Tuesday, November 1, 2011

Mr. Bond (Market) is not impressed

Do I look impressed?
Even before the Greek referendum drama of the last 24 hours the bond market was not impressed with the latest Euro crisis 'solution'.

With Portugal, Ireland and Greece all tipping over the edge the next domino to watch is Italy.

Last week's news of a 50% 'voluntary' haircut for some Greek debt vaulted world equity and currency markets higher in a massive relief and short covering rally.  Mr. Bond market was not so impressed.

While both the absolute and relative yield of Italy's 10 year bond did fall a bit late last week on the news of the news of a new solution to the Greek debt situation announced Thursday morning by Friday afternoon Italian yields were creeping upwards again.
The German/Italian 10 year spread has blown out to new highs

Very close to breaking recent highs

The news of a Greek referendum on the latest round of negotiations shocked the markets and drove almost every risk asset downward with only the dollar and US Treasuries rallying. Italian yields are not looking good from a technical perspective and if they break 7% it could be the final domino to fall before the real euro crisis starts.  I'll be watching these metrics closely.


  1. u got it greg....

    as clumbersome as dealing w/17 parliaments is, i think this goes bad fast when it really goes.

    97% of CDS in eu wrote by US banks.....600 bil$?

    big blow up and mathmatics forces germans to aquiesce n print euro.

    EU recession exported here puts ben back in the 'helicopter' by feb.

  2. Italy just busted out to new highs. I guess the next time I go there I'll be paying in lira! :_)