Italy Pays More For 6 Month Debt Than America Pays For 30 Year, As LTRO Claims Its First Bank Insolvency

Tyler Durden's picture


Today Italy had a rather critical Bill auction in which it sold €9 billion in debt due six months from today. Obviously, since the maturity is well inside of the LTRO, the auction itself was rather meaningless from a risk standpoint. Still, the good news is that Italy managed to place the entire maximum amount targeted. The bad news: it cost Italy more to raise 6 months of debt, or 2.957%, than it costs the US to borrow for 30 years (2.70%). Not only that but the average yield 2.957% was the highest since December when the Italian 10 Year was north of 7%, and nearly 50% higher compared to the 2.104% at auction on May 29, or less than a month ago. The Bid/Cover of 1.62 was unchanged compared to the 1.61 at the May 29 auction. From Reuters: "Today's bill sale points to the sovereign getting this supply away but at yield levels sufficiently elevated to leave a niggling doubt at least as to the medium-term sustainability of the country's public finances," said Richard McGuire, a rate strategist at Rabobank. On Tuesday, Spain paid 3.24 percent to sell six-month bills. Madrid is seen at risk of having to ask for more aid after formally requesting a European rescue for its banks this week. But doubts are also growing on Italy's ability to keep funding its 1.95 trillion euro debt, which makes it the world's fourth-largest sovereign debtor. Domestic appetite has so far allowed the Treasury to complete 56 percent of its 445-billion-euro annual funding plan."

It gets worse. Recall that the LTRO was conceived back in December 2011 precisely to facilitate the sovereign debt ponzi in a way where domestic banks would borrow from the ECB only to buy their own sovereign debt, a circumvention of the ECB's prohibition to buy sovereign debt in the primary market, and a plan that was so circular those who actually could see through it would scream a warning to anyone who cared. Six months later, the chickens have come home to roost:

Italian banks may find it increasingly difficult to keep shouldering the country's large funding needs as foreign investors continue to shun its debt.


Italy's third-largest lender Monte dei Paschi dei Siena said on Wednesday it would progressively reduce its holdings of Italian government bonds, after tapping state aid to plug a capital shortfall partly due to its exposure to sovereign risk.

And there it is: instead of a solvency enhancing instrument, the LTRO, by forcing banks to double down on sovereign bonds, has resulted in accelerating their demise as BMPS showed yesterday!

Which incidentally may have just blown up Mario Draghi's Plan B - as a reminder, the only reason why sovereign debt tightened last week was due to the announcement of expansion in eligible collateral by the ECB, something which most saw as a precursor to a new LTRO. Well, if the LTRO is now seen for what it truly is: a mechanism that precipitates insolvency, will anyone have any interest in it, especially with vigilantes dying to rip apart any firm that is associated with the Stigma of needing LTRO and thus signing its own death sentence? And all this ignores the fact that, as we have been saying since January, Europe has run out of actual, money good assets...

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Wed, 06/27/2012 - 07:09 | 2564386 Colombian Gringo
Colombian Gringo's picture

Too bad the Wops can't print their own money. They better get used to pictures of Merkel on their new bank notes.

Wed, 06/27/2012 - 08:23 | 2564493 Gief Gold Plox
Gief Gold Plox's picture

They brought it upon themselves.

Funny how their still calling for more integration when the last one worked so fucking well.

Wed, 06/27/2012 - 08:59 | 2564543 Harlequin001
Harlequin001's picture

because the US is just so much more 'solvent'...

Wed, 06/27/2012 - 07:09 | 2564387 tocointhephrase
tocointhephrase's picture

Even I pay less than that on my debts lol, 0% 

Wed, 06/27/2012 - 07:27 | 2564413 battle axe
battle axe's picture

Everything will be solved at the next Euro Mega Meeting, mark my words...../sarc

Wed, 06/27/2012 - 07:14 | 2564394 EscapeKey
EscapeKey's picture

I'm sure it's a problem which can be solved through extra leverage.

Wed, 06/27/2012 - 07:20 | 2564400 Alejandrito
Alejandrito's picture

because unlike usa italy has no monetary sovereignty

Wed, 06/27/2012 - 07:21 | 2564402 firstdivision
firstdivision's picture


Was Datek the earliest HFT?

Wed, 06/27/2012 - 07:22 | 2564407 EscapeKey
EscapeKey's picture

At the time, Datek's streamer was far ahead of the competition.

Wed, 06/27/2012 - 08:13 | 2564469 firstdivision
firstdivision's picture

Were they front-running, or using HFT strategies that are now considered legit?

The best info I could find thus far on this was from a NYT article

While declining to comment on the specifics of the case, a spokesman for the S.E.C. said that it was a violation of securities laws to guarantee a return on an investment and that it was unlawful for a firm or broker to share in the profits an account generated.

Don't Prop Shops all share in the profits an account generates?  This Datek thing sounds like some firms were upset at losing accounts *cough*Goldman*cough*Sachs*cough* and used their connections to get Datek investigated.


Wed, 06/27/2012 - 07:20 | 2564403 fonzannoon
fonzannoon's picture

This is like being in the waiting room scene in Beetlejuice. It just goes on and on.

Wed, 06/27/2012 - 07:21 | 2564405 Martin W
Martin W's picture

The title suggests that US should bail out Italy..?

Wed, 06/27/2012 - 07:22 | 2564406 bank guy in Brussels
bank guy in Brussels's picture

Banca Monte dei Paschi di Siena said to be the oldest bank in the world, going back to 1472 ...

Might be some pretty dark secrets in those centuries-old files


Wed, 06/27/2012 - 07:23 | 2564408 jover
jover's picture

Banks get infinite amounts at 1 % 3 yr and can lend it at governments at 3% for 1/2 yr.

And still demand is not sufficient.


Wed, 06/27/2012 - 08:09 | 2564470 machineh
machineh's picture

Conclusion: banksters are so stoopid, they could lose money running the only legal whorehouse in town.

Wed, 06/27/2012 - 08:42 | 2564515 bdc63
bdc63's picture

... ? ... I thought Goldman Sachs WAS the only legal whorehouse in town ...

Wed, 06/27/2012 - 07:27 | 2564412 q99x2
q99x2's picture

There are calls for a United States of Europe so the banksters can implement drones, DHS, TSA and basically prepare for the culling of the species in Europe.

They are preparing for war against the US.

Don't let CNBC talk you into it.

Wed, 06/27/2012 - 07:31 | 2564415 ArgentoFisico
ArgentoFisico's picture

MPS is well known in italy as the Democratic Party Bank.. that's to say the old Comunist Party in his most recent fashion. No, be sure, they aren't comunists sinse i was born... but still someone calls it the Buracratic Party, as the majority of its votes comes from public employes. Obviously the Burocratic Party is Monti's best supporter right now.

Wed, 06/27/2012 - 07:37 | 2564428 EscapeKey
EscapeKey's picture

Funny how all things completely undemocratic are so eager to include the name "democratic" in their title...

Wed, 06/27/2012 - 08:11 | 2564477 machineh
machineh's picture

Come now, that's a rather disrespectful way to talk about the German Democratic Republic where Andrea Merkel grew up.

R-E-S-P-E-C-T, please!

Wed, 06/27/2012 - 07:30 | 2564416 Euro Monster
Wed, 06/27/2012 - 07:37 | 2564427 GCT
GCT's picture

I thought some of you may enjoy this.  GS boss reaffirming what ZH has stated for two years now.

The fearmongering is going ahead full steam on the people.  The exposure of the big banks as stated here all the time is now in the media.  Let the bastards fail so we working smucks can again try to etch out a decent living.

Wed, 06/27/2012 - 07:45 | 2564429 bdc63
bdc63's picture

LTRO is and always was a bandaid.  I think all the players understood that even at the time.  They were buying time to get everybody to warm up to Eurobonds to spread the debt of the PIIGS like peanut butter over all of the Euro Union. It truly is the only choice outside of default. "Everybody" (save for some of us) was expecting that Merkel would cave and give into Eurobonds.  I mean she had to, right? -- the way all the economies and banks were so intertwined ... if she didn't, Germany would be hurt just as bad as the dying PIIGS ... yes, surely Greece, Italy and Spain had Germany over a barrel, right? ... RIGHT? ...

Except now it appears -- from every single word out of Merkels mouth over the past 3 weeks -- that Germany is DONE.  They clearly now have their plan that protects Germany if the PIIGS go into full fledged Argentina-style defualt (which I believe is dumping the Euro and succeding from the union if forced, going back to the DM, reinstating a German Central Bank, and as the PIIGS start to fail and threaten German banks, the German CB will print and buy the German bank's junk at par to keep them solvent).

This whole arguement about "they won't do it because they need us as bad as we need them" reminds me a WHOLE LOT of the argument that I've been hearing for years about the Chinese buying US Treasuries ...

Wed, 06/27/2012 - 07:52 | 2564442 Gief Gold Plox
Gief Gold Plox's picture

By some strange coincidence, I forgot my reading glasses today and read the first line of your comment to be: "LTRO is and always was braindead"... oh wait, "bandaid".

Heh, both work just fine.

Wed, 06/27/2012 - 07:55 | 2564444 Alejandrito
Alejandrito's picture

Ltro buy time, obviously, but also allowed the Spanish and Italian banks could avoid an imminent default the only way they could do. This postpones the problem within 3 years, so they think, while the southern countries give up their fiscal sovereignty Germany.

Once you achieve a total integration Europe, the ECB began to act as the Fed, and then we can talk about is the last kick forward before the big collapse.

The latest merkel statements are only another move in this great game of poker which is the building of a great Europe.


Wed, 06/27/2012 - 07:42 | 2564434 falak pema
falak pema's picture

Oligarchy financial markets and the sovereign rape mechanism; thank you PAx Americana and HF/PD corrupt "free market" stranglehold. Not that BMPS / Italy or Santander/Spain or France/BNP-Paribas or Germany/Deutsch bank are any better than their AMerican hegemonial counterparts. As surrogates they are part of same cabal. But its the people who pay the price and that is fall of first world now looming in sight.

Wed, 06/27/2012 - 08:02 | 2564459 100pcDredge
100pcDredge's picture


Wed, 06/27/2012 - 08:09 | 2564471 Gief Gold Plox
Gief Gold Plox's picture

There is a solution to this problem. A very simple and an incredibly idiotic one. This alone makes it almost certain to be implemented.

Didn't the ECB just widen the accepted collateral? Could they get it wide enough as to accept failing government bonds LTRO #1 and #2 banks were forced to take on? Pledge them for LTRO #3, get ever-allusive liquidity at 1% and purchase govt. bonds with 3+%.

Success! Crises averted! Europe saved once again. I'll be sure to mention ZH in my Nobel Prize acceptance speech. They still dish out gold, right?

Wed, 06/27/2012 - 08:22 | 2564492 twocents
twocents's picture

Two days to save the Euro Flash!

Maybe they should play this at the summit.


Wed, 06/27/2012 - 09:36 | 2564674 GMadScientist
GMadScientist's picture

Post-LTRO that 1.6 becomes a 0.?

Wed, 06/27/2012 - 11:25 | 2565105 Instant Wealth
Instant Wealth's picture

Yesterday, Burlesquoni had dinner with Monti (this is not a joke).

Elections in October? Comeback of the century? Everybody ready to Bunga-bunga?

Wed, 06/27/2012 - 16:40 | 2566311 Catflappo
Catflappo's picture

Keen to lend money to the ECB anyone?  Step right up, rock solid balance sheet (with growth rate carefully managed).....  no solvency issues.  At all.

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