Fear And Bloating Redux In Italian Bonds

While there is no arguing with the strength in Italian bond prices, yield (now less than 6% again), and spreads (cash and CDS) over the last week or so, there is a rather ugly and similar-looking precedent from only five months ago that is making managers nervous. It seems that the hope is this time is different as we remember the three-step reaction to the summer's efforts to bailout the eurozone as fear gave way to hope which inevitably became reality. BTP prices are trading at levels which were viewed as precipitous in the summer and warranted massive intervention (the ECB announcements) and obviously spreads and yields reflect similarly the market reaction to any and every stick-save.

...and away from price, yields and spreads are better (notably better than their worst levels from the last month) but in context they remain drastically stressed. Of course traders' inherent anchoring biases only see the last 10 minutes and so follow the momentum.

Charts: Bloomberg


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