Italian yields now well above 6%
The euro zone crisis deal has not had any positive effect on yields in Italy, now the biggest problem for the European sovereign debt crisis. In fact, yields on Italian debt have increased significantly since that deal was done, perhaps due to the non-trigger of credit default swaps in Greece.
10-year Italian paper now trades at 6.17% and is poised to break through highs set in August. While the ECB and European leaders recognise that the ECB is the difference here, they are as yet unwilling to have the ECB declare itself Europe’s lender of last resort. And so this crisis in Italy will get worse and spread further to France, Belgium and Austria.
Also see the Reuters article: ECB doomed to bigger crisis role despite itself
Italian 10-Year Government Bond Yield
About Edward Harrison
- Chart of the day: Italian bonds back over 6% 20 Oct 2011
- Policymakers fear the Italian penalty shot 18 Aug 2011
- Mario Draghi: Fears of Italian debt spiral 12 Oct 2011
- On Eurobonds and Italian default 15 Aug 2011
- Core bank exposure to Italian debt an order of magnitude larger than periphery combined 12 Jul 2011
Clearly the markets think that this is not resolved. I suspect that they are right.
Just speaking on what seems obvious , how does the G-20 , Troika or EuroGroup proceed given today’s shock announcement from Greece’s PM concerning a referendum being called on the second bailout ? For example , how do private investors ( who reluctantly agreed to the 21 percent haircut from the July accord and now face a 50 percent haircut ) vote in January – without knowing what the result of the referendum might be ? Additionally , how can Greece enforce any austerity measures which have punitive aspects ( whether wage cuts , labor rule changes , privatization schemes , property tax hikes with power cuts imposed on the non compliant ) now that a referendum has been announced for the greek people to decide how they wish to proceed ? Similarly , how can the Troika disburse the sixth tranche as announced , with the knowledge now that all of the foundations for disbursing the sixth tranche ( let alone the pillars for the second greek bailout ) , could fall completely apart within weeks ? Finally , what can possibly be accomplished in Cannes on Nov 3rd and 4th in light of this revelation – not knowing what could occur in the possible Jan referendum , how could BRICs , GCC or any other perceived sources of funding for the proposed EFSF SPIV ?
For investors who have CDS coverage it would make them whole again. For those without CDS they would face bigger losses, as their bonds would probably be wiped out. Though I doubt that many will have coverage. The impact for Greece will be its banks collapse but they are insolvent already, so just pretending its just a liquidity problem is corrupt. The EU will still have to re capitalise the Greek and Cyprus banks. There will be additional regeneration funds because of the impacts of austerity.