Ominous

This shouldn’t be happening after this weekend’s good political news. The spread widening is weighing on France who will be on the hook for their banks who are heavily exposed to European sovereigns. Where are you

Gross, El-Erian on Europe, Strategy, Treasuries

PIMCO’s Mohamed El-Erian and Bill Gross spoke exclusively with Bloomberg Television’s Tom Keene today from the company’s headquarters in Newport Beach, CA about Europe’s crisis, PIMCO’s investment strategy and Treasury yields.

Video here

Italian contagion pushes Spanish spreads to near-record 414 basis points

We are experiencing a European bond market crash. There’s not much time left. Make your trades now because a policy response is imminent; I’m thinking by Monday morning

Italy! Italy! Italy!

The euro zone periphery was a sideshow. This stuff with Italy is the real deal. With yields at 6.7% and rising, it’s game over for the euro zone. The extend and pretend stuff ain’t gonna work

Why Investors will buy Italian bonds after ECB monetisation

If a central bank guarantees investors credibly that they can invest in certain debt instruments and not suffer principal or interest repayment risk, but only currency and inflation risk, some investors are almost definitely going to buy the debt instruments with the greatest yield pick up. Put another way, the only reason not to buy Italian debt at 2 or 300 basis points over Bunds, or Greek debt at 3 or 400 basis points over Bunds is because those governments are not credibly backstopped by the

Why questioning Italy’s solvency leads inevitably to monetisation

Last week we witnessed a flight to quality within the euro zone government bond market. The yield on 10-year German government bonds dropped a record 35 points last week. They now yield 1.82 percent. Meanwhile, the yield on 10-year Italian government bonds continues to rise, last quoted by Bloomberg at 6.37% a record 455 basis points higher than German government bonds.

Clearly, Italy is now the biggest focal point of the European sovereign debt crisis. And, make no bones about, while the immediate concern for Italy is liquidity, at heart the European Sovereign Debt Crisis is a solvency crisis. Let’s take a look at Italy to see why

Europe’s Tower of Terror

So what is the trade? If Italy continues to blow out and a big bazooka EFSF bailout fund is not attainable, the EU will be faced with certain death or massive ECB bond purchases. We think they will choose the later, which makes the Euro a sell against the dollar and gold a buy, in our opinion

Reserves, Governement Bond Sales, and Savings

Last week we showed that government deficits lead to an equivalent amount of nongovernment savings. The nongovernment savings created will be held in claims on government. Normally, the nongovernment sector prefers to hold that much of that savings in government IOUs that promise interest, rather than in nonearning IOUs like cash. This week we will look at this in more detail

Italian yields now well above 6%

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 to France, Belgium and Austria

What do sovereign CDS and bond markets think of the Greece deal?

CDS buyers hate it, as do holders of Italian, Spanish, Irish, and Belgian bonds. Portuguese bond holders are just fine. There was no reaction in Austria, Germany and France

Berlusconi Cuts Deal: Et Tu Brute

Controversial Italian Prime Minister Berlusconi appears to have finally capitulated to international and domestic pressure. Press reports indicate that he has agreed to step down by January. This in turn will bring forward elections, probably to March 2012, a year earlier than Berlusconi had previously insisted

The two-step process of saving

Recipients of government spending can hold receipts in the form of a bank deposit, can withdraw cash, or can use the deposit to spend on goods, services, or assets. In the first case, no further portfolio effects occur. In the second case, bank reserves and deposit liabilities are reduced by the same amount. In the third case, the deposits shift to the sellers (of goods, services or assets). Only cash withdrawals or repayment of loans can reduce the quantity of bank deposits—otherwise only the names of the account holders change. These processes can affect prices—of goods, services, and most importantly of assets