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Italy Sells Long-Dated Bonds To Weak Demand, 10 Year Prices Just Inside Of 7%, Bids To Cover Miss

Tyler Durden's picture




 

Today's most anticipated economic headline - the sale of 3 and 10 Year Italian bond - auction has crossed, and judging by the selloff in the Italian secondary bond market (north of 7% now) and the drop in the EURUSD, now under 1.2900, it was a solid disappointment. Italy sold well below the targeted EUR 8.5 billion in 2014, 2018, 2021 and 2022 notes, with the key 10 Year 5% bonds pricing in line with the target EUR 2.5 billion, and optically successful at 6.98%, just inside the 7% critical level. The Bid To Cover was a weak 1.36, barely an improvement from the 1.34 from November 29, the day before the coordinated Fed bailout of Europe, when the same auction cost Italy 7.56%. And this was the good news: virtually all the other discrete auctions were far uglier than the headline indicated with demand weaker across the board.

In addition to the 10 Years, the Italian Tesoro sold:

  • EUR 2.54 billion in 6% bonds maturing 2014, less than the target of EUR 3 billion, the yield was 5.62% compared to 7.89% previously, with the Bid To Cover worse at 1.36 compared to 1.50 on November 29.
  • EUR 1.18 billion in 4.75% bonds maturing 2021, less than the target EUR 2 billion, the yield was 6.70%, compared to 5.77% previously, and a Bid To Cover just barely higher at 1.60 compared to 1.48 before.
  • EUR 803 million in FRNs due 2018, less than the target EUR 1 billion, the yield was 7.42% far higher than the 5.590% from October 28, and a Bid To Cover of 1.97 lower than before.

All in all, when one ignores the purely optical "improvement" in the 10 Year pricing, since 12 bps wider, well north of 7%, this was a very weak auction, with demand missing across all tranches, and confirming once and for all that as we have been saying all along, the LTRO has been an epic failure. 

And now - we look forward to the next European Summit, tentatively expected some time in the second week of January.

 

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Thu, 12/29/2011 - 06:53 | 2018520 Dick Darlington
Dick Darlington's picture

Aaand ECB buying Italy now. Stabeeletee...

Thu, 12/29/2011 - 06:58 | 2018525 GeneMarchbanks
GeneMarchbanks's picture

If by ECB, you mean FED, then yeah...

Thu, 12/29/2011 - 07:08 | 2018538 Dick Darlington
Dick Darlington's picture

They're all the same. Part of the cartel...

Thu, 12/29/2011 - 07:17 | 2018546 falak pema
falak pema's picture

Come on! Its one big Oligarchical family; in ancient times, before Pericles and the council of five hundred, they called it "Aeropage", the rock of Ares, meaning the place where the council of elders, patrician oligarchs, decided fate of Athens. A bit like 'Loya Jirga' in Oligarchical Afghanistan. Those who control drug trade, arms trade and land distribution...

Soooo, we are in total oligarchical control of crazy, hazy, daisy, ponzi money line. Keep playing 'Waltzing Matilda' on the Titanic!

Thu, 12/29/2011 - 06:56 | 2018522 FoieGras
FoieGras's picture

In other (unreported) news.. Gold and PMs getting poleaxed.

Thu, 12/29/2011 - 06:57 | 2018524 I am Jobe
I am Jobe's picture

OIL is up. Whoo Hoo. The new normal.

Thu, 12/29/2011 - 07:08 | 2018526 youngandhealthy
youngandhealthy's picture

Epic failure? yeezz....U R naive sometimes

If you look at the yields for Bonds within the "LTRO range" (2014 BTP,avg yield 5.62% (7.89%)) its a reduction in yield by 30%. If you also include the two year from yestarday and the T-Bill you see substantial yield improvments. To call that an epic failure is just silly and it smack hidden interest

 

 

 

Thu, 12/29/2011 - 07:39 | 2018576 jcaz
jcaz's picture

Yeah, you just keep telling yourself that having to pay 7% is good for Italy.....

Thu, 12/29/2011 - 07:44 | 2018582 Ghordius
Ghordius's picture

the question is "for how long" - "which part of the debt portfolio" and most importantly "compared to whom"?

remember the Italians payed 16% in the eighties... and their newest italian word is "Spread"

Thu, 12/29/2011 - 23:25 | 2020935 ThrivingAdmistC...
ThrivingAdmistCollapse's picture

Italy has too much bad debt to keep this charade on for much longer.  The amount of interest on Italian bonds will continue to climb until that country has an economic collapse.

Thu, 12/29/2011 - 08:02 | 2018607 carambar
carambar's picture

Young, do not pay too much attention to the negative hype. This is an ubber bearish blog. unfortunatly a lot of conspiracy freaks found home hear, and their comments makes hard to sort out the good from the garbage.

I thought it was bold from Italian authorities to make a bond auction just 1 day before year end. Usually books are close.

institution and banks avoid as much as possible trades that kind of trade. Let's wait for the next Italian auction.

Cheers

 

Thu, 12/29/2011 - 08:09 | 2018613 jcaz
jcaz's picture

"Bold"?   They NEEDED the money!  When you're issuing 7% debt in a zero-interest rate environment, you HAVE problems!

You're naive-  this blog is only "bearish" when you don't like the facts being presented-  sorry you don't like the news.....

Let's see if Italy MAKES it to the next auction.....

Thu, 12/29/2011 - 08:16 | 2018621 youngandhealthy
youngandhealthy's picture

@carambar....you know what?   LTRO II is around the corner  :-) (1st of March)

A scramble for collateral before LTRO II is highly likely (with extended range of collateral also annjounced by ECB).

Im a buyer.  

Thu, 12/29/2011 - 06:58 | 2018527 gojam
gojam's picture

"And now - we look forward to the next European Summit, tentatively expected some time in the second week of January."

Two Weeks to Save the Euro !!!  (here we go again.)

Thu, 12/29/2011 - 07:06 | 2018531 GeneMarchbanks
GeneMarchbanks's picture

Meanwhile a 1.29 €/$ is greatly boosting demand for German exports. Noda is not happy...

Thu, 12/29/2011 - 07:19 | 2018543 gojam
gojam's picture

But what percentage of German Exports is within the Eurozone and therefore not effected by a lower Euro ?

Meanwhile Importing vital commodities like oil and gas becomes more expensive.

If the Euro gets too low then it might be time for the UK and US to devalue against the Euro with more QE.

Thu, 12/29/2011 - 07:21 | 2018549 falak pema
falak pema's picture

dble. oops.

Thu, 12/29/2011 - 07:20 | 2018550 falak pema
falak pema's picture

Oligarchs are united against the sheeple but fall out when their own interests are at stake; shades of Sarajevo moment, in the making.

Thu, 12/29/2011 - 07:24 | 2018552 GeneMarchbanks
GeneMarchbanks's picture

But not before a Yen-tervention with a six hour half-life.

Cheap € always means rising demand for German goods. If you need proof, check out Siemens profits in 2008...

Thu, 12/29/2011 - 07:33 | 2018567 gojam
gojam's picture

I'm not questioning your perspective but as you mentioned with the Yen, every major currency over the last year has devalued against the weakening Euro either with existing pegs like the Yuan, or new ones like the Swiss Franc or by printing like the US and UK.

Thu, 12/29/2011 - 07:38 | 2018574 GeneMarchbanks
GeneMarchbanks's picture

Well... if you're Japan or the US it's not working out so well now is it? The Yen intervention is becoming just sad now...

... and supposedly Obama is doubling exports by 2015, how's that working out?

€ #winning

Thu, 12/29/2011 - 07:42 | 2018579 Ghordius
Ghordius's picture

currency manipulation is such a suble way to reinvigorate the Megabanks

first EURUSD down to 1.3 for year end, soon we'll see 1.425...

Thu, 12/29/2011 - 08:05 | 2018585 gojam
gojam's picture

It'll all end in tears like all precarious balancing acts.

 

"Look at me!

Look at me!

Look at me now!

It is fun to have fun

But you have to know how.

I can hold up the cup

And the milk and the cake!

I can hold up these books!

And the fish on a rake!

I can hold the toy ship

And a little toy man!

And look! With my tail

I can hold a red fan!

I can fan with the fan

As I hop on the ball!

But that is not all.

Oh, no.

That is not all......."

 

That is what the cat said....

Then he fell on his head!

He came down with a bump

From up there on the ball.

And Sally and I,

We saw all the things fall!

 

-Dr Seuss, Children's author (and economist?)

 

Thu, 12/29/2011 - 06:58 | 2018528 george1982
george1982's picture

can someone please tell me what the fuck is supporting equitys?

Thu, 12/29/2011 - 07:09 | 2018539 GeneMarchbanks
GeneMarchbanks's picture

PPT.

 

Welcome...

Thu, 12/29/2011 - 06:59 | 2018529 Clam McCain
Clam McCain's picture

Abandon ship boys - the rats and mice are finding the lifeboats

 

Thu, 12/29/2011 - 06:59 | 2018530 The Axe
The Axe's picture

6.98%  thats much better then 7%   ha ha ha   oh ouch.

Thu, 12/29/2011 - 07:03 | 2018532 chump666
chump666's picture

ECB won't buy till FED commited swaps in 2012.  another auction flop shows how demented the Euro markets have become.

yes Ben Bernake is funding the can kicking of European madness.

stocks will go neg, USD bid, oil hedged etc etc etc

Thu, 12/29/2011 - 07:25 | 2018554 bankofvol
bankofvol's picture

Given the unsustainable level of the 10 years yiled for Italy and the coming Eur 90 bln it has to raise in Q1 of 2011, you can expect that the next step for the ECB is to launch a 10 year LTRO so that european banks can buy Italian 10 year in a carry trade. Only issue is whether Mario Draghi would dare to committ the ECB on a maturity that extend well beyojn his own personal mandate.

Thu, 12/29/2011 - 08:15 | 2018620 tim73
tim73's picture

Where the fuck you get that unsustainable level?! Italians paid whopping 15 percent early nineties with the same debt load, 120 GDP. So some stupid yank once again "decided" seven percent is critical...because Italy is next to Greece! And you motherfucking idiots repeat that like parrots.

Thu, 12/29/2011 - 08:27 | 2018647 jcaz
jcaz's picture

LOL-  yeah, 15% against what?  it's RELATIVE, moron, and you're in trouble.....

Thu, 12/29/2011 - 08:46 | 2018680 firstdivision
firstdivision's picture

..but there was no Euro, and Italy had no backstop to its debt problem. 

Thu, 12/29/2011 - 09:06 | 2018747 bankofvol
bankofvol's picture

No need to get emotional or impolite here, just do the math, if you have a debt to GDP of 120% and a growth rate below 0% while you pay 7% interest on your debt, then your debt is growing much quicker than your revenues and you have to issue new debt to pay back your old debt (your austerity measure will not reverse that as the sspread is too large or your growth will falter even more so vicious circle), this process can work for some time but is quickly unsustainable on the medium term. However you can do that on the long term if you have a central bank that monetize your debt, this way you pay back your debt at a lower real value (but a the same nominal value) than the value at which you have issued it, you can thus softly default (i.e. pay back in monkey but technically not default), unfortunately for Italy it cannot do that trick with Euro and ECB current mandate.

Thu, 12/29/2011 - 10:44 | 2019041 bankofvol
bankofvol's picture

And 2h30 later CNBC talking about this same idea, looks like people are quick to understand (or to read) what the obvious solution is. So be sure that ECB will analyze this idea now that it is out an very likley apply it. When this happens, we may have the close to final solution in place until growth concerns come back to the surface but this if implemented will be enought to trigger a monster rally in 2012 be sure of it. So it might be game over for short like me and will be forced to trun long if this happens.

Thu, 12/29/2011 - 11:08 | 2019121 bankofvol
bankofvol's picture

    Now I find this so obvious a solution that I am expecting a major rally if it is announced

Thu, 12/29/2011 - 07:33 | 2018565 youngandhealthy
youngandhealthy's picture

And for those who didnt know (or remember)

2012 1 Mar.  to 26 Feb. 2015 1092 days.    =   LTRO II from ECB. Unlimited as LTRO I

Between now and then....scramble for collateral !!  (which will be "further" extended/quallified)

 

 

Thu, 12/29/2011 - 11:44 | 2019225 Snakeeyes
Snakeeyes's picture
After all the monetary stimulus they have thrown at the banks and Italy, it is like that "And all I got was this t-shirt." Italy Bond Sale Malaise And The 7% Solution

http://confoundedinterest.wordpress.com/2011/12/29/italy-bond-sale-malai...

Do NOT follow this link or you will be banned from the site!