature within a year from now. That means they will be continuously rolling over debt. The prudent country would be trying to extend maturity, not shrink it.
Another interesting statistic, is that 65% of their issuance has been zero coupon bonds. I’m not sure how they are accounted for, but I’m guessing that is done at least in part to show smaller near term interest expenses (or it could be a function that they rely so much on t-bills). The T-bill market in Europe is unique as even Greece was able to issue t-bills throughout the entire crisis, so a reliance on t-bills shouldn’t be viewed as anything exciting, in fact is another potential sign of how weak the market really is below the surface.
It looks like Italy is too worried about keeping their cost of borrowing down, at the risk of having to roll in an environment that might not be as “accommodating” as the market is today.
For all the talk about “contagion” and more importantly “firewalls”, the single most important, and simplest step would be to extend maturities. But as each country plays games trying to pretend to be trying to meet some 3% annual deficit number, they sacrifice real systematic risk reduction for a quarter or two’s worth of numbers.
The market celebrates each “successful” auction, but we should be focusing on what they are actually issuing. If Germany is serious about a firewall, they or the ECB, should be encouraging countries to pay up and borrow longer, and certainly push out to the edge of the LTRO maturities rather than so much within a year.
Individual bond issue details. For some bonds, I could not determine exact maturity from data I had, so I assumed they were the longest dated bonds that matched the coupon and year that I had. I/L is for inflation or cpi linked bonds.
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Or does the prudent country want to maintain negotiating leverage with the Troika, so it doesn't let a good crisis go to waste?
What a messed up world
Just your future taxes at work so the italians can keep up their working rithem
You want messed up ?
Check out story on Australian situation
http://globaleconomicanalysis.blogspot.com/2012/03/australia-roundup-25-of-small-to-medium.html?x#echocomments
my roomate's sister makes $85 hourly on the computer. She has been fired from work for 6 months but last month her paycheck was $16158 just working on the computer for a few hours. Read more here ..... http://lazyCash9.com
I believe "prudent country" and "Iceland" is the only match globally. Hmmm, if I'm correct "bonds" and "banks" aren't in that match either.
With recent history providing the example, the prudent country would spend beyone its means and hand the bill to Germany/EU/IMF.
Oh, and wipe out non-governmental investors. What could go wrong? We'll just keep rolling up malinvestment into increasingly large bundles foisted off onto increasingly large groups of taxpayers.
Yes we can! have $25,000/yr tuition bills for english majors, single family housing for welfare mothers, government as the largest employer in most states, and 50% of households paying no taxes. Yes we can! have a 30 hr work week, retirement at full pension at 45yo, and 6 weeks of government mandated vacation per yr.
There's capital left unconfiscated and I think I see a guy over there still working...
Prudent and bond buying should not be used in the same sentence.
"Bond buying" should not be used in any sentence (these days)...
If all the countrys on the planet are broke, how are we still buying each others debt?
The (debt) addict just needs to make it to the next (credit) fix.
Don't worry. Be happy.
The world is addicted to debt
The most dangerous drug you can get
The patient may die
From removing the high
Is that any reason to fret?
Maybe they are just moving it all between 6 month 0% credit card offers. That would be really smart.
Funding your government one year at a time. What can go wrong?
The central banks put a greek in charge of ink supply and suddenly IT ALL ENDS!
It's hard to kick such a big can very far!
At least kicking the cans seems to be fun...
The gay version...
http://www.youtube.com/watch?v=Y1FvSwnpSD4&sns=em
Issuing more short term debt at lower rates in order to be able to make payments on longer term debt at higher rates. Sounds like a pretty good ponzie to me!
The conspiracy theorist in me suspects that this world wide ponzi has a born on date that is known by the major actors and that will make this short maturity issue irrelevant.
I have a box of tide I'd like to trade for a pizza.
Articles like this one are why I read ZH. Once you realize that this info means absolutely nothing in today's trading game, but that it is "must know" stuff to be ignored only at your peril, you acquire a certain confidence. You may not know where exactly the cliff edge is, but at least you're informed enough to recognise it when eventually you see it. Thanks Peter.
Well said.
yes, this was great and I think we have a winner. I did some quick rough math and though didn't think it possible, italy might be racing toward debt per capita oblivion faster than the US.
60 million Italians - $40 billion a month
300 million Americans - $100 billion a month
like I said, rough, but, in any case, numbers anywhere in this vicinity never cease to take my breath away or diminish my desire to join another species.
Amazing this teflon market. Rollover risk doesn't matter - nothing does. Euro periphery bonds are trading as if all is well with the LTRO backstop. The US bond yield spike from earlier this month is nearly half wiped out. Commodities gyrate this way and that but they are not where the hot money is. That's in the US stock market where, despite low volume, it is up and away every day no matter the news, no matter the action in other financial assets.
Today they are heat-mapping AMZN, the $100b company that his disappointed 7 out of the last 8 quarters or something like that and carries a PE over 100. The stock has rallied nearly 10% in three days on no news and above average volume. The tech day-trader still survives, 12 years after the daddy bubble burst. Thanks to Ben and Al and their asshole cronies.
Central planning, baby !
(Or is it central planning, hidden by central propaganda, covered up by central printing and encompassed by central BS?)
Just more and more dirt coming out on this EU bond debacle, and the horrors visited on common people, as in Greece.
From John Ward's highly significant blog dealing extensively with the EU crisis, 'The Slog':
« Greek Government Robbed Public Institutions to Complete Bond Swap:
How Venizelos' regime secretly removed 70% of major hospital, utility & university bank account funds to pay bondholders »
http://hat4uk.wordpress.com/2012/03/26/exclusive-greek-government-robbed...
Just look at our own Silver fund that was to enable us to pay for our pensions starting 2015 when we cross the tipping point of retirered people?
All over, during this crisis we have shortages to find work people, young people. And we don't have the money for the pensions.
I'm glad i'm only 35 years old because that leans I still got time to rebuild it once this euro farce tips over.
Bernanke and the US Federal Reserve will bail out all through the IMF. Infinite amount of print US dollars.
EXACTLY. Suckers thought the ECB wouldn't DARE print to bail out the bankers, but they forgot about good 'ol Uncle Ben across the pond.
no difference: we are all broke ponzi countries is the name of the game
...you really don't have an idea of how the italian bond market works...really a useless article. the worst from Peter...no comment
Hey OverMan, please explain us then how the Italian bond market works. To me they decided to kick the can down the road because of the steep yield curve (very low rates at front end due to LTRO's) and the risk of auction failure if they borrow long term. But the 10Y BTP yields are creeping up this week...are the big players willing to fight the ECB?
Most of those zero coupon issues Peter is talking about are called BOT, which are simple t-bills with 1 to 12 month maturities!! Those are the most common instrument for Italian retail buyers.
Italy just rolled maturing bills…as you can see here (http://www.dt.tesoro.it/export/sites/sitodt/modules/documenti_it/debito_...) nearly 84 bln of the 157 Peter is talking about were just maturing bills! Another 78 bln were maturing bonds (fixed or floating rate).
Italy actually issued just 9 bln of new zero coupon bonds and 31 bln of new fixed coupon bonds. Average maturity of the Italian debt is around 7 years, one of the highest, compared to around 5yr of the US debt and 6yr of the german.
Short-term debt is cheaper than long-term debt... The three possible explainatiosn I am thinking about are 1) Italian political decision making or 2) Italy believes or hopse that within two years something will change in Euroland or 3) Italy is desperate/paranoid that the markets will punish them if they sell long-term debt and the auction goes bad and the rates are driven significantly higher.
Interesting article. However, the author should note that the total amount of zero coupons at the end of February 2012 was only 14% of the total outstanding debt (of which around 9% t-bills with maturity up to 12 months and 5% CTZs with 24-month maturity). Fixed coupons (BTPs) accounted for 65% of total, with the remaining part split amont inflation-linked (BTPis, 8%), floaters (CCts, 9%) and foreign issuance (around 4%). Source: the Italian Treasury (http://www.dt.tesoro.it/export/sites/sitodt/modules/documenti_en/debito_pubblico/composizione_titoli_stato/Government_Debt_Breakdown_29-02-2012.pdf). Overall maturity has gone down with respect to one year ago but it stands at a respectable 6.8 years. In the case of the US it's just above 5 years.
Perversely, as each market (in this case the bond market) comes under government dicta, actions become less-and-less rational in the dollar and sents term, and more-and-more rational in the political sense of the term. This doesn't lend itself to rational economics or even peace of mind, but if that's your terms, you are in the wrong game.
Given that, my sense is that there are are political players in the Italian political system and Eurozone who see political advantage and authority in keeping the pot boiling (over). After all, every crisis needs a superhero, right? You don't even have to be playing one side of the bonds, or the other, but simply being in the decision-making fulcrum is enough.
ZHers in a way are just as clueless as the average journalist. Articles and charts on how the the acts of political players are economically nonsensical, impovershing, ruinous. We should be worldy enough, and its not the least bit paranoid, to know that someone cashes in on every headline.
Spot on, though in the case of Italy there is a popular sentiment behind it, too. Even the very English word "spread" is now deeply lodged in the current Italian Psyche. The current multiparty "Government of Unity" majority is practicly based on keepin' the spread low.
can i buy you a drink?
FUcking Money. Screw it.
....perhaps reducing maturity in blind hope that within a year the German-backed firewall will be up and running, the U.S. debt ceiling is now the floor, the Dow will be testing 20,000 and all's well that ends welll>?!!?!?!?
10 years at 2.5%?