Italy/Germany govt bond yield at widest since Dec 10

Jetzt geht’s wieder los! (hfk)

• Milan | Tue Feb 26, 2013 2:35am EST

MILAN Feb 26 (Reuters) – The spread between yields on 10-year Italian and German government bonds widened to a maximum since Dec. 10 after inconclusive elections left Italy with no defined majority in parliament, raising concerns of political deadlock.

At 0732 GMT the closely-watched 10-year bond yield spread between Italy’s BTP and Germany’s Bunds was at 343 basis points against 283 basis points at the close on Monday.

The yield on Italy’s 10-year BTP rose to 4.87 percent from 4.448 percent at the close on Monday.

Panic-driven austerity in the Eurozone and its implications

Paul De Grauwe

Professor of international economics, London School of Economics, and former member of the Belgian parliament.

Yuemei Ji

Economist, LICOS, University of Leuven

Paul De Grauwe, Yuemei Ji, 21 February 2013, voxeu

Eurozone policy seems driven by market sentiment. This column argues that fear and panic led to excessive, and possibly self-defeating, austerity in the south while failing to induce offsetting stimulus in the north. The resulting deflation bias produced the double-dip recession and perhaps more dire consequences. As it becomes obvious that austerity produces unnecessary suffering, millions may seek liberation from ‘euro shackles’.

Southern Eurozone countries have been forced to introduce severe austerity programs since 2011. Where did the forces that led these countries into austerity come from? Are these forces the result of deteriorating economic fundamentals that made austerity inevitable? Or could it be that the austerity dynamics were forced by fear and panic that erupted in the financial markets and then gripped policymakers. Furthermore, what are the implications of these severe austerity programs for the countries involved?

The facts: Austerity and spreads

Changing Course on a Euro-Zone Crisis Trade .

Date: 07-11-2012
Source: The Wall Street Journal

For most of the last two years, the big euro-zone sovereign crisis trade has been to buy the debt of stronger northern European countries and sell that of their struggling southern peers.

But has that trade now run its course? Some investors are now backing the opposite bet: favoring Italy over France.

Italian 10-year bonds currently yield 4.9%—2.7 percentage points more than France. That partly reflects Italy’s far-higher level of public debt: 126.1% of GDP in the second quarter of 2012, compared to 91% in France. Italy also faces political uncertainty tied to its elections in 2013.

But judged on other metrics, Italy fares well in comparison to France: it has a lower budget deficit, a stronger current-account position, and unemployment hasn’t ballooned as in other southern European states. Italian bond issuance will fall sharply in 2013, while it remains high in France. Crucially, Italy has a long track record of managing high debt.

Italy’s challenge is growth. But Prime Minister Mario Monti has made progress on a range of structural overhauls, including labor-market reforms, that should boost long-term growth. Italy’s recession has been driven by a sharp tightening in lending standards that is now easing, Deutsche Bank notes.

A Spread-Fixing Scheme: Monti’s Pyrrhic Victory?

 

Author: Paolo Manasse · July 2nd, 2012 · voxeu

Just as with Italy’s football team, Mario Monti has been hailed for beating the Germans – in his case at the recent EU summit. But this column argues that, just as with the football, Italy’s victory over Germany may soon lead to disaster.

Together with Mario Balotelli, the football player, Mario Monti was heralded in Italy for bashing Germany, in his case at the recent EU summit. For Monti’s supporters, the satisfaction stemmed from achieving an explicit mandate for the EFSF/ESM to ‘stabilise’ yields differentials by intervening in the primary and secondary market. Yet, as in the case of Italy’s ephemeral victory against the German soccer team, which preceded a disastrous defeat against Spain, Mario Monti’s achievement with the ESM may turn out similarly doomed. This is why.

The interpretation of the summit communiqué is, as usual, not very transparent. It says:

“We affirm our strong commitment to do what is necessary to ensure the financial stability of the euro area, in particular by using the existing EFSF/ESM instruments in a flexible and efficient manner in order to stabilise markets for Member States respecting their Country Specific Recommendations and their other commitments including their respective time lines, under the European Semester, the Stability and Growth Pact and the Macroeconomic Imbalances Procedure. These conditions should be reflected in a Memorandum of Understanding. We welcome that the ECB has agreed to serve as an agent to EFSF/ESM in conducting market operations in an effective and efficient manner. We task the Eurogroup to implement these decisions by 9 July 2012.”

Although the details shall be filled by July 2012, some educated guesses are possible:

First Deflation, Then Inflation. But the Timing…?

John Mauldin, 2/6

US Unemployment Turns Back South
A Synchronized Global Slowdown
Why Would You Buy a Bond with Negative Interest?
First Deflation, Then Inflation

One of the more frequent questions I am asked in meetings or after a speech is whether I think we will have inflation or deflation. My ready answer is, “Yes.” Then I stop, which I must admit is rather fun, as the person who asked tries to digest the answer. And while my answer is flippant, it’s also the truth, as I do expect both outcomes. So the follow-up question (after the obligatory chuckle from the rest of the group) is for a few more specifics. And the answer is that I expect we will first see deflation and then inflation, but the key is the timing. Today we will examine that question in more detail, as we look at how interest rates could actually be negative (!!!) this week in German and Swiss bonds and why the US ten-year has dipped below 1.5%. The very poor May employment number needs some analysis, too, and we’ll check the prospects of a synchronized global slowdown. Rarely have I come to a Friday with so much data that simply begs for a more thorough look, but we will try to hit at least the most important topics.

Analysis: Italy refunding ordeal looks a little less daunting

Date: 20-01-2012
Source: Reuters

Italy’s goal of refinancing some 90 billion euros of long-term debt by the end of April is beginning to look within reach after months when the weight of its debt burden looked likely to tip the euro zone even deeper into crisis.

In spite of this month’s mass downgrade of most euro countries by credit rating agency Standard & Poor’s, Madrid romped through a debt sale on Thursday with support from cheap ECB lending to banks and steady interest from domestic investors.

The same factors should also help Rome.

Saddled with a 1.9 trillion euro ($2.5 trillion) public debt, Italy is the euro zone’s third largest economy and investors have long feared it may prove too big to bail.

ECB Steps in as Italian Yields Hit 7%

Date: 06-01-2012
Source: The Wall Street Journal

LONDON—The European Central Bank again stepped into government bond markets to buy debt issued by the Italian and Spanish governments, whose borrowing costs spiralled higher Friday on concerns over the euro-zone financial system.

The yield on 10-year Italian government bonds moved up to 7.12% as investors sought higher risk premiums, returning Italian borrowing costs to levels deemed unsustainable over the longer term. At that level, the Italian government must pay 5.24 percentage points more than German yields at that maturity.

The ECB buys government bonds in the secondary market as part of its Securities Markets Program, where it intervenes in secondary bond markets to ensure depth and liquidity in dysfunctional market segments.

That describes Italian and Spanish bond markets in recent weeks, where borrowers are demanding increasingly high yields on two-year and other shorter-dated debt to offset the risk that those governments will fall into the same fiscal traps that caused Greece, Ireland and Portugal to seek external aid last year.

Which Graph Best Summarizes the Eurozone Crisis?

Author: David Beckworth · December 15th, 2011 · RGE EconoMonitor

Niklas Blanchard sends us to the BBC where “top economists” are sharing their most important economic graphs of the year. Here, for example, is an interesting graph from Vicky Price of FTI Consulting:

Price explains its importance:

“For a long time the perception was that the creation of the euro meant sovereign risk was effectively the same across all countries. That of course proved to be wrong. The Lehman’s crisis and financial meltdown that followed affected the deficits and debt levels of different countries in different ways. Interestingly it is much the same countries now with very high yields as it was pre-euro, suggesting little has changed fundamentally in a decade.”

Monti – ist der Honeymoon (luna di miele, viaggio di nozze) vorbei?

Der heutige Stand des 10 Jahres-Bond Spreads zwischen Deutschland und Italien. So viel zum Vertrauensgewinn auf den Finanzmärkten.

(Das Kabinett Monti wurde am 16. November angelobt!)

 

Lustig wird es im Februar, wenn 53 Mrd € Rollover anstehen!

Schuldenbremse in der österreichischen Verfassung? Too little – too late!

Jetzt auf einmal!

Man kann ja sehen, wie glaubwürdig das ist! Der 10 Jahre Staatsanleihen- Spread zwischen Österreich und Deutschland hat heute Mittag den Höchstwert erreicht!

Der Dank der österreichischen Staatsbürger an die Realitätsverweigerer in Regierung, Notenbank, IHS, Staatsschuldenausschuss (und gewissen Medien) sei ihnen gewiss!