Worldwide Markets Collapse Following Italian Bond Margin Hike

Tyler Durden's picture

The much dreaded LCH margin hike came and went and while initially the market participants thought it was just a joke as nothing bad is ever allowed to happen anymore in these neverneverland markets, a few hours later the realization that this is all too real has finally dawned. The result is an epic bloodbath everywhere, but nowhere more so than in Europe, where one can kiss Italian bonds goodbye, and shortly French too, as the bond vigilantes demand that the ECB print now or else. Visually this is presented as follows: a 30 point drop in the ES, an unseen collapse in Italian bonds, and an explosion in the French-Bund spread. And since nobody can demonize CDS any more, we expect Europe to make selling sovereign bonds illegal next.


BTPs price:

France-Bund spread:

Commentary from Bloomberg:

  • LCH Clearnet SA increased charge levied on clients to trade Italian government bonds {FIFW NSN LUE2U16S972B <go>}
  • With Berlusconi expected to resign after approval of austerity measures, market left to wonder whether new government can alter trajectory of debt crisis
  • Italian 10-yr spread to Germany +74bps to record 543bps, 2-yr spread +80bps to record 694bps
  • Spanish French yield to Germany spreads significantly wider; with 2- and 10-yr spreads for both countries at records
  • European equity bourses, U.S. futures all down significantly, 1.6% to 3.3%
  • German bond yields down modestly, 2-6bps, while Treasury yields down 0.1 to 10bps, with 10-yr testing below 2.0%
  • US$, yen outperforming significantly in generalized risk aversion

And some thoughts from RBS:

  • LCH’s increase in initial margin calls on Italian govt bonds will likely hit Italian banks the hardest, Adam Cole, strategist at RBC, writes in note.
  • Move will make using BTPs as collateral to raise cash in repo mkts more expensive
  • LCH’s move anticipated for some time though still sufficient to push spreads to record levels, outright yields to new highs
  • Berlusconi’s resignation diluted by lack of clarity
  • Possibilities range from technocrat govt (most mkt positive) to new elections (most negative)

Bottom line: it turns out that pushing back reality indefinitely always comes back to bite you in the ass eventually.

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GeneMarchbanks's picture

Long time comin'

Rome Riot Cam?

homersimpson's picture

It's days like these why I hold FAZ. Nothing like a good defense against fraudulent stock markets and crappy economic policies born out of desperation and stupidity.

paarsons's picture

Good Citizens of Metropolis!

Look on the bright side.

At least we aren't getting hit by the commet!

And the price of dog food is going down.

We can still feed our families.

trav7777's picture

Sovereigns are the new subprime

disabledvet's picture

this is good for war too...

Snidley Whipsnae's picture

Yes... for the last 44 years... but I'm only a transitory gold buyer.

Calmyourself's picture

Cain screws up the race card for bammy..

DaBernank's picture

Good for you, FAZ up ~8% in pre.

Quinvarius's picture

Poor robo.  He thought banks were a momo trade yesterday.

Big Slick's picture


Cdad's picture

Personally,  I sold BLK...and bought TZA last night at the close.

Remember Larry Fink's comments about a month ago:  "Make them buy equities."  I'm sure he was also in the crowd saying, "US exposure to European debt is manageable."  Uh huh.  Of course, just three days ago we had Reuters confirm that BLK had been buying Italian debt.

Larry Fink better hope that accounting does not come back into style any time soon.

MsCreant's picture

Counterparty Risk. 

Mother Fucking Global.

Good luck.

Cash_is_Trash's picture

Note to self: Bring motorcycle helmet to riot.

krispkritter's picture

Bread helmets for everyone!

And buy your peanut butter and jelly now while you can still afford it...

Cash_is_Trash's picture

Peanut butter and jelly padding!

slaughterer's picture

This decline will only be a one-day aberration.  Once the Italian bondholders clear up their margin hikes, and the world's leaders step in with their ingenious plans, the market will continue its rally into Christmas.  No need to worry.  BTFD. 

writingsonthewall's picture

I think you'll find the market is long on bullshit and short on suckers.


Please - go right in, your BTFD in Italian debt - I mean it's cheap - therefore it must be good value!!


knight99's picture

sometimes the easiest trade can be the hardest trade. Eur 1.15 first target here's hoping. Now that Italy 10 yr has well passed the point of no return for thier bond yeilds 7% and no CDS to protect anyone buying it (making it an untouchable) we have two options print or default either one leads to a much much lower Euro. That being said will cover half my position on a close above 1.371 and will live to fight another day.

Vampyroteuthis infernalis's picture

EUR to parity with the USD. It is even a more worthless piece of paper. The US can learn something. A populace run by corrupt bankers who allow their citizens to do nothing leads to nothing but bankruptcy.

GMadScientist's picture

This is like one of those horrible limit problems from first year there anything we can cancel out between the two monotonically declining geometric series?


StychoKiller's picture

Both series are being swamped by the large 'Stupidity' series involved...:>D

jdelano's picture

agreed.  this trade has taken more resolve than any I've ever attempted.

Schmuck Raker's picture

Is this a great f'n country, or what?

Snidley Whipsnae's picture

Gave you a + Schmuck Raker... even though I am leaning toward the 'or what'. :)

StychoKiller's picture


it turns out that pushing back reality indefinitely always comes back to bite you in the ass eventually. [/quote]

Translation:  Ayn Rand was right!

duo's picture

One of the few bright spots in the Michigan economy (X-mas trees), and Obamao has to screw that up.

There should be a $10 tax on landfill-clogging Chinese-made plastic Christmas trees.

Bobbyrib's picture

A tax to promote Christmas trees? You can't make this shit up!


Chicago is one hell of a city. The only other place you could find corruption this bad is in NJ.

El Viejo's picture

You can't tax a religion unless of course words are spoken from the pulpit that politicians don't like. Sound Familiar? (Think prewar Germany)

CH1's picture

Sadly, that's not entirely true. New Orleans, for example.

And of course, Washington. The gang there still wears "constitution clothes," which covers some of their corruption, but the city oozes it.

Oceans of other people's money + nameless bureaucrats = incurable corruption.

Oleander's picture


StychoKiller's picture

Which reminds me -- time to put the XMas lights up outside on the spruce tree.  What a barbaric waste of tree sap to cut down a tree and drag it into yer house -- why not just get some pine-scent air spray, and an artificial tree  instead?

Oh regional Indian's picture

There you go. 6% is now history. 7% is now taken. All these NUMBers. NUMBers. Still, Italy is safe. Very safe. Vatican back-stop safe. 

What is happening to Spanish Debt? Is Santander sweating?

Europe will finally slide on Spain.


Paying Attention

Raskolnikoff's picture

what does the Vatican have to do with modern history? What do your brains have in common with your opinion...? these questions have the same answer.

Oh regional Indian's picture

Well Rasko, from your comment, you sound like you would bleat when you speak.

Bleat, get it? Keep believing your sanitized version of history. It will, like the last line of thsi article, come and bite you in the ass.

Do a little Google search: Vatican Broken Cross for starters. Or don't. You sound like a conformist.


trav7777's picture

as opposed to your secret (made up) history that has no connection to anything that ever really happened?

There was a time when the Pope raised armies and fought wars on his own dime.  That time has long passed.

Oh regional Indian's picture

Trav, when you've finished about 5 books on the topic, get back to me. 

There is real history and there is consensus, victor written history.


mick_richfield's picture

What books would you recommend, ORI? 

How about your top 5 on this topic?

Oh regional Indian's picture

How about starting with one....

And here :

If you can wrap yoru head around them....then....many many more. But only if you were serious.


StychoKiller's picture

I'm of the opinion that the age of kali will end in 2012, what do you think?

LeBalance's picture

The Roman (empire, Darth Vader, Emperor Palatine, etc) have Nothing to do with so-called modern history.

Don't look at the laurel wreath borber on the UN seal or any of the gazillion other places it is.  Don't let the symbolism harm your preconception of who runs this joint.


Reality is threatening.

GMadScientist's picture

I've always been bugged by the fasces on the back of FDR dimes.

"From many, one" indeed...(as in, "and then there were...").

CH1's picture

Yes. Walk around Congress (also many monuments of DC) and you'll be much more bugged. Looks like freekin Rome.

RiverRoad's picture

And how about "In God We Trust" on the back of the dollar bill of all places?!

my puppy for prez's picture

You obviously have NO idea what the Vatican is ALWAYS AND FOREVER up to!  It doesn't involve "sacraments", and it is NOT good!