Italian Yields Spike Following Weak 5 Year Bond Auction, ECB Intervenes Again

Tyler Durden's picture

Unlike in the past week, when the ECB had a clear agenda of getting Berlusconi out, and thus let 10 Year BTPs tumble to a record low price of 82 cents before even pretending to intervene, all it took today was a modest drop from 88.80 to 87.80 before Mario Draghi sent his bond traders out in the market lifting every offer. As for the sell off catalyst: the auctioning off of €3 billion in 5 year bonds which cleared at a record 6.29%, the highest pricing yield since 1997. This compares to the last auction of 5.32% on October 13 and a bid to cover at the current auction of 1.47 compared to 1.34 last. Yet once again, mysteriously like last week's 1 year auction, the bonds came in well inside of the prevailing yield just before the auction which was 6.43%. Once again one wonders: precisely how do these auctions continue to clear with no tail whatsoever, and why would anyone buy the bonds in the primary market at a price that is much higher than the secondary one. But we can wonder: in the meantime the EFSF will assure us it is not a ponzi scheme. Either way, just as the 10 Year BTP price threatened to take out early support following a very aggressive selloff beginning just as the 3 Year came to market, the ECB stepped in and started buying bonds up. No wonder the EURUSD is well below the Friday closing price, and trading at 1.3670 at last check. For those interested, below are the kneejerk Wall Street analyst responses to the Italian auction.

Italian intraday BTP price:

From Reuters.


"Given the tiny amounts, the bare minimum Italy is selling these days to get the upper end of that tiny range is encouraging. (Yields) are still clearly eye-watering...This can only be done for quite a limited time-span."

"Looking at what Bunds and Treasuries did since opening we have clear renewed flight to quality to some extent...You have a better political situation in Italy but at the end of the day it's still a tiny amount. Its hard to say this is a vote of confidence by the bond market."


"The relative small amount on tap for a mid-month BTP auction, coupled with record high levels for Italian five-year yields, have supported the decent demand at today's auction. Bid/cover was not spectacular though, despite the cheapness of the paper.

"Dealers remain cautious on the developments in Italy. The new appointed PM (Mario Monti) is perceived to be a positive change for the country...Cautiousness on the future developments in Italy is fully justified. Credibility has been lost and it will take a while for market participants to believe that the country is back on the right track."


"It's been sold about 13 basis points below the market level, which is reasonably encouraging. The cover is OK, it's not fantastic. There was always going to be good domestic support particularly with it being a five-year maturity. There is a lot of natural demand from the banking sector for balance sheet purposes."


"It's a decent bond auction. They sold the full amount and it came well through the secondary market and low yield level of this morning, so there's been decent paying up to pick this bond up.

"The micro-view is supportive but there's no getting away from the long-term view that this is a significant rise in yields for an Italian five-year auction."


- Bund future up 44 ticks at 137.70 vs 137.91 before auction

- Italian/German Bund 10-year spread 463 bps vs 460 bps before auction

Italian BTP future up 0.52 at 94.18 vs 94.03 before auction.

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Everybodys All American's picture

ECB is monetizing Italian debt .... call it for what it is.

Bobbyrib's picture

Now I know why gold is down.../sarcasm.

French Frog's picture

All the analysts say that the auction went well ... and surely they couldn't be All wrong could they? /sarcasm (just in case)

paarsons's picture

Good Citizens of Metropolis!

What does it all mean?

I truly don't know.

I'm just glad I have a large cock.

Thank God for small miracles.

Fips_OnTheSpot's picture

(glitch with the zoomed-picture, somthing from riots popping up - or intentional? :) )


Well, how long until Mario+Mario get along with it?

Schmuck Raker's picture

That's just your imagination, Fips.

Obviously, "You Can't Handle The Truth."

s2man's picture

Thanks, Tyler.  First laugh of the day.  Oops, I forgot to read Dilbert.

vegas's picture

Well gee, here's something nobody would have evaaaaaah thought; Italian yields spike.

Scratching their heads at the ECB wondering how this is possible what with all the good news out there.


Zola's picture

Simplest trade ever: Short italian bonds, short euros , long physical gold... 

hangemhigh77's picture

These markets are reacting normally.  Nothing to see here, move along.

Quintus's picture

Just as well the ECB is completely independent and not politically aligned in any way.

Oh no.  

cherry picker's picture

I remember back in the eighties when interest rates were going through the roof.  Purchasing vehicles and homes got the lender double digit interest income.

We survived through that.  I don't know what the big deal is on 6% or 7% is for a country's debt.  If we as individuals can get hosed and survive, why not governments?

Quintus's picture

If we as individuals can get hosed and survive, why not governments?

Not everyone survived - plenty of people and companies went bust.  Typically the most indebted ones, relative to their income.

Most governments are astonishingly over-indebted relative to their income, and cannot service their debt, hence they will not survive.

Dr Zaius's picture

I believe it's an indication of just how close to the brink the countries run their finances. In the 80's individual households were able to cut back and adjust discretionary expenses by 5% to 20% to meet the higher expenses of debt placed on them. It wasn't pleasant, but it was possible. Countries on the other hand have placed themselves into such a budget jam that it is politically impossible to cut discretionary expenses to meet higher debt expenses. As silly as it sounds, very few, if any, countries have "discretionary" expenses.

cherry picker's picture

I remember back in the eighties when interest rates were going through the roof.  Purchasing vehicles and homes got the lender double digit interest income.

We survived through that.  I don't know what the big deal is on 6% or 7% is for a country's debt.  If we as individuals can get hosed and survive, why not governments?

Gief Gold Plox's picture

How much does Italy's bond market suck if two ex godlmanites can't get it to behave?

Zero Govt's picture

"..ECB intervenes again.."

It's a new reality.. the walking-dead planet-sphere of State-aid zombies 

There's more central bank subsidies, crutches, props and State interventions, tampering, mangling and 'solve-it' meetings it's getting like a Wax Museum of the pickled dead around here

...wake me up when this implodes (as it always does) in shambolic shit and we're back in the land of living (free market)

ItFarmer's picture

don't worry, Monti, ops sorry GS, is going to fix the problem

ItFarmer's picture

or maybe Monti son is going to fix the problem with a nice swap with JPM and Brazil central bank

ItFarmer's picture

Ban BTP shorts?!/Particenens/status/136055088560091136

johngaltfla's picture

With 250% Greek 1 year yields, I don't understand why ES futures aren't surging....

Georgesblog's picture

This smells like the beginning of a cascade failure in the bond market. Future discrepancies in the details of the European bailout would only make the situation worse.

Element's picture

hmmm ... would this be an "after death" experience then? ... or just a death rattle?

Blank Reg's picture

Nothing to see here. These aren't the droids we're looking for. Move along.

danicaB's picture

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