THE relief rally lasted just a few hours before investors again lost their enthusiasm for Italian bonds, which they had gained after the resignation of Silvio Berlusconi, Italy's prime minister, and the nomination of Mario Monti in his place. At least it lasted long enough for Italy to sell €3 billion worth of 5-year bonds.
By Paul Quintaro
European bond auctions have contributed significantly to the movement of the markets in late 2011. On Thursday, the eurozone had yet another auction—this time in Italy. Commentators were mixed on whether or not they considered the results of the auction to be a success.
Sovereign bond yields in Spain and Italy have been climbing across the board, not just the longer durations. Please consider Italy pays dearly to issue one-year debt.
Italy sold €6.5bn of one-year debt at the highest cost since December, underscoring how one of the world’s biggest bond markets has been dragged back into Europe’s debt crisis.
So much for a quiet Christmas in the euro zone. The European debt crisis has been off boil for the past several months, but we all knew it was just a matter of time before the steam started rising again. The question was: What would turn up the heat? I would have put my money on Spain stumbling into a bailout program, but instead the spark has come from one of the key figures in the euro zone: Italian Prime Minister Mario Monti. The respected economist surprised financial markets on Saturday when he announced he would step down early, after the latest budget passed through parliament.
LONDON: European markets are braced for a wave of contagion from Greece on Monday, with heavy losses for southern European government bonds and regional stock markets expected as investors scramble to discount a possible "Grexit" that most had still assumed was unlikely as late as Friday afternoon. Greek Prime Minister Alexis Tsipras late on Friday surprised creditors by calling a snap referendum on what he said were the unacceptable terms offered to keep the country from bankruptcy.
Central bank money madness continues, with market participants expecting QE to begin in Europe.Would QE by the ECB spur European bank lending? Of course not. Banks do not lend from excess reserves. Banks lend (provided they are not capital impaired), when credit-worthy borrowers want credit and banks perceive risks worth lending.
Is it any wonder Mario Draghi didn't lift a quantitative-easing finger this week? Despite record unemployment, record (and disastrous youth unemployment), record suicide rates, record non-performing loans, and an inextricably-linked banking system facing $3 trillion in exposure to emerging markets... Spanish bond yields have collapsed to their lowest since 2006 (and Italian close behind).
Conditions at the EU summit are breaking down more than expected thanks to a position taken by Italian Prime Minister Mario Monti. Acting like a spoiled brat in a game of marbles, Monti refuses to let anyone else play unless he gets the big green marble he wants.
In less colorful terms, Bloomberg explains Monti Withholds EU Growth Pact Approval Unless He Gets Interest Rate Relief.
An official for the Bank of Italy says Bonds Bids, Offers Show Government Bond Market "Frozen".
Spreads between bid and ask government bond prices indicate markets are “frozen,” said Franco Passacantando, Bank of Italy’s Managing Director for Central Banking, Markets and Payment System in Milan today.