Confirming just how much the market has lost it, at just after 5 am Eastern when the news of today's Italian auction as announced, the EURUSD soared by almost 100 pips on news that the auction had not failed. Apparently the lack of day to day bond issuance failure is now good enough for Europe. In the meantime, one look at the actual auctions that made up today's action show just how unsustainable Italian debt yields have become. The Italian Treasury priced 3, 9 and 11 year BTPs at yields that were simply laughable, and are completely non-sustainable in the long run. Specifically, the Tesoro sold €3.5bln in 6.00% Nov'14 bonds at a bid/cover 1.502. The yield was a mindboggling almost 8% or 7.89% compared to 4.93% on October 28 - a 3% increase in 1 month; it also sold €1.499 bln of 4.00% Sep'20 bonds at a 1.538 B/C vs. Prev. 1.49 and a yield of 7.28% vs. Prev. 5.470% a month earlier, and lastly €2.5 billion in 5.00% Mar'22 bonds, at a bid/cover 1.335 vs. Prev. 1.27 and a yield 7.56% vs. 6.060% previously. Yup, the 3 years were nearly 8%! Yet as noted earlier the fact that anything priced was enough for a quick kneejerk reaction higher in prices on the benchmark 10 Year BTP... If only for one hour. As the chart below shows, the BTP has sold off aggressively post the realization that the "successful" auction was almost as bad if not worse than a failure, as that at least would have kicked the ECB into monetizing.
In other news, Belgium also sold a bunch of debt at ridiculous prices. From Reuters:
Yields on short-term Belgian debt shot up to their highest levels since November 2008 at an auction of three- and six-month treasury bills on Tuesday, mirroring Monday's increase in the price the country has to pay for its longer-term debt.
The country has come under increasing market pressure over the absence of a new government since a June 2010 general election. Unlike the current, interim, government, a new government would find it easier to tackle Belgium's public debt approaching 100 percent of annual economic output, which has led to a higher cost of borrowing.
"It is bad," said Peter Chatwell interest rate strategist at Credit Agricole. "It is illustrative of the deterioration of Belgian credit that we've seen since the last auction."
However, despite the difficult auction, interest rates in the secondary market for Belgian debt had fallen slightly, he said. "Over the last two days there's been an improvement in the Belgian market."
And a full breakdown on today's miserable Itlalian auction that no matter how you spin it was abysmal from Reuters
Italian borrowing costs hit euro lifetime peaks at a debt auction on Tuesday as investors demand ever higher premiums to keep funding the country, in a sign that the sovereign debt crisis is nearing make-or-break point.
The yield on a new three-year Italian government bond soared to almost 8 percent, a level seen driving its financing costs to unaffordable levels if sustained for a long time.
The new three-year paper was trading at yields around 8 percent in the gray market before the auction, over 40 basis points more than the July 2014 bond, according to prices on Reuters.
Analysts said the huge rise in the yield on the three-year maturity -- last sold at the end of October at 4.93 percent -- supported demand and helped the Treasury place the target range of 2.5 billion to 3.5 billion euros planned for the first tranche.
In total, it sold 7.5 billion euros of bonds, close to the upper end of its target range.
"These are good auctions in terms of the amount of bids, size issued ... but the ever higher yields remain the concern," said Peter Chatwell, interest rate strategist at Credit Agricole.
"In an ideal world these yields, and the fact that the three-year was above 8 percent in the gray market this morning, would serve to give the EcoFin/Eurogroup a sense of added urgency, but this is a far from ideal world."