ECB blows smoke for Italy

Italy did get their Bills away this morning. The ECB has been working hard in the background, aggressively buying two-years, propping the market up and digging a big enough hole to get the supply buried. Another smoke and mirrors execution successfully carried out. The Tesoro received Eur10b total bids on its 11/12 bills, with the average coming at +6.087%. These are still expensive and potentially unsustainable rates.

Wednesday’s rally in Italian yields is pushing this euro-zone crisis into a ‘new’ phase. Italy’s cost of borrowing remains in danger of climbing much higher, high enough to squeeze her out of the capital markets. Globally, we are talking about an economy that should be considered to big too fail. However, in this trading environment and unless aggressive proactive measures are implemented, the market may begin to whisper that Italy is too big to save!

Italy shares many similarities with Greece. It’s currently in a governless state, high debt ratios, structural rigidity and suffers a lack of competitiveness due to being ‘trapped’ in the EU. The changing of margin requirements and Berlusconi’s fall from grace only quickened this blackened situation. Europe has now backed itself into a situation that effects all global markets. The world fears that Italian borrowing costs will spiral beyond control, to an extent that world economies again retreat, but deeper this time.

In Greece, it took a month for 10’s to print +12% once they penetrated that psychological +7% level. This prompted the country’s first bail out package. In Ireland, four-week and yields moved from +7% to +9%, they too hand their hand out. Portugal was the outlier, it took a few months, but the result was the same. It’s when and how much? Perhaps’ the rumor that Germany’s Chancellor Angela Merkel’s Christian Democratic Union party may vote next week on a motion to allow euro members to exit the EMU is the correct one? You cannot alway’s save a drowning individual!

Other Links:
Market still wants Oil and Gold
Italian Bonds encourage Market Madness

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